The 2018-19 Budget: Resources and Environmental Protection

The 2018-19 Budget: Resources and Environmental Protection MAC TAYLOR LEGISLATIVE ANALYST FEBRUARY 14, 2018 analysis full gutter 2018-19 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Table of Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Overview of Governor’s Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Cross-Cutting Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Cap-and-Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Implementation of Natural Resources Bond (SB 5 .) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Ventura Training Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Summary of New Natural Resources Capital Outlay Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 California Conservation Corps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Expansion and Replacement of Residential Center Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Corpsmember Counseling, Case Management, and Transition Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Department of Fish and Wildlife . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Structural Deficit and Program Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Department of Parks and Recreation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Parks Funding Augmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Regional Infrastructure Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Department of Forestry and Fire Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Helicopter Fleet Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Department of Water Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Central Valley Flood Protection Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 State Lands Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Abandoned Oil and Gas Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Department of Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Well Statewide Tracking and Reporting (WellSTAR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Regulatory Field Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 California Energy Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 ZEV Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 State Water Resources Control Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Safe and Affordable Drinking Water Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Summary of Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 www.lao.ca.gov 1 analysis full gutter 2018-19 BUDGET 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 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 . Below, we summarize our major findings and recommendations . We provide a complete listing of our recommendations at the end of this report . Budget Provides $11 Billion for Programs The Governor’s budget for 2018-19 proposes a total of $10 .5 billion in expenditures from various sources—the General Fund, various special funds, bond funds, and federal funds for programs administered by the Natural Resources ($6 .3 billion) and Environmental Protection ($4 .2 billion) Agencies . (These figures include the administration’s proposed spending plans for cap-and-trade auction revenues and zero-emission vehicle (ZEV) infrastructure, which were released after the Governor’s budget .) The total funding level in 2018-19 reflects numerous changes compared to 2017-18, the most significant of which include (1) decreased bond spending of $3 billion, largely attributable to how prior-year bond expenditures are accounted for in the budget; (2) an increase of $989 million to fund projects authorized under Proposition 68, which will appear on the June 2018 statewide ballot; and (3) a net reduction of $587 million from the General Fund, in large part due to one-time funding provided in 2017-18 related to emergency firefighting and recovery costs . Cap-and-Trade Spending Plan Based on Reasonable Revenue Estimates The administration assumes $2 .4 billion in cap-and-trade auction revenue in 2018-19 . While the Governor’s revenue estimates are slightly lower than ours, we find them to fall within a reasonable range . Importantly, the Legislature’s recent extension of the cap-and-trade program through 2030 should result in additional revenue stability compared to prior years, though there continues to be potential for volatility . Based on the administration’s revenue estimate (and a projected year-end fund balance in 2017-18), the Governor proposes to spend $2 .8 billion from these funds in 2018-19 (including $1 .3 billion in discretionary spending) . The administration’s spending plan is similar to that adopted for the current year, though it includes a couple of new programs . The plan also proposes to make $232 million of the spending ongoing, mostly for light-duty ZEV rebates ($200 million) . As we have in our past reports on cap-and-trade, we recommend that the Legislature ensure that the spending plan is consistent with its highest priorities for this revenue, which could include greenhouse gas reductions, as well as such things as local air pollution reductions and/or climate adaptation . Governor Proposes New Programs Implementation of Resources Bond. The Governor’s 2018-19 budget provides $989 million from Proposition 68 (authorized by Chapter 852 of 2017 [SB 5, de León]) for various resources and environmental protection departments to administer resources-related programs, such as to expand and rehabilitate local parks and implement habitat restoration projects . With only a couple of exceptions, we find the administration’s funding plan for 2018-19 to be reasonable . However, we recommend small modifications to a couple of programs and that the administration report to the Legislature on a long-term funding plan . www.lao.ca.gov 3 analysis full gutter 2018-19 BUDGET Safe and Affordable Drinking Water Fund. The Governor proposes new charges on drinking water customers and certain agricultural entities to generate revenue to implement a new financial assistance program to address unsafe drinking water, particularly in small and disadvantaged communities . When fully implemented, these charges are expected to generate roughly $150 million annually . In this report, we identify three issues for the Legislature to consider as it deliberates this proposal: (1) consistency with the state’s human right to water policy, (2) uncertainty about the estimated revenues that would be generated by the proposal and the amount of funding needed to address the problem, and (3) consistency with the polluter pays principle . Ventura Training Camp. The proposed budget provides a total of $9 million from the General Fund to the Department of Forestry and Fire Protection, California Conservation Corps (CCC), and California Department of Corrections and Rehabilitation to create a new firefighting training program for 80 parolees . According to the administration, the primary purpose of the proposal is to reduce parolee recidivism . We recommend rejection of the proposal because there is little evidence that the plan would be a cost-effective way to achieve the stated goal . Instead, to the extent that the Legislature wanted to prioritize recidivism reduction programs, there are likely to be evidence-based programs that could serve many more individuals than what is proposed . Budget Includes Significant Program Expansions ZEV Infrastructure. The administration proposes to spend $235 million for the California Energy Commission—an increase of $199 million—in 2018-19 from various special funds to install electric vehicle chargers and hydrogen refueling stations throughout the state . The proposed spending plan would provide a total of $900 million over eight years and is intended to support the Governor’s goal of having 5 million ZEVs on California roads by 2030 . In considering the proposal, we recommend the Legislature direct the administration to provide additional information regarding how it developed its funding estimate, expected outcomes, risks, and efforts to coordinate across state programs . CCC Residential Facilities. The Governor’s budget plan proposes to expand CCC’s residential program over the coming years by building four new facilities . The budget includes $10 million from the General Fund for the acquisition and initial planning stages of these projects, which are estimated to cost a total of $185 million to complete . The decision about whether to take the initial steps towards a major expansion of CCC residential centers is ultimately a policy decision for the Legislature . We recommend the Legislature (1) wait for more information before approving funding for four new residential centers and (2) require CCC to provide reporting on corpsmember outcomes . Department of Fish and Wildlife (DFW) Funding Augmentation. The Governor proposes providing $51 million in new funding for DFW from three sources—tire recycling fees, vehicle registration and driver’s license fees, and the General Fund—to (1) address an ongoing operating shortfall ($20 million) and (2) expand several existing activities ($31 million) . We recommend the Legislature approve the additional funding to address the funding shortfall and provide some level of additional augmentation for activities that reflect legislative priorities . However, we recommend rejecting the proposed use of tire fees, approving only the level of Motor Vehicle Account funding that DFW can provide evidence would support vehicle-related workload, and relying on General Fund and fees for the remaining augmentations . Parks and Recreation Program Expansion. Under recent legislation, the State Parks and Recreation Fund (SPRF) will receive additional ongoing revenue—$79 million in 2018-19—from an increase in the state’s fuel taxes associated with off-highway vehicles . We find that the administration’s proposal to utilize these funds to (1) address the SPRF structural deficit and build a reserve, (2) increase service levels at state parks, and (3) continue certain activities begun in the current year is reasonable . However, we recommend that the Legislature identify park services and programs that it prioritizes and adopt a budget package that reflects those priorities . 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET OVERVIEW OF GOVERNOR’S BUDGET Total Proposed Spending of $10.5 Billion. The Half of Natural Resources Funding From General Governor’s budget for 2018-19 proposes a total of Fund. As shown in Figure 1, almost half—$3 billion— $10 .5 billion in expenditures from various sources— of the $6 .3 billion proposed for natural resources the General Fund, various special funds, bond funds, departments is from the General Fund . Another and federal funds—for programs administered $1 .8 billion (28 percent) is from special funds, and by the Natural Resources and Environmental $1 .2 billion (19 percent) is from bond funds . Of the Protection Agencies . This total includes $6 .3 billion total proposed spending, $4 .8 billion (76 percent) is to for natural resources departments and $4 .2 billion administer state programs, and most of the remainder for environmental protection departments . (These is for local assistance—generally grants to local amounts include the Governor’s spending plans for governments and nonprofits . cap-and-trade auction revenues and zero-emission Most of Environmental Protection Funding From vehicle (ZEV) infrastructure, which were released after— Special Funds. As shown in Figure 2 (see next page), and, therefore, not included in—the Governor’s budget .) a large majority of funding for environmental protection programs—$3 .6 billion (86 percent)—is from special Figure 1 Natural Resources Budget Summary (Dollars in Millions) Change From 2017-18 2016-17 2017-18 2018-19 Expenditures Actual Estimated Proposeda Amount Percent Total $5,039 $8,870 $6,266 -$2,603 -29% By Department Department of Forestry and Fire Protection $1,305 $2,181 $1,755 -$425 -20% Department of Parks and Recreation 480 868 1,093 224 26 General obligation bond debt service 1,025 984 993 9 1 Energy Commission 396 684 604 -79 -12 Department of Fish and Wildlife 431 438 529 92 21 Department of Water Resources 548 2,007 475 -1,532 -76 Wildlife Conservation Board 94 496 132 -364 -73 Department of Conservation 124 142 126 -16 -11 California Conservation Corps 94 123 125 2 2 Natural Resources Agency 312 333 123 -209 -63 State Lands Commission 32 45 98 53 117 Other resources programsb 199 570 212 -358 -63 By Funding Source General Fund $2,726 $3,586 $3,034 -$552 -15% Special funds 1,271 2,120 1,769 -351 -17 Bond funds 885 2,794 1,171 -1,623 -58 Federal funds 157 370 292 -77 -21 By Purpose State operations $4,174 $5,689 $4,774 -$915 -16% Local assistance 556 2,135 1,243 -892 -42 Capital outlay 309 1,046 250 -796 -76 a Includes Governor’s cap-and-trade and zero-emission vehicle infrastructure spending plans, which were not included in the Governor’s January 10 budget. b Includes state conservancies, Coastal Commission, and other departments. www.lao.ca.gov 5 analysis full gutter 2018-19 BUDGET funds . Only $84 million (2 percent) of environmental are assumed to be spent in the current year . The protection spending is proposed from the General 2017-18 bond amounts will be adjusted in the Fund . Over 60 percent of the proposed funding in the future based on actual expenditures . budget year is proposed for local assistance . • Special Fund Programs. The 2018-19 proposed Decrease From 2017-18 Largely Reflects spending level reflects reduced special fund Technical Changes. Proposed 2018-19 spending expenditures of about $1 billion in natural is significantly lower than estimated expenditures in resources and environmental protection 2017-18 for both natural resources and environmental departments . While about one-quarter of this protection departments ($2 .6 billion and $2 .1 billion, is related to lower year-over-year proposed respectively) . This includes significant spending spending from cap-and-trade auction revenues, decreases in spending from bond funds, special funds, most of the remaining reduction is related to and the General Fund . However, these changes largely one-time projects and technical adjustments . In reflect certain technical budget adjustments rather than particular, the current-year spending level for the significant programmatic changes . California Air Resources Board (CARB) includes $413 million for the construction of a new testing • Bonds From Prior Years. Proposed bond funds lab in Southern California . In addition, the budget are estimated to decline by a total of $3 billion, includes a decrease of about $170 million in slightly more than half associated with resources spending from two California Energy Commission programs . Much of this apparent budget-year (CEC) special funds—the Electric Program decrease is related to how bonds are accounted Investment Charge Fund and the Alternative for in the budget, making year-over-year and Renewable Fuel and Vehicle Technology comparisons difficult . Specifically, bond funds that Fund—which reflects how unspent prior-year were appropriated but not spent in prior years Figure 2 Environmental Protection Budget Summary (Dollars in Millions) Change From 2017-18 2016-17 2017-18 2018-19 Expenditures Actual Estimated Proposeda Amount Percent Total $3,716 $6,364 $4,244 -$2,120 -33% By Department Resources Recycling and Recovery $1,500 $1,646 $1,542 -$105 -6% Air Resources Board 700 1,730 1,208 -522 -30 State Water Resources Control Board 1,137 2,578 1,069 -1,509 -59 Department of Toxic Substances Control 247 263 279 16 6 Department of Pesticide Regulation 96 104 104 — — Other departmentsb 37 44 43 -1 -2 By Funding Source General Fund $96 $118 $84 -$35 -29% Special funds 2,907 4,312 3,630 -682 -16 Bond funds 427 1,564 161 -1,403 -90 Federal funds 286 370 370 — — By Purpose State operations $1,249 $1,655 $1,588 -$67 -4% Local assistance 2,467 4,555 2,656 -1,899 -42 Capital outlay — — — — — a Includes Governor’s cap-and-trade spending plan, which was not included in the Governor’s budget. b Includes the Environmental Protection Agency, Office of Environmental Health Hazard Assessment, and general obligation bond debt service. 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET appropriations are carried over into the current the ongoing effects of the state’s recent drought year . ($66 million) . • One-Time General Fund Provided in 2017-18. Budget Includes Some Significant Spending General Fund expenditures are proposed to Increases. While overall spending is proposed to decrease by a total of $587 million for natural decline for resources and environmental protection resources and environmental protection departments in 2018-19, the Governor’s budget departments . This is primarily attributable to includes a number of major proposals to increase one-time funding provided in 2017-18 related spending and implement significant policy changes . We to (1) unanticipated firefighting expenditures briefly describe several of these proposals in the box on for the California Department of Forestry and pages 8 and 9 . This report includes in-depth reviews on Fire Protection ($469 million) and (2) one-time each of these proposals . spending by several departments to address CROSS-CUTTING ISSUES CAP-AND-TRADE CARB to implement a market-based mechanism, such as cap-and-trade, through 2020 . Chapter 135 of LAO Bottom Line. We recommend the Legislature 2017 (AB 398, E . Garcia) extended CARB’s authority ensure budget allocations for cap-and-trade auction to operate cap-and-trade from 2020 to 2030 and revenues and related statutory direction align with the provided additional direction regarding certain design Legislature’s highest priorities . To help the Legislature features of the post-2020 program . We describe evaluate the degree to which the Governor’s proposal AB 398 changes and highlight key issues for legislative achieves legislative goals, we recommend the oversight in our December 2017 report Cap-and-Trade Legislature direct the administration to provide certain Extension: Issues for Legislative Oversight . information, including past outcomes and estimated Cap-and-Trade Designed to Limit Emissions at future outcomes . We also recommend the Legislature Lowest Cost. The cap-and-trade regulation places a consider alternative strategies to ensure fund solvency “cap” on aggregate GHG emissions from large GHG as more information about auction revenue becomes emitters, such as large industrial facilities, electricity available over the next few months . generators and importers, and transportation fuel suppliers . Capped sources of emissions are responsible Background for roughly 80 percent of the state’s GHGs . To State Law Establishes 2020 and 2030 GHG implement the program, CARB issues a limited number Limits. The Global Warming Solutions Act of 2006 of allowances, and each allowance is essentially a (Chapter 488 [AB 32, Núñez/Pavley]) established permit to emit one ton of carbon dioxide equivalent . the goal of limiting greenhouse gas (GHG) emissions Entities can also “trade” (buy and sell on the open statewide to 1990 levels by 2020 . Subsequently, market) the allowances in order to obtain enough to Chapter 249 of 2016 (SB 32, Pavley) established an cover their total emissions . additional GHG target of reducing emissions by at From a GHG emissions perspective, the primary least 40 percent below 1990 levels by 2030 . CARB is advantage of a cap-and-trade regulation is that total required to develop a Scoping Plan, which identifies the GHG emissions from the capped sector do not exceed mix of policies that will be used to achieve the emission the number of allowances issued . Some entities must targets, and update the plan periodically . reduce their emissions if the total number of allowances AB 398 Extended Authority to Implement available is less than the number of emissions that Cap-and-Trade From 2020 to 2030. One policy would otherwise occur . From an economic perspective, the state uses to help ensure it meets these GHG the primary advantage of a cap-and-trade program goals is cap-and-trade . Assembly Bill 32 authorized is that the market sets a price for GHG emissions, www.lao.ca.gov 7 analysis full gutter 2018-19 BUDGET which creates a financial incentive for businesses companies move their production of goods out of and households to implement the least costly California in response to higher costs associated with emission reduction activities . (For more details on how the cap-and-trade regulation . The allowances offered at cap-and-trade works, see our February 2017 report auctions are sold for a minimum price—set at $14 .53 in The 2017-18 Budget: Cap-and-Trade .) 2018—which increases annually at 5 percent plus Some Allowances Auctioned, Some Given Away inflation . for Free. About half of the allowances are allocated State Revenue Generally Used to Facilitate GHG for free to certain industries, and most of the remaining Reductions. The state collected about $6 .5 billion in allowances are sold by the state at quarterly auctions . cap-and-trade auction revenue from 2012 through Of the allowances given away for free, most are 2017 . Money generated from the sale of allowances given to utilities and natural gas suppliers . CARB also is deposited in the Greenhouse Gas Reduction Fund allocates free allowances to certain energy-intensive, (GGRF) . Various statutes enacted over the last several trade-exposed industries based on how much of their years direct the use of auction revenue . For example, goods (not GHG emissions) they produce in California . Chapter 807 of 2012 (AB 1532, Perez) requires auction This strategy is intended to minimize the extent to revenues be used to further the purposes of AB 32 . which emissions are shifted out of state because Under state law, revenues must be used to facilitate Major Spending Proposals for Natural Resources and Environmental Protection The Governor’s proposed budget for 2018-19 includes several significant spending and policy proposals . These include the following: Cap-and-Trade ($1.3 Billion). At the annual State of the State address, the Governor released a $1 .3 billion spending plan for the use of discretionary cap-and-trade auction revenues in 2018-19 . It proposes to fund various programs, including ones to reduce local air pollution ($250 million); provide consumer rebates for low-emission vehicles ($200 million); promote healthy forests ($160 million); and reduce emissions from trucks, buses, and equipment ($160 million) . Resources Bond ($1 Billion). The budget assumes that voters approve a bond—Chapter 852 of 2017 (SB 5, de León)—on the June 2018 ballot that would provide $4 .1 billion for various natural resources-related projects, such as to restore natural habitats, expand and rehabilitate state and local parks, and improve flood protection . The Governor’s 2018-19 budget provides $989 million from this bond for 17 natural resources and environmental protection departments and conservancies, and an additional $31 million for the Department of Food and Agriculture (CDFA) . Zero-Emission Vehicle (ZEV) Infrastructure ($235 Million). The administration proposes to spend $235 million for the California Energy Commission—an increase of $199 million—in the budget year from various special funds to install electric vehicle chargers and hydrogen refueling stations throughout the state . This is intended to support the Governor’s goal of having 5 million ZEVs on California roads by 2030 . CalFire Helicopter Fleet Replacement ($98 Million). The budget includes General Fund support for the California Department of Forestry and Fire Protection (CalFire) to purchase four additional helicopters equipped to fight forest fires . The department has begun the process of replacing its aging helicopter fleet and currently plans to purchase its first new helicopter in 2018 . Parks and Recreation Program Expansion ($79 Million). Under Chapter 5 of 2017 (SB 1, Beall), the Department of Parks and Recreation will receive additional ongoing revenue from the increase in the state’s fuel taxes associated with off-highway vehicles . As in the current year, a portion of this revenue will be used to address a historic shortfall in the State Parks and Recreation Fund and build a reserve 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET GHG emission reductions in California and, to the • Backfill Revenue Loss From Expanded extent feasible, achieve other goals such as improving Manufacturing Sales Tax Exemption. local air quality and lessening the effects of climate Assembly Bill 398 extended the sunset date change on the state (also known as climate adaptation) . from December 31, 2022 to July 1, 2030 for Current Law Allocates Over 60 Percent of Annual a partial sales tax exemption for certain types Revenue to Certain Programs. Under current law, manufacturing and research and development annual revenue is continuously appropriated as follows: equipment (hereafter referred to as the (1) 25 percent for the state’s high-speed rail project, “manufacturing exemption”) . It also expanded the (2) 20 percent for affordable housing and sustainable manufacturing exemption to include equipment communities grants (with at least half of this amount for other types of activities, such as certain for affordable housing), (3) 10 percent for intercity electric power generation and agricultural rail capital projects, and (4) 5 percent for low carbon processing, through July 1, 2030 . The bill, as transit operations . In addition, AB 398 and subsequent amended by subsequent budget legislation, budget legislation created the following ongoing GGRF also directs the Department of Finance (DOF) allocations: to annually transfer cap-and-trade revenue to the General Fund to backfill revenue losses associated with these changes . ($34 million) . In addition, the Governor’s 2018-19 budget proposes to use $45 million in revenue towards facility improvements and program expansion, including adding 364 positions . Oil and Gas Well Plug and Abandonment ($58 Million). The budget includes $58 million from the General Fund in 2018-19 (and an additional $51 million over the two subsequent years) for the State Lands Commission to permanently secure offshore oil wells and related facilities at two sites in Southern California . Fish and Wildlife Funding Augmentation ($51 Million). The Governor proposes to use $26 million from the Tire Recycling Management Fund, $18 million from the Motor Vehicle Account, and $7 million from the General Fund to (1) address a $20 million structural deficit in the Fish and Game Preservation Fund and (2) expand Department of Fish and Wildlife programs and activities, including improved management of marine fisheries and enhanced efforts to monitor and restore at-risk species . Conservation Corps Facility Expansion ($10 Million). The Governor’s budget plan proposes to expand the California Conservation Corps’ residential program over the coming years by building four new facilities . The budget includes $10 million from the General Fund for the acquisition and initial planning stages of these projects, which are estimated to cost a total of $185 million to complete . Ventura Training Center ($7 Million). The budget provides a total of $7 million in 2018-19 to CalFire and the California Conservation Corps (and an additional $2 million for the California Department of Corrections and Rehabilitation) to create an 18-month firefighting training and certification program for 80 parolees . This total includes $1 million for the preliminary plans phase of a $19 million project to complete facility improvements at the existing Ventura Conservation Camp . Safe and Affordable Drinking Water ($5 Million). The Governor proposes to increase charges on fertilizer, dairies, caged animals, and drinking water customers in order to generate additional revenue to implement a new financial assistance program to provide clean drinking water targeted to disadvantaged communities . When fully implemented, these charges are expected to generate roughly $150 million annually . The Governor’s budget includes a transfer from the Underground Storage Tank Cleanup Fund to support startup activities by the State Water Resources Control Board ($3 million) and CDFA ($1 million) . www.lao.ca.gov 9 analysis full gutter 2018-19 BUDGET • Intent to Backfill Revenue Loss From appropriation percentages would be applied to about Suspension of State Fire Prevention Fee. $2 .3 billion—$2 .4 billion in annual revenue minus Assembly Bill 398 suspended the state fire $117 million for AB 398-related actions . prevention fee from July 1, 2017 through 2030 . Proposal Similar to 2017-18 Spending Plan. As The fee was previously imposed on landowners illustrated in Figure 3, the 2018-19 proposal would fund in State Responsibility Areas (SRAs), and the many of the same programs that received funding in the money was used to fund state fire prevention 2017-18 budget . The most significant differences in the activities in these areas . The bill also expressed 2018-19 proposal include: the Legislature’s intent to use cap-and-trade • Less Funding for Freight and Heavy-Duty revenue to backfill the lost fee revenue and Vehicle Incentives. The proposal includes continue fire prevention activities . Subsequently, $160 million for freight and heavy-duty vehicles, the 2017-18 budget provided $80 million from the or half of what was provided in 2017-18 . This GGRF to backfill lost SRA fee revenue . represents the largest year-over-year decrease in Past budgets have also allocated about $30 million funding for any program . ongoing to various agencies—primarily CARB—to • Provides $20 Million for Integrated Climate administer GGRF funds and other air quality activities . Investment Program. The plan provides $20 million to the Governor’s Office of Business Governor’s Proposal and Economic Development for the Integrated The administration released a summary of its Climate Investment Program, which will provide cap-and-trade expenditure plan on January 26, 2018— funding through the existing California Lending roughly two weeks after the release of the Governor’s for Energy and Environmental Needs Center . This budget . Based on the information available at the time program provides financing for private sector this report was completed, we describe the Governor’s infrastructure projects intended to reduce GHG proposal below . emission and improve climate resilience, such as $2.8 Billion Cap-and-Trade Expenditure Plan. energy efficiency and water conservation . The As shown in Figure 3, the Governor proposes a administration also intends to explore ways to $2 .8 billion cap-and-trade expenditure plan for develop new financing mechanisms for similar 2018-19 . This plan includes: (1) $1 .4 billion in types of projects . continuous appropriations, (2) $150 million in other • Expands and Modifies Climate Change and existing spending commitments, and (3) $1 .3 billion in Energy Research Program. The proposal new spending (also known as discretionary spending) . includes $35 million for the Office of Planning The plan assumes $2 .7 billion in auction revenue in and Research to provide grants for research and 2017-18 and $2 .4 billion in 2018-19 . The $370 million development of innovative GHG reduction and difference between the proposed expenditures climate adaptation technologies . This amount is ($2 .8 billion) and estimated revenue ($2 .4 billion) in $24 million more than was provided in 2017-18 . 2018-19 would largely be paid from the projected fund In addition, the administration intends to focus on balance at the end of 2017-18 . technologies that are in earlier stages of research Similar to the current year, the administration and development . takes certain allocations “off the top” before • Backfills Certain Special Funds That Are Used determining continuous appropriations . Specifically, for Other Activities. The plan includes $25 million the plan allocates $117 million to AB 398-related for CEC to support low-carbon fuel production, actions—$28 million to backfill the SRA fee suspension which is currently funded through the Alternative and an estimated $89 million transfer to the General and Renewable Fuel Vehicle Technology Fund Fund to backfill the manufacturing exemption . (A (ARFVTF) . It also provides $26 million to CARB for $50 million fund balance in the SRA Fire Prevention the Carl Moyer Program (included as part of the Fund would cover the additional SRA costs on a grants for local air pollution reductions), which is one-time basis .) The 60 percent total continuous currently funded through the Air Pollution Control 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Fund (APCF) . These allocations do not reflect previously supported these activities because a net change in spending for these activities . the administration proposes to redirect these Instead, they backfill the special funds that special funds to other purposes . Specifically, Figure 3 Cap-and-Trade Expenditure Plan (In Millions) Program Department/Agency 2017-18 Proposed 2018-19 Continuous Appropriationsa $1,572 $1,369 High-speed rail High-Speed Rail Authority $655 $571 Affordable housing and sustainable communities Strategic Growth Council 524 456 Transit and intercity rail capital Transportation Agency 262 228 Transit operations Department of Transportation 131 114 Other Existing Spending Commitments $153 $152 Manufacturing sales tax exemption backfill N/A $43 $89 Various administrative costs Various agencies 30 35 SRA fee backfill CalFire/Conservation Corps 80 28 Discretionary Spending $1,456 $1,250 Mobile Source Emissions Local air district programs to reduce air pollution Air Resources Board $250 $250 Clean Vehicle Rebate Project Air Resources Board 140 175 Freight and heavy-duty vehicle incentives Air Resources Board 320 160 Low-income, light-duty vehicles and school buses Air Resources Board 100 100 Low-carbon fuel production Energy Commission — 25 Forestry Forest health and fire prevention CalFire 200 160 Local fire prevention grants Office of Emergency Services 25 25 Urban forestry CalFire 20 — Agriculture Agricultural equipment Air Resources Board 85 102 Methane reductions from dairies Food and Agriculture 99 99 Incentives for food processors Energy Commission 60 34 Healthy Soils Food and Agriculture — 5 Agricultural renewable energy Energy Commission 6 4 Other programs Climate and energy research Office of Planning and Research 11 35 Transformative Climate Communities Office of Planning and Research 10 25 Waste diversion CalRecycle 40 20 Integrated Climate Investment Program Go-Biz — 20 Energy Corps Conservation Corps — 6 Technical assistance to community groups Air Resources Board 5 5 Urban greening Natural Resources Agency 26 — Natural lands climate adaptation Wildlife Conservation Board 20 — Low income weatherization and solar Community Services and Development 18 — Wetland restoration Department of Fish and Wildlife 15 — Coastal climate adaptation Various agencies 6 — Totals $3,181 $2,771 a Continuous appropriations based on Governor’s revenue estimates of $2.7 billion in 2017-18 and $2.4 billion in 2018-19. SRA = State Responsibility Area; CalFire = California Department of Forestry and Fire Protection; CalRecycle = California Department of Resources Recycling and Recovery; and Go-Biz = Governor’s Office of Business and Economic Development. www.lao.ca.gov 11 analysis full gutter 2018-19 BUDGET the administration proposes to redirect ARFVTF Notably, there was a substantial decrease in revenue resources to fund additional ZEV infrastructure collected in a few auctions in 2016 and early 2017 . This and APCF resources to address the structural decrease in revenue was primarily due to a decrease shortfall in the Fish and Game Preservation Fund . in the number of allowances purchased at auctions, (We discuss each of these proposals elsewhere in rather than a significant decrease in prices . Several this report .) factors likely contributed to this decrease in the number of allowances purchased, including (1) an oversupply Includes $232 Million in New Multiyear Funding of allowances in the market because emissions were Commitments. Most of the proposed discretionary below the cap, (2) uncertainty related to a court case expenditures are one time, but some programs challenging the legality of state-auctioned allowances, would receive multiyear funding . These multiyear and (3) uncertainty about CARB’s legal authority to programs are: (1) $200 million annually over eight continue cap-and-trade beyond 2020 . years to continue light-duty ZEV rebates, including Two of the factors contributing to the low revenue $175 million for the Clean Vehicle Rebate Project and were addressed last year . First, an appeals court ruled $25 million for incentives for light-duty vehicles for that the auctions were legal, and the state Supreme low-income consumers; (2) about $26 million for the Court declined to hear an appeal of that ruling . Second, Carl Moyer Program backfill through at least 2023; and the Legislature passed AB 398, extending CARB’s legal (3) $6 million annually to the California Conservation authority to continue cap-and-trade through 2030 . Corps (CCC) to continue energy efficiency activities Both actions provided greater legal certainty about the in the Energy Corps program . The Proposition 39 future of the program, which tends to increase demand (2012) revenue transfers to the CCC for the Energy for allowances . As a result, although there continues Corps program expire in 2017-18 . to be revenue uncertainty and potential for volatility Governor’s Plan Spends Almost All of Estimated (discussed below), it is unlikely that the state will have Available Funds. The Governor’s plan spends nearly consecutive auctions with little or no revenue over the all of the funds it estimates will be available through next few years . 2018-19, leaving a fund balance of about $20 million Governor’s Revenue Estimates Slightly Lower at the end of the budget year . To address the risk that Than Ours, but Still Reasonable. The administration’s actual revenue is lower than estimated and ensure fund solvency, the administration proposes budget bill language that Figure 4 gives DOF authority to proportionally Cap-and-Trade Auction Revenue Has Been Volatile reduce most 2018-19 discretionary (In Millions) allocations if auction revenues are not sufficient . The proposal also $900 specifies that DOF could not reduce 800 allocations to programs administered by CARB, healthy forests, and the 700 Energy Corps program . 600 500 LAO Assessment: 400 Revenue Projections 300 Auction Revenue Has Been 200 Volatile, but Recent Actions Likely Increase Stability. Figure 4 shows 100 the volatility in quarterly auction Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov revenue over the last couple of years 15 15 15 15 16 16 16 16 17 17 17 17 since fuel suppliers were required to obtain allowances in 2015 . 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET revenue estimates—$2 .7 billion in 2017-18 and • Future CARB Regulatory Changes. $2 .4 billion in 2018-19—are slightly lower than what we Assembly Bill 398 directed CARB to make, or consider to be most likely, but still within a reasonable at least consider, a variety of changes to the range . We estimate annual state revenue from auctions cap-and-trade program, including potential will be about $3 billion in both 2017-18 and 2018-19 . changes to banking rules and the post-2020 The first two auctions in 2017-18 generated a total supply of allowances . Over the next year or so, of $1 .5 billion . At these auctions, all allowances were CARB will be implementing these changes . These sold at prices above the minimum price . Our revenue implementation decisions could have significant estimates assume all allowances continue to sell and effects on allowance prices and auction revenue . allowance prices remain slightly above the minimum price through 2018-19 . LAO Assessment: There are, however, a wide variety of factors—both Short- and Long-Term Spending Priorities long and short term—that contribute to significant Proposal to Ensure Fund Solvency Prioritizes revenue uncertainty, which could be higher or lower than Certain Programs. Given the revenue uncertainty and projected . Over the next decade, economic conditions the small projected fund balance at the end of 2018-19, and technological advancements will have major effects there is a risk that the proposal would allocate more on market prices . In the next couple of years, additional than the available funding if revenues are lower than factors contributing to uncertainty include: the administration’s estimates . As discussed above, if • Allowance Banking. Demand for allowances auction revenues are not sufficient to cover program and prices will depend on the extent to which costs, the Governor’s plan would give DOF authority entities purchase allowances at auctions with the to proportionally reduce allocations for all discretionary intention of holding onto them for future years programs except programs administered by CARB, when prices are higher (also known as banking) . healthy forests, and the Energy Corps program . The amount of banking will depend on factors Moreover, this effectively prioritizes funding for these such as market expectations about future price programs over other discretionary programs if revenue increases . The ultimate effects of different levels is lower than expected . The Legislature will want to of banking on state revenue are unclear . For ensure that any such prioritization is consistent with its example, less banking would reduce demand and priorities . prices for allowances in the short term, but could Plan Increases Long-Term Spending increase future prices . Commitments. The Governor’s proposal includes • Return of Allowances That Were Unsold in $232 million in new multiyear spending commitments . Previous Auctions. Allowances that go unsold The Legislature will want to ensure any long-term at auctions are reoffered (in limited amounts) spending commitments are consistent with its once prices exceed the minimum price for two long-term priorities . Figure 5 (see next page) consecutive auctions . For example, the November shows the total spending commitments beyond the 2017 auction included the sale of over 13 million 2018-19 budget (out-year spending) included in the state allowances that previously went unsold in administration’s proposal, assuming $2 .4 billion in 2016 . If auction prices remain above the floor (as annual revenue . Under this scenario, about $1 .8 billion our revenue estimates assume), a similar amount (over 70 percent) of annual revenue would be of previously unsold allowances will continue to committed in future years, largely for the continuous be offered in the next several auctions . However, appropriations, commitments related to AB 398, and if auction prices drop to the floor, the number of rebates for ZEVs . This would leave roughly $600 million allowances offered over the next several auctions (less than 30 percent) for other program expenditures . will decrease . Consequently, small differences in We also note that this scenario assumes the Legislature auction prices could affect short-term revenue does not make any additional out-year funding by hundreds of millions of dollars because of the commitments in the budget . difference in the number of allowances auctioned . www.lao.ca.gov 13 analysis full gutter 2018-19 BUDGET Figure 5 Plan Increases Out-Year Spending Commitments (In Millions) Program Annual Out-Year Spending Time Period Continuous Appropriationsa $1,339 Ongoing Other Existing Commitments 199 SRA fee backfill 80 Through 2030 Manufacturing sales tax exemption backfill 89b Through 2029-30 Various administrative costs 30 Through 2030 New Commitments 232 Clean Vehicle Rebate Project and other ZEV rebates 200 Through 2025-26 Carl Moyer Program backfill 26 Through 2023c Energy Corps 6 Through 2030 Total $1,770 a Assumes $2.4 billion in annual revenue. b Assumes amount of future transfers consistent with Governor’s 2018-19 estimate. Under current law, amount increases to low hundreds of millions of dollars in 2023. c Under current law, the revenue for this program expires at the end of 2023. SRA = State Responsibility Area and ZEV = zero-emission vehicle. LAO Assessment: Structure of Spending Plan Largely Depends Allocation Issues to Consider on Legislative Priorities. The Legislature will want to consider how it could allocate revenue to achieve As the Legislature considers how to spend its highest priorities within current statutory and GGRF revenues, it is important to keep in mind that constitutional limitations . To the extent that the the primary goal of a cap-and-trade program is to Legislature continues to focus spending on programs provide an economy-wide incentive for businesses primarily aimed at GHG reduction activities, spending and consumers to undertake cost-effective emission options should be evaluated in the context of how they reductions . This is accomplished through establishing interact with the cap-and-trade regulation, as discussed a price on emissions, not spending auction revenue . above . Potential spending strategies could include: From an economic perspective, auction revenues are often thought of as a by-product of cap-and-trade • Reductions Outside of Cap. The Legislature programs, not the goal of the program . Furthermore, could target funds to achieve GHG reductions spending all auction revenue on GHG reductions is from uncapped sources . The Governor’s plan likely not necessary to meet the state’s GHG goals and includes several components that would provide likely increases the overall costs of emission reduction funding for GHG reductions outside of the cap, activities . This is because, if the cap is effectively limiting including about $100 million for methane emission emissions, spending on GHG reductions from major reductions from dairies and $160 million for forest sources of emissions interacts with the cap-and-trade health activities . The Legislature could provide regulation in a way that changes the types of emission more funding to these or other programs that reduction activities undertaken, but not the overall level target uncapped emissions . of emission reductions . In most cases, the different mix • Targeting Other Market Failures Not Addressed of reductions would be more costly overall . (For more by Cap-and-Trade. The Legislature could use details, see our 2016 report Cap-and-Trade Revenue: funds to address other “market failures” that Strategies to Promote Legislative Priorities .) the cap-and-trade regulation does not address . Below, we discuss several issues for the Legislature For example, cap-and-trade might not provide to consider when determining how to allocate adequate incentive in the private sector for research cap-and-trade expenditures . and development activities on GHG-reducing 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET technologies because the benefits of such activities be difficult to accurately estimate emission reductions can “spill over” to other companies that can profit from each program, and the amount and accuracy of by implementing developments made by others in information provided in past March reports has been their own products . As a result, private companies limited . We discuss some of these limitations in our do not always invest in research and development April 2016 web post Administration’s Cap-and-Trade activities at a level that is socially optimal . Thus, Report Provides New Information, Raises Issues there could be a rationale for providing some for Consideration . The administration has recently additional state funding in this area . The budget undertaken efforts to improve its estimates of program includes $35 million for a modified research and outcomes, such as by adding estimates of co-benefits . development program intended to address these However, these estimates were not included in the issues . 2017 report . To the extent more complete and reliable estimates are included in the upcoming March report, When evaluating programs that are primarily it could enhance the quality of information available to intended to reduce GHGs, the Legislature will make legislative spending decisions . also want to consider the degree to which these Given the later release of the cap-and-trade programs are likely to encourage reductions in other spending plan and some of the associated details, our jurisdictions . This could be done by either encouraging office has had a limited amount of time to review all of technological advancements that help reduce GHGs or the proposals . However, some of the key questions that demonstrating cost-effective climate policies that can we think the Legislature should consider as it reviews be adopted elsewhere . the plan include: The Legislature might also want to consider how the funds could be used to achieve other high-priority • Questions on Expected Outcomes. What policy goals related to climate change . For example, outcomes is each program expected to climate adaptation is identified as a priority under accomplish? To what extent can each program current law . The Legislature could consider allocating be expected to reduce GHG emissions and meet a greater share of funding to activities intended to help other legislative goals, such as local air pollution the state manage the effects of climate change . The reductions? How cost-effective are the proposed Governor’s plan includes some funding intended to options at meeting these objectives? manage the effects of climate change as well as reduce • Questions for Programs That Received GHGs, including $185 million for forest management Funding in Past Years. What outcomes has and fire prevention . Similarly, current law identifies the the program accomplished so far? Are there reduction of local air pollution as a priority . As such, the enough cost-effective projects remaining to Legislature could consider providing a greater share of justify continuing expenditures? For example, funding to programs intended to accomplish this goal . the budget proposes $99 million to reduce The Governor’s plan includes $160 million for freight methane emissions from dairies, which would and heavy-duty vehicle incentives and $250 million for bring the total amount provided in recent years local air district programs to reduce local air pollution . to $260 million . Are there enough cost-effective These programs are targeted at some of the most methane reduction projects remaining that these harmful local air pollutants, such as diesel particulate funds could support in 2018-19? matter from heavy-duty engines . • Questions for New Programs. How will Key Questions to Consider When Evaluating projects be selected? Are criteria for selecting Different Programs. After the Legislature identifies projects consistent with legislative priorities? For its highest priorities, it will want to identify which example, how will the most valuable research and programs are likely to achieve those goals effectively development projects be identified in the climate and how those programs should be structured . To help research program? accomplish this, the administration is required to release Current Statutory Direction Might Not Align With an annual March report with estimated GHG reductions Some Program Goals. The current GGRF statutory from programs that have been funded to date . It can direction, guidance, and reporting requirements largely www.lao.ca.gov 15 analysis full gutter 2018-19 BUDGET prioritize GHG reductions . This could be a problem if Governor’s estimates (or lower), the spending plan would the primary goal for some of the programs is something leave almost no fund balance at the end of 2018-19 . other than GHG reductions . If statutory direction is In this scenario, the Legislature might want to consider not aligned with the primary goals of the program, the options to mitigate against downside revenue risk . For programs are less likely to be structured in a way that example, the Legislature could allocate less money achieve the Legislature’s goals most effectively . For in 2018-19 . Alternatively, it could adopt an approach example, if the primary goal of a program is to achieve similar to the one proposed by the administration, local air pollutant reductions, but the statutory direction which designates that certain programs are guaranteed emphasizes GHG reductions, it is possible the program funding, and the amount provided to the remaining will be implemented in ways that do not achieve programs would depend on whether sufficient revenue the greatest amount of local air pollutant reductions is collected . If the Legislature adopts this strategy, it possible . will want to ensure that guaranteed funding goes to programs that are the highest legislative priorities . Recommendations Ensure Allocations and Legislative Direction IMPLEMENTATION OF NATURAL Are Consistent With Legislative Priorities. We RESOURCES BOND (SB 5) recommend the Legislature allocate funds to programs that are likely to achieve its highest priority policy goals, LAO Bottom Line. The administration’s which could include GHG reductions, as well as such 2018-19 budget plan includes $1 billion in things as local air pollution reductions and/or climate appropriations for a number of departments to adaptation . The Legislature will also want to ensure begin implementing SB 5, a resources-related the statutory direction for GGRF spending aligns with bond measure—Proposition 68—that will be on the primary policy goals of each program . This would the June 2018 statewide ballot . Overall, we find the help ensure that departments structure programs and administration’s spending plan to be reasonable . prioritize projects that help achieve the Legislature’s However, we recommend two modifications: goals most effectively . (1) specifying in budget bill language which flood management projects the Department of Water Direct Administration to Report on Key Program Resources (DWR) intends to undertake and (2) utilizing Information. We recommend the Legislature direct Proposition 1 funding in place of SB 5 funding for two the administration to report at budget hearings on a Department of Fish and Wildlife (DFW) programs . In variety of issues, including (1) the expected outcomes addition, we recommend that the administration report associated with each program that would receive at budget hearings on its longer-term plan to allocate funding in the budget, such as estimated overall costs SB 5 funds . Finally, we recommend that the Legislature and benefits; (2) the outcomes that existing programs consider developing an alternative funding plan for have accomplished so far; and (3) how new programs high-priority projects and programs in the event that will be structured, including the process and criteria that SB 5 should not be approved by voters . will be used to select projects . This information would help the Legislature evaluate the extent to which the Background plan achieves its goals effectively . Consider Options to Ensure Solvency as Legislature Placed $4.1 Billion Bond Measure on Additional Revenue Information Becomes Available. June 2018 Ballot. In the fall of 2017, the Legislature We recommend the Legislature re-evaluate the overall passed and the Governor signed SB 5 (Chapter 852, amount of cap-and-trade allocations over the next few de León) . This bill places a natural resources-related months as more information about auction revenue bond—Proposition 68—on the June 2018 statewide becomes available . Although 2018-19 revenue will ballot . If approved by voters, the bond measure continue to be subject to uncertainty, the Legislature would authorize the state to sell a total of $4 .1 billion will have additional information about 2017-18 revenue in general obligation bonds for specified purposes, and it could adjust its spending plan accordingly . If which are summarized in Figure 6 . (This total includes revenue expectations at that time are consistent with the $4 billion in new bonds and a redirection of $100 million 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET in unsold bonds that voters previously Figure 6 approved for specific natural Uses of Proposition 68 Bond Funds resources uses .) SB 5 Includes Various (In Millions) Administrative Provisions. The Natural Resource Conservation and Resiliency $1,547 bond measure includes a number State conservancies and wildlife conservation 767 of requirements designed to control Climate preparedness and habitat resiliency 443 how these funds are administered Ocean and coastal protection 175 and overseen by state agencies . The River and waterway improvements 162 measure requires regular reporting Parks and Recreation $1,283 of how the bond funds have been Parks in neighborhoods with few parks 725 spent, as well as authorizes financial Local and regional parks 285 audits by state oversight agencies . State park restoration, preservation, and protection 218 The measure also limits to 5 percent Trails, greenways, and rural recreation 55 how much of the funding can be Water $1,270 used for state administrative costs . Flood protection 550 The measure also includes several Groundwater recharge and cleanup 370 provisions designed to assist Safe drinking water 250 “disadvantaged communities” Water recycling 100 (with median incomes less than Total $4,100 80 percent of the statewide average) and “severely disadvantaged $30 million for the restoration of the Salton Sea . Less communities” (with median incomes than 5 percent of the proposed funding is for state less than 60 percent of the statewide average) . For operations, which includes administrative support, example, it requires that for each use specified in the planning activities, and some project work to be bond, at least 15 percent of the funds be spent to implemented by state agencies, such as a redwood assist severely disadvantaged communities . reforestation project at Redwood National and State Governor’s Proposal Parks on the northern coast of the state . As shown in Figure 8 (see page 19) the administration’s spending Budget Includes $1 Billion From SB 5. The plan would include 79 .5 new positions to implement administration proposes to appropriate about SB 5 (including 9 positions at CDFA) . one-quarter of the bond in the budget year . Specifically, this includes $989 million for 17 natural resources and LAO Assessment environmental protection departments and $31 million Reasonable Approach to Implementing First Year for the California Department of Food and Agriculture of Funding. Overall, we find that the administration’s (CDFA) . Figure 7 (see next page) shows expenditures SB 5 funding plan for 2018-19 is reasonable . While for each department and program proposed for SB 5 departments are proposing to spend hundreds of funding in 2018-19 . (The administration states that it millions of dollars in the budget year, they generally would request removal of the budget appropriations in have targeted this spending towards programs that the event that voters do not approve Proposition 68 .) are likely to be successfully implemented this first year . Primarily Funds New Projects, but Also This includes focusing on grant programs for which Some Administrative Costs. More than $8 out of administering departments are confident that they can every $10 proposed in 2018-19 would be for local develop grant guidelines and make awards before assistance—typically allocated through a competitive the end of the budget year, such as when the funding grant process to local governments, nonprofits, and supports existing or recently active grant programs . other organizations to implement projects . In addition, In addition, some spending is targeted towards more $121 million is for state capital outlay projects, narrowly defined state purposes, such as implementing including $94 million for flood protection projects and www.lao.ca.gov 17 analysis full gutter 2018-19 BUDGET Figure 7 SB 5 Spending by Department (In Millions) 2018-19 Amount Department and Purpose Local Assistance Capital Outlay State Operations Total Parks and Recreation $460.3 — $7.3 $467.6 Parks in neighborhoods with few parks 460.3 — 3.1 463.4 State park maintenance planning and restoration — — 4.2 4.2 Water Resources $46.3 $117.9 $26.6 $190.8 Flood protection — 94.0 4.5 98.5 Groundwater recharge 46.3 — 15.5 61.8 Salton Sea restoration — 23.9 6.1 30.0 Urban streams restoration — — 0.5 0.5 Water Resources Control Board $145.9 — $1.3 $147.3 Groundwater recharge and cleanup 83.7 — 0.3 84.0 Safe drinking water 62.3 — 1.0 63.3 Natural Resources Agency $56.5 — $0.7 $57.2 River recreation and parkways 38.0 — 0.6 38.6 Multibenefit green infrastructure 18.5 — 0.1 18.6 Food and Agriculture $29.6 — $1.4 $31.0 Water efficiency and enhancement 17.8 — 0.6 18.4 Healthy soils 8.6 — 0.4 9.1 Deferred maintenance at fairgrounds 3.2 — 0.4 3.6 Various conservanciesa $23.9 $3.2 $2.1 $29.2 River and waterway improvements 16.6 — 0.7 17.4 Wildlife conservation and habitat resiliency 7.3 3.2 1.3 11.8 Fish and Wildlife $22.1 — $1.6 $23.6 River and wetland restoration 22.1 — 1.6 23.6 Wildlife Conservation Board $20.0 — $0.9 $20.9 Habitat restoration 18.0 — 0.8 18.8 Lower American River restoration 2.0 — — 2.0 Ocean Protection Council $20.0 — $0.3 $20.3 Marine wildlife and coastal ecosystems 10.0 — 0.1 10.2 Assist coastal communities 10.0 — 0.1 10.1 Forestry and Fire Protection $13.6 — $1.1 $14.6 Urban forestry 13.6 — 1.1 14.6 Coastal Conservancy $4.9 — $0.2 $5.1 San Francisco Bay restoration 4.9 — 0.1 5.0 Coastal forests — — 0.1 0.1 Conservation Corps $4.6 — $5.2 $9.8 Parkway restoration 0.0 — 4.9 4.9 Grants to local corps programs 4.6 — 0.3 4.9 Conservation $1.0 — $0.2 $1.2 Agricultural conservation 1.0 — 0.2 1.2 Statewide bond administration — — $1.4 $1.4 Totals $848.5 $121.1 $50.2 $1,019.8 a Baldwin Hills, Sacramento-San Joaquin Delta, San Diego River, San Gabriel Mountains and Los Angeles River, Santa Monica Mountains, Sierra Nevada, and Tahoe Conservancies. 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET the Salton Sea Management Plan . Figure 8 For new programs authorized by the SB 5 Positions Requested bond, the administration generally is requesting funding for administrative 2018-19 positions that would be responsible Department Positions for developing program guidelines Parks and Recreation 21.0 during the budget year . Water Resources Control Board 10.0 We also note that in most cases, Food and Agriculture 9.0 local assistance and capital outlay Conservation Corps 7.0 funding is targeted to programs Water Resources 7.0 where prior bond funds largely have Natural Resources Agency 7.0 already been spent or committed to Wildlife Conservation Board 5.0 projects, leaving little available for Forestry and Fire Protectiony 4.0 Sierra Nevada Conservancy 3.0 new projects absent this proposal . Ocean Protection Council 2.0 For example, the proposal would Sacramento-San Joaquin Delta Conservancy 2.0 provide $47 million for DWR to offer Coastal Conservancy 1.5 another round of grants to local San Diego River Conservancy 1.0 groundwater agencies that are in Total 79.5 the process of developing plans to help implement the Sustainable unclear how many years the administration thinks it will Groundwater Management Act (SGMA) . Proposition 1 take to fully appropriate all of the funds . (2014) provided such support to some agencies; Additional Scrutiny Needed for Some Proposals. however, those grants have been fully allocated and not Though the budget-year proposals generally seem every local agency received funding . reasonable, we have identified a couple proposals that Notably, there are a number of programs in SB 5 raise specific concerns . These proposals include: for which the administration is not requesting any resources for 2018-19, including for projects or • DWR Flood Control Projects. The administration administrative support . This includes some programs proposes $94 million for flood control projects . with relatively large amounts of funding authorized in However, the proposal by DWR does not SB 5, such as for multibenefit projects to implement specify which projects will be funded, denying voluntary agreements that improve stream conditions the Legislature the ability to provide sufficient for fish ($200 million), water recycling projects oversight over how these funds will be spent . ($80 million), and coastal watersheds restoration The state’s flood management infrastructure ($64 million) . Based on our review, however, the has billions of dollars of needed renovations and administration has a reasonable rationale for delaying improvements according to various reports, and spending on these programs . In some cases, it could it is unclear which of those needs will be targeted be premature to appropriate spending in the budget by the proposed funding . year because program details and planning will need • DFW Competitive Grant Programs. The budget more time to be developed (such as for the voluntary plan proposes a total of $14 million for two grant agreements), and in other cases previously approved programs related to habitat restoration and funds remain available (such as water recycling funds in improving conditions for fish and wildlife . However, Proposition 1) . the proposed budget already includes $28 million Long-Term Funding Plan Not Identified. While the from Proposition 1 for similar DFW activities, and budget-year plan appears reasonable, the administration there remains $179 million in authority from that has not identified a spending plan for subsequent years . bond that has not yet been committed for these Therefore, it is unclear when the administration expects types of projects . At the time of this analysis, the to begin funding programs that are not proposed to department was unable to explain why the SB 5 receive project funding in the budget year . It is also funding plan included appropriations for these www.lao.ca.gov 19 analysis full gutter 2018-19 BUDGET programs when there was still outstanding funds • Replace SB 5 Funds With Proposition 1 available from another bond . Funding for Two DFW Grant Programs. We recommend reducing DFW’s allocation from High-Priority Projects Might Lack Funding if SB 5 by $14 million and increasing its appropriation Voters Reject SB 5. The Legislature will not know until from Proposition 1 by an equivalent amount . This close to its constitutional deadline to pass the state will be more consistent with the administration’s budget whether voters have approved SB 5 . Despite broader approach to allocating the first year of this uncertainty, we think it is appropriate that the SB 5 funding . Moreover, it will be administratively Governor has included these proposals in his January more efficient for the department to operate one budget because doing so allows the Legislature several set of bond programs related to habitat restoration months to review the proposals and ensure that the and improving conditions for fish and wildlife, spending plan is consistent with its priorities . However, rather than simultaneously administering parallel should the bond measure fail to pass, the Legislature programs from different bonds . might be faced with decisions about whether it wants to find alternative funding sources for certain programs Report at Budget Hearings on Long-Term with little time before the constitutional budget deadline Funding Plan. We recommend that the Legislature to explore its options . Considering potential alternative direct the administration to report at budget hearings funding sources might be especially important for on its longer-term strategy for expending SB 5 funds . programs where (1) the state has an obligation to Doing so would give the Legislature a better sense of provide funds (such as for the Salton Sea Management when programs not proposed for funding in 2018-19 Plan), (2) the state could face long-term financial costs would be implemented and how long the administration if it does not make certain investments (such as in proposes taking to fully allocate bond funding . the case of maintaining flood management or other Consider Budget-Year Priorities and Alternative infrastructure), or (3) additional funding might be key Funding if SB 5 Fails. The Legislature might wish to to successful execution of a statewide priority (such consider whether there are certain programs funded as support for local implementation of SGMA) . Some in SB 5 that would be high enough priorities to fund existing programs might be able to utilize past funding from other sources should SB 5 fail . This could involve, sources . For example, the Urban Forestry Program for example, the budget subcommittees identifying an is supported in the current year with GGRF . Other alternative budget approach for specific programs— programs, however, rely on nearly exhausted bond including funding amounts and sources—that could funds and would need a new fund source to continue . be adopted in June if the proposition fails . Aside from the General Fund, whether an alternative fund source LAO Recommendations could be used for a particular program would probably Approve Proposals With a Couple Modifications. depend on the allowable uses of that fund . In addition, We recommend approval of most of the administration’s the use of alternative fund sources generally would SB 5 funding requests and associated positions . involve the trade-off of not having those funds available However, based on our review of the proposals, we for other purposes . recommend the following two modifications: VENTURA TRAINING CENTER • Budget Bill Language Specifying Flood Projects. We recommend that the Legislature LAO Bottom Line. We recommend that the direct DWR to report at budget hearings on which Legislature reject the Governor’s proposal to convert specific flood management projects will be funded the existing Ventura conservation camp for inmates in the budget year . Based on this information—as into a new Ventura Training Center that would provide a well as an assessment of its own priorities—we firefighter training and certification program for parolees . recommend that the Legislature adopt budget bill We find that the proposed program is unlikely to be language that would schedule the proposed flood the most cost-effective approach to reduce recidivism . funding by project . To the extent that reducing recidivism is a high priority for the Legislature, it could redirect some or all of 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET the proposed funding to support evidence-based as having a criminal risk factor that can be addressed rehabilitative programming for offenders in prison and by services available through the program . when they are released from prison . Similarly, the Multiple Agencies Have Professional Firefighter Legislature could explore if other options are available Crews. The California Department of Forestry and Fire to provide CCC corpsmembers training opportunities, Protection (CalFire) employs over 7,000 firefighters to the extent it is interested in doing so . each year during fire season . Of those, about 1,700 are seasonal firefighters, classified as “Firefighter I,” Background CalFire’s entry-level firefighter classification . A Offender Rehabilitation Programs Intended Firefighter I is a temporary employee who is hired only to Reduce Recidivism. Research has shown that for the duration of the “fire season”—the period of certain criminal risk factors are particularly significant time when fires are most likely to occur at the greatest in influencing whether or not individuals commit new intensity . Individuals are usually hired in April, May, or crimes following their release from prison (known as June—as CalFire increases staffing for the fire season— recidivating) . For example, individuals who have low and work for up to nine months, depending on the performance, involvement, and satisfaction with school duration and intensity of the season . More experienced and/or work are more likely to recidivate than individuals firefighters can apply to become a Firefighter II—a who do not exhibit these characteristics . Research also permanent employee . Both types of firefighters typically shows that rehabilitation programs (such as substance staff “engine crews,” which are made up of a fire engine use disorder treatment and employment preparation) and three to four firefighters, as well as an engine can be designed to address specific criminal risk operator . factors . For example, employment counseling programs Federal and local agencies also operate fire crews . can help reduce or eliminate the criminal risk resulting Some larger local agencies, such as the Los Angeles from an offender’s low involvement in work . In addition, County Fire Department, provide their own wildfire research suggests that programs are most effective in protection . However, many agencies mostly respond reducing recidivism when they are targeted at individuals to structure fires rather than wildfires . In addition, the who have a high risk of recidivating due to factors that U .S . Forest Service employs roughly 10,000 firefighters could be addressed with rehabilitation programs . (For for fire protection in national forests . more information on the key criminal risk factors and State Conservation Camps Provide Inmate principles for reducing recidivism, please see our recent Firefighter Hand Crews. While in prison, certain report Improving In-Prison Rehabilitation Programs .) inmates have the opportunity to serve as inmate State Provides Various Rehabilitation Programs firefighters as part of a hand crew and live in a to Parolees. Prior to an inmate’s release from conservation camp jointly operated by CDCR and prison, the California Department of Corrections and CalFire (rather than remain in a prison facility) . (Hand Rehabilitation (CDCR) generally uses assessments crews are usually made up of 17 firefighters that cut to determine how likely the inmate is to recidivate as “fire lines”—gaps where all fire fuel and vegetation is well as what criminal risk factors he or she has . The removed—with chain saws and hand tools .) Inmates department uses this information to target many of its qualify for camps if CDCR has determined they (1) can rehabilitation programs once the inmate is released and be safely housed in a low-security environment, (2) can supervised by state parole agents in the community . work outside a secure perimeter under relatively low The 2017-18 budget included $215 million to support supervision, and (3) are medically fit for conservation various parolee rehabilitation programs . One such camp work . CDCR makes this determination generally program is the Specialized Treatment for Optimized based on various factors, including the nature of the Programming (STOP), which provides a range of crimes inmates are convicted of, their behavior while services, such as substance use disorder treatment, in prison, and the time they have left to serve on their anger management training, and employment services sentence . CDCR provides correctional staff at each to parolees . To be eligible for STOP, parolees must have camp who are responsible for the supervision, care a moderate to high risk of reoffending and be identified and discipline of inmates . CalFire maintains the camp, supervises the work of the inmate fire crews, and is www.lao.ca.gov 21 analysis full gutter 2018-19 BUDGET responsible for inmate custody while they are working . (2) 3 months of industry-recognized firefighting training Currently, CalFire maintains 39 conservation camps and certification (while also being available to support statewide that have the capacity to house more than fire suppression and resource management efforts as 4,300 offenders . (One of these camps houses juvenile needed), and (3) 12 months of full-time assignment as offenders .) As of January 10, 2018, there were about part of an engine crew . The administration indicates that 3,500 adult inmates housed in conservation camps . upon completion of the program, participants would Each camp costs roughly $2 .4 million to operate have the experience and certifications to apply for annually, or about half a million dollars per hand crew . entry-level firefighting jobs with local, state, and federal Inmates on hand crews receive basic training that firefighting agencies . The administration proposes consists of a week of classroom training and a week of to contract with a nonprofit organization to provide field training that covers wildland fire safety and attack, participating parolees with life skills training, reentry hand tool use, teamwork, and crew expectations . Once and counseling services, and job placement assistance assigned to a fire crew, inmates continue to receive to help them maximize their scoring capabilities in training in things like cardiopulmonary resusitation and hiring processes and assist them with other challenges emergency response, with some progressing to more related to reentry . Participants would also have access responsible positions on the crew, such as a chainsaw to high school courses through CCC’s existing contract operator . with the John Muir Charter School . CCC Provides Fire Crews and Support. The Allow Some CCC Corpsmembers to Participate CCC maintains seven fire crews that are staffed by in Selected Trainings. In addition to parolees, the corpsmembers and typically train and operate under program would allow up to 20 CCC corpsmembers at the supervision of CalFire Fire Captains . While assigned a time to participate in select trainings and certification to wildfires, the crews are utilized primarily to construct opportunities to be identified by CCC and Calfire . The fire lines . Fire crews also may assist fire engine amount of time the corpsmembers would spend at the crews and work after a fire is contained to extinguish training center could vary from a week up to a month any remaining hot spots . After a fire is completely or more . The administration reports that corpsmembers extinguished, crews are used for post-fire restoration at the training center would be housed separately from work such as reseeding . According to CalFire, each parolees but could participate in trainings together with crew costs about $1 million to operate annually . them . Provide Funding to Operate Program. The Governor’s Proposal Governor requests $7 .7 million from the General Fund Establish Ventura Training Center to Provide and 12 .4 positions in 2018-19 to implement and Firefighter Training and Certification for Parolees. operate the program . Under the proposal, $6 .3 million The Governor proposes to convert the existing Ventura from the General Fund and 12 .4 positions would conservation camp for inmates into a new Ventura be needed to operate the program in 2019-20 and Training Center that would provide a firefighter training annually thereafter . The $7 .7 million proposed for and certification program for parolees . (The inmate 2018-19 would be allocated as follows: firefighter hand crews currently based at the Ventura • CalFire ($2 million). These resources would conservation camp would be relocated to other state allow CalFire to purchase equipment and training conservation camps .) Upon full implementation, the materials for trainees, make facility repairs, and program would accommodate 80 parolees, selecting hire 24-hour site security services . in most cases from those who had served as inmate • CDCR ($2.1 million).These resources would firefighters in a conservation camp prior to their release be used by CDCR to provide 1 .4 parole agents from prison and were nominated for the program by to supervise parolees at the new Ventura CalFire and CDCR staff . Training Center and six other staff—including Parolees would be enrolled in the program for a total a groundskeeper, custodian, and cooks—to of 18 months . According to the administration, program operate the training center . In addition, CDCR participants would be paid and receive (1) 3 months of would receive funds to contract with a nonprofit classroom instruction in basic forestry and firefighting, 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET organization to provide case management and Not Evidence Based. Research shows that other services to participants . rehabilitation programs that are evidence based are • CCC ($3.5 million). The bulk of these resources most likely to be effective at reducing recidivism . To would be used to pay the salaries of parolee be evidence based, a program must be modeled after participants in the program, which are estimated to a program that has undergone rigorous evaluations be $2 .2 million annually . Under the proposal, CCC showing that it reduces recidivism . However, the would provide payroll services for the parolees in administration has not provided examples of any other the program . (The CCC has a payroll system that firefighter training programs that have been found to is designed to meet the needs of a short-term, reduce recidivism . Accordingly, it is unclear whether the non-civil service workforce .) The CCC also proposed intervention model has ever been found to requests five positions to perform payroll functions be effective elsewhere . Furthermore, the administration and to provide supervision of corpsmembers while is not proposing a feasibility study, pilot, or sufficiently they are at the training center . rigorous evaluation plan for the program . As a result, it unclear how the administration would know if the Make Infrastructure Improvements. In addition, proposed program were successful once it was the budget includes $1 .1 million from the General Fund implemented . in 2018-19 to develop preliminary plans for renovating Not Targeted to High-Risk, High-Need Parolees. the existing conservation camp to meet the needs of As discussed above, research suggests that the proposed program . Specifically, these renovations rehabilitation programs are most likely to be successful would (1) replace and upgrade existing facilities (such when targeted at high-risk, high-need individuals . as the staff barracks and equipment storage facilities), However, the administration plans to primarily recruit (2) add privacy to showers and bathrooms in existing parolees who served as inmate firefighters in a dormitories, (3) construct a separate dormitory conservation camp prior to their release from prison . for female participants, (4) construct additional These parolees tend to be of low risk to the community administrative and classroom space, and (5) build a and have demonstrated a willingness and ability to gym for staff . The proposed renovations are expected work hard . Although CDCR does not separately track to cost a total of $18 .9 million . recidivism rates for inmates released from conservation Recidivism Reduction Is Primary Goal. The camps, we expect that these inmates would be among administration indicates that the primary goal of the the least likely in CDCR to recidivate . Moreover, the proposed program is to reduce recidivism by helping administration indicates that conservation camp ex-offenders gain employment as firefighters . However, inmates would be nominated by CalFire and CDCR staff the proposal also suggests that because trainees would for the program based on their nonviolent behavior and be available to assist with emergency response, the conformance to rules while incarcerated . This further program could potentially increase firefighting resources . suggests that program participants would already have relatively low risks of recidivism and low needs for LAO Assessment rehabilitative programming . Accordingly, we find that While providing additional resources to reduce the proposed target population is both inconsistent recidivism could be a worthwhile investment, we find with best practices and with CDCR’s own efforts to that the Governor’s proposal raises several concerns . target rehabilitation programs to high-risk, high-need Specifically, we find that the proposal (1) is not evidence offenders . based; (2) would not target high-risk, high-need Unlikely to Lead to Employment. The individuals; (3) would be unlikely to lead to employment administration indicates it has not performed any for participants; (4) would likely not be cost-effective; type of labor market analysis or survey to determine and (5) includes resources that are not fully justified . potential demand for graduates of the program . We We also find that providing additional training to CCC note, however, that seeking employment as a CalFire members could be achieved in other ways . firefighter is very competitive . While CalFire was not able to provide information on the ratio of applicants www.lao.ca.gov 23 analysis full gutter 2018-19 BUDGET to position openings in time for our analysis, some This concern is compounded by the fact that the news outlets have reported only a few percent of administration is proposing to make a large capital applicants being hired . The minimum qualifications investment at the Ventura conservation camp to for a Firefighter I require a candidate to be at least renovate and construct facilities to meet the specific 18 years old and have a high school diploma or its needs of the proposed program . This is a substantial equivalent . However, the department indicates that up-front cost, particularly for a program that appears many applicants are returning Firefighter I’s who have unlikely to be effective and has not been tested through previous experience working as seasonal firefighters a pilot or feasibility study . (We note that expansion of and many have an Emergency Medical Technician other rehabilitative programs also can involve capital certification (which is extremely difficult for a convicted investments .) felon to obtain) . Parolees would likely have difficulty Various Resources Requested Have Not competing with such applicants . Moreover, the Been Fully Justified. At the time of this analysis, California Department of Human Resources requires the administration was not able to provide sufficient the firefighter hiring process to be competitive— justification for some of the workload resources being meaning the department does not have the authority requested . For example, the role of and need for the to directly hire those who complete the program . While additional parole agents proposed are unclear . On it is possible that program participants could apply for the one hand, if these parole agents would provide firefighter positions with local and federal agencies, specialized services or a higher level of supervision for the availability of such positions statewide is unknown . the 80 parolees at the Ventura Training Center, then However, the information on specific agencies that is the department might need some additional staffing . available suggests that firefighter hiring at the local level On the other hand, if these parole agents would is equally competitive, if not more so . For example, a provide essentially the same supervision and services RAND Corporation study found that the Los Angeles as the general parolee population receives, then it is Fire Department had upwards of 13,000 applicants for unclear why the additional parole agents are needed . fewer than 100 jobs in 2013 . The Governor’s budget includes funding for CDCR to Unlikely to Be Cost-Effective. We also find that it supervise the entire projected parole population for is highly unlikely that the proposed program would be 2018-19, which includes the 80 parolee participants . the most cost-effective way to reduce recidivism . This In addition, it is unclear why CCC requires five is because the level of funding proposed to operate the additional staff if its main responsibility would be to program on an ongoing basis appears quite expensive provide pay and benefits to 80 program participants . relative to other rehabilitation programs . Specifically, Furthermore, the program is expected to accept its the proposed program would cost $6 .3 million first participants on October 1, 2018, yet the proposed annually to operate, or about $80,000 per parolee . capital outlay project—which the administration argues However, research suggests that there are a variety of is necessary to operate the program—is not expected programs—such as substance use disorder treatment to be completed until May 2022 . The administration and academic education—that could reduce recidivism indicates that it plans to gradually ramp up the program at a much lower cost . For example, with the $6 .3 million population and utilize existing facilities and temporary requested by the Governor, we estimate for illustrative structures until the renovations are complete . However, purposes that CDCR could instead provide cognitive it has not provided a timeline for the planned rollout, nor behavioral therapy—treatment that costs about has it provided adequate justification for why it needs $1,200 per inmate and has been shown elsewhere to to fully staff the program before it will be running at full reduce recidivism—to over 5,200 inmates annually— capacity . nearly 100 times the number that would be treated Other Options Available to Provide CCC annually under the proposal . In view of the above, there Corpsmembers Training Opportunities. The CCC are likely more cost-effective ways to reduce recidivism has a long-established relationship with CalFire and than the Governor’s proposal . actively collaborates with CalFire to train fire crews . The CCC and CalFire could identify other options 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET to allow additional corpsmembers to participate in SUMMARY OF NEW NATURAL select trainings and certification opportunities in the RESOURCES CAPITAL OUTLAY absence of the Ventura Training Center . This could PROJECTS include holding such trainings at CalFire facilities or at residential centers that serve as a hub for CCC The Governor’s budget includes $159 million for training activities . Another possibility is to increase 21 new capital outlay projects in four departments corpsmember options to access firefighter-related within the California Natural Resources Agency . As training provided by community colleges . shown in Figure 9 (see page 26), these proposals fund various project phases, including study, acquisition, LAO Recommendation planning, and construction . Projects include (1) DWR In view of the above concerns, we recommend projects for Salton Sea management and flood that the Legislature reject the Governor’s proposal to improvement; (2) four new CCC residential centers; convert the existing Ventura conservation camp for (3) the replacement, renovation, and relocation of inmates into a new Ventura Training Center that would various CalFire facilities; and (4) several improvement provide a firefighter training and certification program for projects in state parks . Total costs for completion of all parolees . The Legislature could instead redirect some or proposed projects is expected to be $842 million . Of all of the proposed funding to support evidence-based this total, most of the costs would be funded by the rehabilitative programming for offenders in prison General Fund or bonds—specifically general obligation and when they are released from prison . (For more or lease revenue bond funds—which would be repaid information on evidence-based programs and the need with interest from the General Fund . Elsewhere in this to improve CDCR’s existing programs, please see report, we discuss in more depth the administration’s our recent report Improving In-Prison Rehabilitation plan for expenditure of SB 5 bond funds, as well as Programs .) Similarly, the Legislature could explore the four new CCC residential centers proposed . At this other options that are available to provide CCC time, we do not have specific concerns with the other corpsmembers training opportunities, to the extent it is proposals, but overall they do amount to a significant interested in doing so . budgetary commitment over the next few years . CALIFORNIA CONSERVATION CORPS The CCC provides about 1,450 young adults The Governor’s 2018-19 budget proposes a total between the ages of 18 and 25 (and veterans to age of $125 million for support of CCC . Half of these 29) work experience and educational opportunities . funds are from the General Fund, with the remaining Program participants, referred to as corpsmembers, primarily coming from a few special funds . The work on projects that conserve and improve the proposed amount reflects a net increase of $2 million, environment . They also provide assistance during or 2 percent, compared to projected current-year natural disasters . Work projects are sponsored by expenditures . various governmental and nongovernmental entities that reimburse CCC for the work performed by EXPANSION AND REPLACEMENT OF corpsmembers . Some corpsmembers live in residential RESIDENTIAL CENTER FACILITIES centers that serve as a hub of CCC service delivery, while most corpsmembers report to nonresidential LAO Bottom Line. The decision about whether centers for work and other service-related activities . to take the initial steps towards a major expansion of Typical activities include academic and technical CCC residential centers (as proposed by the Governor) training as corpsmembers pursue educational and and move from a mainly nonresidential-center based career development goals . Corpsmembers can program to a mainly residential-center based program earn scholarships that can be used towards higher is ultimately a policy decision for the Legislature . We education, apprenticeships, and vocational education . recommend, however, that the Legislature (1) wait for www.lao.ca.gov 25 analysis full gutter 2018-19 BUDGET Figure 9 New Major Resources Capital Outlay Projects Proposed in 2018-19 (Dollars in Thousands) 2018-19 2018-19 Total Project Funding Phase Project Cost Fund Source Department of Water Resources Salton Sea Management Plan $23,910 S,A,P,W,C $383,000 Senate Bill 5 bonds, Proposition 1 bonds Flood improvement projects 94,000 P,C 94,000 Senate Bill 5 bonds California Conservation Corps Greenwood: new residential center 3,172 P 62,235 General Fund, lease revenue bonds Auberry: new residential center 4,885 A,P 48,981 General Fund, lease revenue bonds Yountville: new residential center 200 S 40,230 General Fund, lease revenue bonds Los Piños: new residential center 1,725 P 33,590 General Fund Fortuna: renovate existing residential center 1,052 P 12,459 General Fund Los Angeles: acquire and renovate existing 169 A 8,061 General Fund nonresidential center Department of Forestry and Fire Protection Intermountain Conservation Camp: replace facility 500 S 73,295 General Fund, lease revenue bonds Ventura Conservation Camp: renovate facility 18,859 P,W,C 18,859 General Fund Prado Helitack Base: replace facility 1,259 P 17,755 General Fund, lease revenue bonds Alhambra Valley Fire Station: relocate facility 2,500 A 12,408 General Fund, lease revenue bonds Higgins Corner Fire Station: relocate facility 900 A 12,029 General Fund Ishi Conservation Camp: replace kitchen 383 P 5,873 General Fund Perris Emergency Command Center: remodel facility 70 P,W 904 General Fund Department of Parks and Recreation Anza Borrego SP: acquisition 1,656 A 4,817 Federal funds Picacho SRA: park power system upgrade 200 S 3,791 Proposition 40 bonds R.H. Meyer Memorial SB: parking lot expansion, other 320 P 3,658 Proposition 40 bonds modifications Los Angeles SP: soil remediation 3,470 P,W,C 3,470 Proposition 40 bonds Ocotillo Wells SVRA: auto shop addition 106 P,W 1,418 OHVTF Oceano Dunes SVRA: Le Sage Bridge Replacement 108 P 1,186 OHVTF Totals $159,444 $842,019 S = study; A = acquisition; P = preliminary plans; W = working drawings; C = construction; SP = State Park; SRA = State Recreation Area; SB = State Beach; SVRA = State Vehicular Recreation Area; and OHVTF = Off-Highway Vehicle Trust Fund. more information before approving funding for four normally house between 80 and 100 corpsmembers . new residential centers and (2) require CCC to provide About 644 corpsmembers (44 percent) live in reporting on corpsmember outcomes . residential centers . The typical nonresidential center includes classroom space and administrative offices . Background The nonresidential centers normally serve between The CCC operates 24 facilities in urban and 30 to 60 corpsmembers . About 806 corpsmembers rural areas statewide—8 residential centers and (56 percent) report to nonresidential centers . 16 nonresidential centers . The typical residential Corpsmembers from nonresidential centers sometimes center includes a dormitory, dining room and kitchen, are brought to residential centers for training and other administrative offices, recreational facilities, classroom events because these centers are better equipped to space, and warehouse space . The residential centers support larger numbers of people . The CCC groups 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET the residential centers and nonresidential centers into for the next phase of a project to replace the existing 14 districts for administrative purposes . residential center at Ukiah, which would add capacity for 35 additional corpsmembers .) Governor’s Proposal As shown in Figure 11, under the Governor’s plan, Major Expansion of Residential Centers. The the total number of corpsmembers would increase, Governor’s budget proposes $10 million from the resulting in a greater share of corpsmembers who General Fund in 2018-19 to begin a major expansion would reside in residential centers . By 2022-23 the of the CCC residential center program by building number of residential corpsmembers would increase four new residential centers . Under the plan, the initial by 63 percent—from 644 to 1,049 corpsmembers . The acquisition and planning stages would be funded from share of corpsmembers in residential centers would the General Fund, as would the construction phase increase from 44 percent to 58 percent . of the Los Piños center . Construction for the Auberry, Future Operating Costs. According to CCC, future Greenwood, and Yountville centers would be funded costs to operate these facilities are estimated to total from lease revenue bonds that would be repaid from $22 million annually—with about $12 .2 million expected the General Fund over time . to be supported by the General Fund—as follows: Figure 10 summarizes the plan to complete • Auberry Center. $5 .6 million ($3 .1 million General by 2022-23 the construction of the four new Fund) for 18 positions and operations costs in residential centers . Specifically the plan proposes support of 90 corpsmembers . a total of $185 million over the next five years . This • Greenwood Center. $5 .8 million ($3 .2 million includes $54 million from the General Fund and General Fund) for 18 positions and operations $131 million from lease revenue bond funds . The costs in support of 100 corpsmembers . four new residential centers would add capacity for 370 additional corpsmembers . This equates to • Los Piños Center. $5 .8 million ($3 .2 million $500,000 in project costs per residential corpsmember General Fund) for 18 positions and operations slot . (In addition, the proposed budget includes funding cost in support of 100 corpsmembers . Figure 10 California Conservation Corps Five-Year Expansion Plan (In Thousands) Proposed New Residential Centers 2018-19 2019-20 2020-21 2021-22 2022-23 Total Project Cost Auberry $4,885A,P — $2,622W — $41,474C $48,981 Greenwood 3,172P $3,745W 55,318C — — 62,235 Los Piños 1,725P 1,999W — $29,866C — 33,590 Yountville 200S 2,602P 2,821W 34,607C — 40,230 Totals $9,982 $8,346 $60,761 $64,473 $41,474 $185,036 Phases: A = acquisition; P = preliminary plans; S = study; W = working drawings; and C = construction. Figure 11 Corpsmembers Slots Under Expansion Plan Current Proposal (by 2022-23) Difference Corpsmembers Number Percent Number Percent Number Percent Change Residential centers 644 44% 1,049a 58% 405 63% Nonresidential centers 806 56 751 42 -55 -68 Totals 1,450 100% 1,800 100% 350 24% a Includes 35 corpsmembers added under the Ukiah residential center replacement project. www.lao.ca.gov 27 analysis full gutter 2018-19 BUDGET • Yountville Center. $5 million ($2 .7 million General • Auberry—Renovation of an Elementary Fund) for 18 positions and operations costs in School. The CCC plans to renovate the existing support of 80 corpsmembers . The operating Auberry Elementary School and construct a new costs for Yountville would be partly offset by detached warehouse . This school has been $2 .6 million ($1 .4 million General Fund) because closed for about five years . the plan is to close the Napa nonresidential center • Greenwood—New Facility. The CCC proposes and move the staff from Napa to Yountville . to construct a new residential center on the same parcel where the existing Greenwood residential Expansion Designed to Achieve Multiple Goals. center is located . This facility was built in the The administration argues that the proposed expansion 1980s and is temporarily being used to house will achieve multiple goals . First, residential centers corpsmembers from other locations while their allow access to the CCC program for young adults facilities are undergoing renovations . from all parts of the state, not just those that live • Los Piños—Renovation of a Juvenile within commuting distance of a nonresidential center . Detention Facility. The CCC plans to renovate Corpsmembers must find affordable housing within the Los Piños Conservation Camp, which commuting distance of a nonresidential center . This can was operated by Orange County as a juvenile present a barrier in regions where the cost of living is detention facility for about 40 years and has relatively high (such as Napa) . remained vacant for the last six years . For the Second, CCC states that residential centers offer an most part, the Los Piños Camp already resembles enhanced level of service than its nonresidential centers CCC’s prototype for a residential center . However, by (1) providing a structured environment offering full several of the buildings need to be renovated to immersion in work projects and educational programs, convert Los Piños from a correctional facility, as (2) offering stability and security, (3) providing many well as to comply with Americans with Disabilities opportunities for community engagement and personal Act and California Building Code requirements . development, and (4) allowing CCC to respond • Yountville—Renovation of a Warehouse. The more quickly to requests for emergency assistance . CCC plans to renovate an existing warehouse at According to CCC, residential centers also provide the Yountville Veterans Home—administered by more time for corpsmembers to dedicate to academics, the California Department of Veterans Affairs—to in part, because they spend less time commuting . provide office space, dormitories, classrooms, CCC has provided some limited data to show that recreation rooms, kitchen, and dining rooms . The corpsmembers in school at residential centers achieved project would also construct a new detached greater gains in math and reading levels than their warehouse . counterparts in nonresidential centers . The department also states that residential center corpsmembers are more likely to participate in community service projects LAO Assessment than nonresidential center corpsmembers . Major Cost to Expand Residential Centers. The Third, CCC states that the proposed expansion Governor’s 2018-19 budget proposes $10 million from would allow it to better meet the needs of the local the General Fund for the study phase at Yountville; communities by having more corpsmembers and the acquisition phase at Auberry; and the preliminary offering a residential center program in additional areas plans phase at Auberry, Greenwood, and Los Piños . As of the state . Figure 12 shows where the proposed discussed above, this proposal is just the first step in a facilities would be located, as well as CCC’s existing plan to spend a combined total of $185 million over the residential and nonresidential centers . next five years to design and construct new residential Construction at Existing Public Properties. The centers . (Over the same time period, the total number administration plans to use existing structures and of corpsmembers would increase only modestly by state properties in order to lower the construction 350 corpsmembers, or by 24 percent .) In addition, costs for the new residential centers . Specifically, the once construction of the new residential centers is administration proposes to utilize the following sites: completed, the total annual operating cost of the four 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET centers would be about $22 million, with more than half spend a significant amount of General Fund to expand of that coming from the General Fund . the residential center program, as well as shift from In our view, the Governor’s proposal presents the a majority of corpsmembers being in nonresidential Legislature with a policy decision about whether to centers to residential centers . By approving the Figure 12 California Conservation Corps Existing and Proposed Facilities Yreka Existing Residential Nonresidential Fortuna Redding Proposed Residential Butte Chico Ukiah Auburn-Placer Sacramento Lake Tahoe Greenwood Yountville Greenwood Napa Stockton San Jose Auberry Watsonville Fresno San Luis Obispo Santa Maria Camarillo Pomona Los Angeles San Bernadino Norwalk Los Piños North San Diego San Diego www.lao.ca.gov 29 analysis full gutter 2018-19 BUDGET Governor’s 2018-19 proposal, the Legislature would be the residential center expansion . We recommend signaling its agreement with the Governor’s long-term the Legislature require CCC to track and annually policy goal of expanding the program and shifting to report on corpsmember outcomes that will inform greater use of residential centers . CCC management decisions about how to improve Better Data Would Inform Capital Outlay the efficiency and effectiveness of the CCC program, Decisions. The CCC historically has not tracked data as well as inform future legislative decisions about or corpsmember outcomes in the areas of post-CCC the potential benefits of expanding CCC . (For more employment and continuing education . For example, information on the type of reporting that would be of the department does not have post-service data on value, please see our report Improving Outcomes for employment, earnings, or participation in ongoing California Conservation Corpsmembers . education . Better data on corpsmember outcomes would help inform CCC’s capital outlay decisions . There CORPSMEMBER COUNSELING, might be benefits to expanding CCC capacity and CASE MANAGEMENT, AND shifting from a primarily nonresidential center model TRANSITION ASSISTANCE to a primarily residential center model . However, we do not know for certain such a shift will result in better LAO Bottom Line. We recommend the Legislature outcomes for corpsmembers because there is such modify the Governor’s proposal to provide three-year limited data on how residential center corpsmember funding, rather than ongoing funding, for transition in-service and post-service outcomes compare to services for corpsmembers and require CCC to outcomes for their nonresidential center colleagues . prepare a report that will better inform the need for Furthermore, any such benefits would have to be such services on an ongoing basis . We recommend weighed against the significant additional capital outlay the Legislature approve the proposed funding to and operational costs of providing corpsmember improve access to mental health and drug and alcohol slots in a residential center setting compared to dependency counseling . nonresidential slots . Background LAO Recommendations Corpsmembers Receive Career Development Defer Decision on Four New Residential Training (CDT). Corpsmember development training Centers. We recommend the Legislature wait until is a mandatory 36-hour course that prepares there is more information on corpsmember outcomes corpsmembers for employment or continuing education before approving the Governor’s proposal to expand following their CCC service . The curriculum is designed residential centers . We find that constructing new to teach corpsmembers how to (1) assess their job residential centers might be worth pursuing if the skills; (2) prepare job applications, resumes, and cover department can demonstrate that the benefits of such letters; (3) organize their job search; and (4) succeed facilities are significant enough to justify the capital and at interviews and at work . The CCC’s goal is to provide ongoing operational costs of the new facilities, and that CDT training modules three to four times annually these benefits are significantly greater than what could to ensure all corpsmembers have the opportunity to be achieved by expanding less expensive nonresidential complete the curriculum . centers . However, the Legislature cannot not know Mental Health and Substance Abuse Issues Can what corpsmember outcomes should be expected Affect Corpsmembers. According to CCC, some risk from the proposed expansion because there is very factors that affect corpsmembers’ success in CCC limited data on residential (and nonresidential) center include economic hardships, tumultuous family life, corpsmember in-service and post-service outcomes . alcoholism, drug addiction, and mental health issues Require CCC to Report on Outcomes to such as depression and anxiety . While CCC does Inform Longer-Term Policy Choices. We believe not have data on the number of corpsmembers with the Legislature should take steps to ensure that it substance abuse or mental health problems, national will have sufficient information in the future to make statistics demonstrate these problems are prevalent . informed decisions about whether to go forward with For example, according to the Centers for Disease 30 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Control and Prevention, 4 .7 percent of adults ages • Implementing transition support services that 18 to 39 suffer from depression, 7 percent of U .S . (1) help corpsmembers to better understand their adults have an alcohol abuse problem or are alcoholics, career and educational opportunities, (2) teach and about 22 percent of adults ages 18 to 25 reported corpsmembers how to identify and research their using an illicit drug in the past month . career and educational interests, and (3) teach In addition, CCC tracks reasons why corpsmembers corpsmembers how they can apply their CCC leave the program, including reasons that might experience to their subsequent careers and be related to substance abuse and mental health educations . problems . In 2016-17, 19 percent of corpsmembers • Providing individualized counseling to were terminated for negative reasons (such as alcohol corpsmembers to help them assess their and drug issues, insubordination, fighting, violence, educational interests and career readiness in absence without leave, and a variety of other conduct anticipation of graduating from CCC, as well as and mental health issues), and 16 percent cited assist them in creating action plans . personal reasons (such as medical issues, family • Developing and strengthening CCC’s ties responsibilities, and other family-related issues) as their with state and local agencies that can provide reason for leaving CCC . employment, educational opportunities, training, Corpsmembers’ Health Insurance Covers Mental and other assistance to corpsmembers after they Health and Substance Abuse Counselling. The CCC leave CCC . provides health insurance to corpsmembers enrolled • Identifying opportunities to provide in the program . This health insurance includes some corpsmembers with work experience that will coverage of mental health services and substance facilitate their entry into apprenticeship programs abuse treatment . However, CCC frequently undertakes and other career paths . projects in remote areas where it can be difficult to • Tracking and reporting corpsmembers’ education access mental health and substance abuse treatment and career experiences after graduation services . Furthermore, according to CCC, some from CCC and providing information on corpsmembers need assistance accessing these corpsmembers’ post-CCC education and career services because they are not familiar with how the status through an alumni tracking program . health care system works . Provide Better Access to Mental Health and Governor’s Proposal Substance Abuse Counseling. The Governor’s budget proposes $194,000 in 2018-19, increasing to $306,000 The budget plan proposes a total of $1 .1 million annually in 2019-20, to contract for consulting and ($600,000 General Fund, $500,000 Collins-Dugan professional services to enhance corpsmember access Reimbursement Account) in 2018-19, an amount that to mental health and substance abuse services . The would grow to $1 .8 million ($1 million General Fund, CCC would like to reduce corpsmember attrition due to $794,000 Collins-Dugan Reimbursement Account) mental health and substance abuse issues . According annually thereafter . This funding would support to CCC, improved access to counseling services would enhanced transition support services and improved help mitigate these risk factors and aid corpsmembers’ access to mental health and substance abuse attendance, performance, and completion of the CCC counseling . We describe each of these components of program . Existing CCC staff lack the professional the Governor’s request in more detail below . credentials to respond to the mental health and Enhance Transition Support Services. The substance abuse issues presented by corpsmembers . administration requests $900,000 and 8 .3 positions in The CCC plans to contract with counseling contractors 2018-19, increasing to about $1 .5 million annually and to provide counseling and other services . Based on 14 positions (1 position for each of CCC’s 14 districts) discussions with CCC, one contractor would cover the in 2019-20, to improve transition support services southern region of the state, and another would cover for corpsmembers . According to CCC, this transition the northern region . These contractors would provide support would build on the existing CDT program by: (1) individual counseling, small-group counseling, and www.lao.ca.gov 31 analysis full gutter 2018-19 BUDGET large-group psychological education to address mental job and post-secondary school experience and, health issues; (2) counseling via phone or in-person; consequently, are likely to have difficulty successfully (3) referrals for further mental health care, substance applying for employment or enrolling in college or abuse assistance, and other support services; technical education programs without some assistance . (4) assistance accessing care; and (5) training for CCC Second, CCC reports that some corpsmembers are staff to better support corpsmembers’ mental health . unable to complete the current career and education training program—CDT—because the department is LAO Assessment only able to offer it periodically, and corpsmembers Lack of Outcome Data Makes it Difficult to sometimes cannot attend these sessions if, for Evaluate Need for Transition Services. The CCC example, they are assigned to emergency response has limited data on outcomes for corpsmembers or other assignments when the training is being after they leave CCC . The only post-service metric offered . For this reason, CCC indicates that it would be CCC tracks is corpsmember use of their scholarship beneficial to have permanent staff assigned to provide awards . This provides some insight into the number of corpsmembers with transition assistance on an ongoing corpsmembers that go on to pursue higher education, basis . We note, however, that the department did not apprenticeships, and vocational education after provide information on how often corpsmembers are separating from CCC . However, CCC does not track unable to complete training . key post-service data such as employment status Mental Health and Substance Abuse Consulting or earnings that would provide a broader picture of Services Request Appears Warranted. It is difficult outcomes for former corpsmembers . to assess the overall need for mental health services of Proposed Reporting on Outcomes Could Inform the corpsmember population . However, as discussed Future Operational Decisions. Under the proposal, above, statistics suggest that some percentage of the CCC would implement an alumni tracking program corpsmember population suffer from a mental illness or that would provide information on corpsmembers’ abuse drugs and alcohol and, therefore, could benefit post-CCC employment and enrollment in continuing from improved access to treatment . Given CCC often education . In our view, such information would help works in areas where mental health and drug treatment inform CCC’s decisions about what program areas services may not be readily accessible, we believe it to focus on improving . For example, the lack of is reasonable to make a modest investment to help outcome data on the percentage of corpsmembers ensure corpsmembers can receive these services . who transition into higher education and employment LAO Recommendations upon leaving CCC makes it difficult to assess what steps, if any, CCC should take to improve in these Approve Transition Services Staff as a areas . For example, if CCC had data showing that it Three-Year Pilot Program. We find that providing had a low success rate at transitioning corpsmembers some additional funding for the transition services could into employment, this might suggest CCC should have benefits . However, given the current lack of data focus more attention and resources on improving its on corpsmembers’ post-CCC outcomes, it is difficult job placement assistance and training . However, the to fully assess the specific corpsmember needs for proposal provides no details on the specific information additional transition services on a permanent basis . CCC will track and report beyond stating that it will Moreover, the department is internally developing include information and statistics on corpsmembers’ a transition program that has not yet been proven post-CCC career and educational experiences . effective . Therefore, we recommend that the Legislature Enhanced Transition Support Services Could provide transition services for a three-year period, as it Provide Benefits. While the lack of outcome data for would be beneficial for the department to have to come corpsmembers makes it difficult to assess the ongoing back to the Legislature in a few years to demonstrate need for transition assistance for corpmembers, we that it has successfully implemented this program to find that providing additional funding for these services benefit corpsmembers . could provide significant benefits, for a couple of Require Report on Corpsmember Outcomes. reasons . First, many corpsmembers have limited We recommend the Legislature adopt budget trailer 32 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET legislation to require CCC to provide the Legislature including outcomes on post-service employment, with an annual report on corpsmember outcomes by earnings, and participation in ongoing education . (For December 31 beginning in 2020 . We note that CCC more information about actions the Legislature could indicates in its budget proposal that it intends to publish take to clarify CCC’s mission and establish reporting on an annual report on corpsmember transition outcomes . key corpsmember outcomes, see our report Improving Given the importance of this information to monitoring Outcomes for California Conservation Corpsmembers .) the performance of CCC and to guiding state policy Approve Mental Health and Substance Abuse and funding decisions, we think this reporting should Consulting Services Proposal. Given the likely be required on an annual basis . In addition, to ensure need for additional services and the lack of qualified the Legislature receives robust information about personnel currently, we recommend the Legislature corpsmember outcomes, we further recommend the approve funding to provide corpsmember counseling Legislature specify the information to be reported, on mental health and substance abuse issues . DEPARTMENT OF FISH AND WILDLIFE The Department of Fish and Wildlife (DFW) is total proposed, $20 million would address an ongoing responsible for promoting and regulating the hunting of operating shortfall in the department’s largest fund, and game species, promoting and regulating recreational $31 million would be used to expand several existing and commercial fishing, and protecting California’s activities . We find the Governor’s proposed uses of fish and wildlife for the public trust . The department the funds to be generally reasonable—particularly the manages over 1 million acres of public land including activities that focus on protecting at-risk native species . ecological reserves, wildlife management areas, and We recommend the Legislature increase DFW’s budget hatcheries throughout the state . by at least $20 million to address the funding shortfall, The 2018-19 Governor’s Budget proposes total and provide some level of additional augmentation expenditures of $610 million for the department for activities that reflect legislative priorities . We from various sources (including reimbursements recommend a different approach to the sources for from other departments), an increase of $10 million these funding increases, however . Specifically, we (2 percent) compared to current-year expenditures . recommend rejecting the proposed use of tire fees, This increase reflects the net total of the proposed only approving the level of Motor Vehicle Account (MVA) augmentations described below and the removal of funding that DFW can provide evidence would support several one-time, current-year appropriations . Of the vehicle-related workload, and relying on General Fund total proposed expenditures, $133 million comes and fees for the remaining augmentations . Finally, we from the Fish and Game Preservation Fund (FGPF) recommend that DFW—together with the Department (22 percent), $106 million from general obligation of Finance (DOF)—provide an update to the Legislature bond funds (17 percent), $94 million from the General on a budgetary analysis it is currently conducting to Fund (15 percent), $82 million from federal funds help inform future budget decisions . (14 percent), and the rest from reimbursements and Background other special funds . Department Has Eight Major Categories of STRUCTURAL DEFICIT AND Responsibility. Figure 13 (see next page) summarizes DFW’s major activities and total authorized positions PROGRAM EXPANSION for the current year . As shown, the largest single LAO Bottom Line. The Governor proposes category—representing 44 percent of total expenditures providing $51 million in new funding for DFW from in 2017-18—encompasses the department’s efforts three sources: tire recycling fees, vehicle registration to conserve the state’s diverse wildlife resources on and driver’s license fees, and the General Fund . Of the behalf of the public . According to DFW, California has more native species than any other state and also has www.lao.ca.gov 33 analysis full gutter 2018-19 BUDGET the greatest number of endemic species that occur department-owned lands as well as inland and coastal nowhere else in the world . The department’s workload fisheries, and oversight over the state’s commercial on behalf of recreational and commercial hunting fishing industries . and fishing activities represents its second largest FGPF Has Roughly $20 Million Shortfall. In recent expenditure category (17 percent) . years, expenditures from the FGPF have exceeded FGPF Supports Multiple Department Activities. revenues into the fund by roughly $20 million annually . As noted above, the FGPF is the department’s largest This gap developed in large part because the state single funding source, typically providing roughly has created new costs for the fund without adding an one-fifth of overall DFW resources . The fund receives equivalent amount of new revenues . These costs have revenues from a variety of fees, including recreational resulted from significant employee salary increases hunting and fishing license and permit fees, commercial negotiated through the state collective bargaining fishing fees, and fees paid by project proponents for process, assigning new activities to DFW without DFW to review how a project might impact species providing new funding, and shifting activities from other protected under the California Endangered Species funding sources to the FGPF . While the department has Act (CESA) . Expenditures from the FGPF support been able to sustain the higher level of expenditures portions of several of the activity categories displayed by drawing from the FGPF’s fund balance, that in Figure 13, including various wildlife conservation balance has been mostly depleted . The Legislature efforts, law enforcement, management of both addressed the gap in the current year largely by using Figure 13 Activities Conducted by the Department of Fish and Wildlife 2017‑18 (Dollars in Millions) Authorized Category Funding Positions Description Biodiversity Conservation $266.5 712.7 Conduct activities to conserve, protect, manage, and restore fish, wildlife, native plants, and habitat. Hunting, Fishing, and Public 101.4 355.3 Facilitate sustainable hunting, fishing (recreational and commercial), and Use trapping by conserving and managing game species. Enforcement 91.0 458.8 Enforce compliance with laws and regulations, investigate habitat destruction and pollution incidents, and investigate illegal commercialization of wildlife. Management of Department 90.6 323.4 Manage hatcheries, wildlife areas, ecological reserves, fish and wildlife Lands and Facilities laboratories, and public access areas. Spill Prevention and 44.3 236.4 Prevent damage, minimize impacts, and restore and rehabilitate fish and Response wildlife and their habitats from the harmful effects of oil or other spills. Communications, Education, 4.7 16.5 Conduct resource conservation education, conduct community and and Outreach stakeholder outreach, and disseminate information. Fish and Game Commission 1.6 10.0 Establish and oversee implementation of the state’s fish and wildlife policies, rules, and regulations. Administration —a 258.0 Provide administrative support and executive leadership for the department’s activities. Totals $600.0 2,371.1 a Funding for administration is included in other categories. 34 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET one-time funding . (For a more detailed discussion of has faced long-term questions regarding its revenues the FGPF funding shortfall, please see our February and expenditures . In particular, stakeholders and 2017 publication, The 2017-18 Budget: Resources and the Legislature have sought greater clarity over how Environmental Protection .) the fee revenues generated by fishers, hunters, Changing Climate, Growing Population Likely and permit seekers—which are intended to directly to Increase Department’s Conservation Workload benefit the fee payers—interact with the General Fund in Coming Years. In recent years, the state has provided for public trust activities, and exactly which experienced unprecedented high temperatures, an of the department’s activities are supported by each increased prevalence of invasive species, more frequent funding source . In some cases, the department has and intense wildfires, harmful algal blooms in its struggled to respond to these questions because of waterways and oceans, and a severe and prolonged the multiple and overlapping goals associated with their drought . These conditions have degraded the habitats conservation responsibilities . For example, over the and ecosystems upon which the state’s fish, wildlife, course of a day, a warden patrolling the coast might and native plants depend—and caused increased track and catch an illegal poacher, inspect the catch workload for DFW as the department has monitored of licensed fishermen to ensure they are staying within and responded to the resulting effects . Scientists catch limits, remove abandoned crab traps that are suggest these types of conditions will occur with creating a hazard for migrating whales, ensure no one increased frequency as a result of the changing global is fishing in Marine Protected Areas, and issue a citation climate . Additionally, a continually increasing state to someone boating under the influence of alcohol . The population and the associated development—including variety of these activities illustrates why DFW can have growth in cities, roads, number of vehicles, and amount difficulty deciding and explaining exactly how to assign of waste—place mounting pressure on the state’s costs to its various revenue sources . Paying for the cost fish and wildlife and their habitats . Correspondingly, of this warden’s activities that regulate and benefit the this growth is also likely to increase the department’s commercial fishing industry would be an appropriate workload—in particular, from its statutory responsibility use of the fees they pay . However, maintaining a to monitor and respond to threats facing species healthy fishery and marine ecosystem benefits not requiring special protections under CESA . only the fishing industry but also the broader public trust resource, suggesting General Fund would also Some Have Called for Additional Funding for be an appropriate funding source for a portion of this DFW to Meet Current-Law Responsibilities. Beyond warden’s activities . just addressing the structural imbalance in the FGPF to maintain DFW’s existing activities, arguments have To address this budgeting challenge, the Legislature been made that DFW needs a budget augmentation enacted language in the 2017-18 Budget Act directing to increase its existing service levels in order to meet the department to complete a zero-based budget . its statutory responsibilities, particularly given the In response, DOF has initiated a “mission-based increasing challenges discussed above . For example, budgeting” review of DFW . According to DOF, this the Legislature has expressed dissatisfaction with the analysis will “determine the appropriate level of funding available to DFW by enacting statute in 2006— expenditures and resources needed to implement which is still in law today—stating: “The Legislature government services and programs .” The review began finds and declares that the department continues to in the fall of 2017, and the administration has not given be inadequately funded to meet its mandates . While a timeline for its completion or when it may be able to revenues have been declining, the department’s share its findings . responsibilities have increased in order to protect public Governor’s Proposals trust resources in the face of increasing population and resource management demands . . . To fulfill its Proposes $50.6 Million in New Ongoing Funding mandates, the department must secure a significant From Three Sources. The Governor proposes to increase in reliable funding, in addition to user fees .” augment DFW’s ongoing budget by $50 .6 million as Department Undergoing Comprehensive Budget follows: Review to Answer Key Questions. The department www.lao.ca.gov 35 analysis full gutter 2018-19 BUDGET • $26 Million Transfer From Tire Recycling the State Water Resources Control Board and the Management Fund (TRMF). The budget Tahoe Regional Planning Agency—and backfill proposes budget trailer legislation to annually them with a like amount from the Environmental transfer about $26 million from the TRMF to the License Plate Fund, to avoid this DFW FGPF to support DFW . The TRMF—administered augmentation from having either a net increase in by the Department of Resources Recycling and General Fund spending or programmatic impacts . Recovery (CalRecycle)—is a repository for fees New Funding Would Address FGPF Shortfall, paid by purchasers of new tires, totaling roughly Expand Department’s Activities. The Governor would $55 million annually . CalRecyle retains $1 .00 per use the proposed funding increase for two purposes . tire from this fund to support safe disposal of Most of the TRMF funding—$19 .6 million—would old tires, and $0 .75 per tire (estimated to total be used to address the shortfall in the FGPF and $26 million in 2018-19) is transferred to support support existing activities . The remaining $31 million in activities at the California Air Resources Board increased funding would be dedicated to expanding (CARB) . The Governor’s proposal would end the the department’s activities, as detailed in Figure 14 . As TRMF transfer to CARB—and instead transfer shown, the proposed augmentations span several areas $0 .75 per tire to DFW—but provide CARB with of departmental responsibilities, with the two largest a like amount of GGRF to maintain existing proposed expenditure categories related to managing programs . Under current law, the fee is scheduled and enforcing laws in the state’s marine region . to drop by 133 percent (from $1 .75 to $0 .75 per Figure 15 (see page 38) shows how the proposals tire) beginning in 2024, which would significantly would increase existing funding levels for the selected reduce the amount of revenues available . categories of activities . As shown, in many cases Moreover, under the administration’s proposed the expansions would be significant—increasing trailer bill language, the transfer to DFW would funding by more than 200 percent for most activities . sunset in 2024 when the fee drops . The proposed $31 million augmentation represents • $18 Million From MVA. The budget proposes a 6 percent increase from DFW’s estimated state a new ongoing $18 million expenditure from the operations expenditures in 2017-18 . MVA for DFW . The MVA receives its revenues Would Add 98 New Positions to Department, primarily from vehicle registration and driver’s Mostly Scientists. As shown in Figures 14 and 15, license fees . In 2017-18, these revenues are the Governor also proposes to add 98 new positions expected to total roughly $3 .5 billion . The to the department’s workforce to implement the California Constitution restricts most MVA proposed activities . As with funding, the proposed revenues to supporting the administration and augmentations are proportionally very substantial for enforcement of laws regulating the operation many activities, more than doubling existing levels for and registration of vehicles used on public five of the nine categories . Currently DFW has authority highways and roads, as well as to mitigate the for 2,371 positions, so this would represent about a environmental effects of vehicles . 4 percent increase . Of the new staff, 67 positions would • $6.6 Million From General Fund. The budget be from three classifications of environmental scientists, augments DFW’s ongoing General Fund 16 would be law enforcement positions, and the appropriation by $6 .6 million . This would bring remainder would be from various analyst classifications . total 2018-19 General Fund expenditures to $94 million and meet a requirement included in LAO Assessment Proposition 64 (the 2016 initiative that legalized recreational marijuana), which required that the The Governor’s proposal presents the Legislature department receive at least as much funding with three key decisions: (1) what overall level of from the General Fund as it received in 2016-17 services and activities it wants DFW to provide, (2) how ($94 million) . The Governor’s budget has a related much funding to provide, and (3) which sources it proposal to reduce General Fund by a combined wants to use to fund those activities . Below, we discuss total of $6 .6 million at two other departments— considerations for each of these key decisions . 36 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Certain Components of Governor’s Proposal that are already threatened or endangered), long-term Focus on Key Statutory Responsibilities. We believe damage to the commercial fishing industry (from the Governor’s proposal is a reasonable starting failure to monitor and maintain safe yields and fishery place for the Legislature’s deliberations regarding conditions), or foregoing some federal funds (since DFW’s activities . We believe the proposal has two maintaining a certain level of state expenditures for key strengths . First, by addressing the FGPF shortfall, specified activities is a condition of receiving such the proposal would allow the department to continue funds) . existing service levels . Failure to sustain existing Second, we find that several of the proposed activities could result in reduced enforcement of some activities focus on activities that would enable DFW to of the state’s laws (potentially increasing poaching better protect at-risk native fish and wildlife species . or pollution), harm to fish or wildlife (including those Many of these activities would help the department Figure 14 Proposed 2018-19 DFW Program Expansions (Dollars in Millions) Activity Description Funding Positions Improve marine fisheries Increase scientific marine fishery monitoring, implement Marine Life Management $8.4 38 management and data Act Master Plan actions, develop centralized electronic collection system for marine fisheries data, conduct environmental review for emerging marine use projects (such as artificial reefs or desalination), and develop and implement program to reduce whale entanglements. Enhance marine Purchase new patrol boat and skiff to be used north of San Francisco, and 5.8a 8 enforcement increase enforcement patrols in Marine Protected Areas and commercial and recreational fisheries. Monitor and assist salmon Conduct various activities to monitor, assess, and recover CESA-listed salmon, 4.9 18 and to restore salmon, steelhead, and sturgeon fisheries, including: real-time fish monitoring, coordinating and evaluating habitat restoration activities, and conducting genetic analyses. Monitor and review Conduct statutorily required three- and five-year reports on status of CESA-listed 3.2 9 declining species species, collect information on current species and habitat assessment and monitoring efforts, and collect data on species population trends. Enhance wildlife Increase inspections, investigations (including responding to tips), and legal 2.8 8 trafficking enforcement actions related to illegal wildlife trafficking and commercialization. Support voluntary Develop, implement, and expand conservation agreements and strategies with 2.2 8 conservation programs private landholders and stakeholders to protect at-risk species, including through established state programs such as “safe harbor” agreements and the Regional Conservation Investment Strategy program. Support hatchery Upgrade hatchery operations by (1) employing cryopreservation technology to 1.3b 1 production improve genetic diversity and (2) installing new lighting to extend timeline for spawning. Increase administrative Provide administrative support for the department’s expanded activities. 1.3 7 support Update wildlife Conduct analyses of wildlife habitat “connectivity zones” to advise transportation 1.1 1 connectivity assessment planners on mitigation strategies, and design and conduct studies to evaluate mitigation techniques for future road projects. Totals $31.0 98 a Includes $2 million for one-time purchase of new patrol boat. b Includes $1 million for one-time purchase of equipment. DFW = Department of Fish and Wildlife and CESA = California Endangered Species Act. www.lao.ca.gov 37 analysis full gutter 2018-19 BUDGET Figure 15 Proposal Would Significantly Augment Existing DFW Activities (Dollars in Millions) Proposed Increase Activity 2017-18 2018-19 Amount Percent Funding Improve marine fisheries management and data $2.1 $10.5 $8.4 409% Enhance marine enforcement 7.7 13.5 5.8 75 Monitor and assist salmon 8.2 13.1 4.9 60 Monitor and review declining species 0.7 3.9 3.2 466 Enhance wildlife trafficking enforcement 1.2 4.0 2.8 233 Support voluntary conservation programs 0.8 3.0 2.2 276 Support hatchery production 26.8 28.1 1.3 5 Increase administrative support —a —a 1.3 —a Update wildlife connectivity assessment 0.2 1.3 1.1 618 Positions Improve marine fisheries management and data 15 53 38 253% Enhance marine enforcement 45 53 8 18 Monitor and assist salmon 51 69 18 35 Monitor and review declining species 4 13 9 225 Enhance wildlife trafficking enforcement 7 15 8 114 Support voluntary conservation programs 5 13 8 160 Support hatchery production 157 158 1 1 Increase administrative support 258 265 7 3 Update wildlife connectivity assessment 1 2 1 100 a Data not available. DFW = Department of Fish and Wildlife. meet some of its existing responsibilities that it does • Salmon Monitoring. The proposed $4 .9 million not currently have sufficient resources to fully address, would enhance efforts to help CESA-listed salmon particularly in light of climate change and a growing stocks recover . While DFW currently undertakes population . Specifically, we believe the $5 .8 million some monitoring efforts, the proposal would proposal to expand DFW’s ability to patrol north of introduce new technologies and tools to provide San Francisco would increase enforcement of Marine additional data and improve the department’s Protected Areas and thereby enable the department ability to evaluate and refine its recovery efforts . to better protect ocean species and habitats from • Monitor and Review Declining Species. overfishing, ecosystem damage, and species decline . The proposed $3 .2 million would provide the The range and extent of DFW’s monitoring and department with the resources necessary to enforcement capability is currently limited by its inability produce statutorily required updates every five to conduct long-term patrols in the northern part of years on the status of the animal and plant the state . (As we discuss below, however, DFW has species listed as threatened or endangered under not provided justification for why the full $5 .8 million is CESA . These assessments are key to evaluating needed on an ongoing basis to achieve the intended the success—or lack thereof—of recovery outcomes .) strategies . Similarly, three of the proposals would help DFW • Develop and Implement Voluntary Conservation better comply with its statutory CESA responsibilities Agreements. The proposed $2 .2 million could and help protect the state’s most vulnerable species . create additional protected habitat for CESA-listed These proposals include: species and aid in their recovery . 38 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Although we find the Governor’s proposed package in funding for marine enforcement, which would also of new activities to be generally reasonable, it does not benefit those fisheries . address every priority facing the state’s fish and wildlife . Most of Proposed Funding Amount Justified, The Legislature could prioritize different activities . For With Exception of $3 Million on Ongoing Basis. example, the Legislature could provide more funding Ultimately, the amount of funding to provide the for habitat restoration and similar activities to help department will depend on the specific mix of activities endangered species recover and change their CESA the Legislature directs the department to undertake . We status . The Legislature could also dedicate additional find the Governor’s proposed funding and staffing levels funding to ongoing management of the department’s to be generally well aligned with his proposed package wildlife areas, which have experienced significant of activities, with one exception . DFW is requesting deferred maintenance and vandalism due in part the full $31 million increase on an ongoing basis, to staffing limitations . Another area both DFW and even though two of the proposals are for one-time stakeholders have mentioned as being a priority—that purchases—$2 million for a new patrol boat and would not receive new funding under the Governor’s $1 million for hatchery equipment . It is unclear how this proposal—is expanding outdoor education and $3 million would be used in future years . recreation programs to connect more Californians to Proposed—and Alternative—Funding Sources the outdoors and to diversify the users of DFW-owned Come With Trade-Offs. Once the Legislature wildlife areas, with a particular focus on urban and determines both the activities it wants DFW to underserved communities . accomplish and the corresponding funding needed, it In considering its preferred funding package, the faces the difficult task of identifying an appropriate and Legislature could also opt to modify the Governor’s available source of funding . We find that while there proposal by downscaling some of the proposed are some concerns associated with the Governor’s activities . In contrast to those activities focused proposed sources, potential alternative sources are also on at-risk native species, we find that some of the not without trade-offs . other activities proposed by the Governor might We find both strengths and weaknesses with the represent less urgent needs . For example, increasing Governor’s proposed use of transportation-related enforcement activities for illegal wildlife trafficking by funds for DFW . $2 .8 million might be less of a priority for the Legislature than responding to the threats facing a large proportion • MVA. Given that the MVA can be used for of California’s native species . While illegal trafficking environmental mitigation, we believe this could and commercialization of wildlife species clearly is be an allowable source to support the share of a challenge for the state—the department states DFW’s workload resulting from vehicles . DFW that California is one of the biggest producers and states that such activities include responding to consumers in the nation—DFW received a $1 .2 million incidents of wildlife-vehicle collisions, enforcing ongoing budget augmentation in 2016-17 to help motor vehicle laws (wildlife officers have statewide enforce the ban on illegal ivory and rhinoceros horn in law enforcement jurisdiction), and planning order to partially address this need . Moreover, many of efforts to minimize impacts on fish and wildlife the trafficking violations center around species being from transportation projects . At the time this brought into California from other places, meaning report was prepared, however, the department the proposed activities are not primarily focused on had not provided a detailed and substantiated protecting California native species . The Legislature accounting of how much of its workload results also might want to consider downscaling the largest from vehicles . As such, it is difficult to assess single proposal—to spend $8 .4 million to improve whether the full $18 million proposed from the management of the state’s ocean fisheries—to instead MVA is justified . While the MVA has experienced prioritize funding for at-risk native species . The effects operating shortfalls in the past, it is projected of providing less for these management activities could to have a fund balance of $429 million in be at least partially offset if the Legislature chose to 2018-19, falling to $336 million in 2019-20 and adopt some or all of the Governor’s proposed increase stabilizing thereafter . These estimates reflect MVA www.lao.ca.gov 39 analysis full gutter 2018-19 BUDGET expenditures proposed by the Governor, including the General Fund would reduce available funds for the $18 million for DFW . While the MVA would other statewide priorities . A new dedicated tax would maintain a reasonable reserve, the DFW proposal create additional obligations for state taxpayers and would reduce the amount available for other MVA limit the Legislature’s flexibility to direct tax revenues spending priorities . towards the state’s highest priorities in future years . • TRMF. We find the department’s rationale for Additionally, under the Constitution, fees can only be using TRMF less compelling than that provided used to directly support the associated workload, for the MVA . First, DFW was not able to provide which limits both the amount and potential use of fee evidence that it has significant workload related to revenues . Raising fees may also be a considerable tires . While the tire fees that fund the TRMF were burden for some potential payers, as was discussed authorized by a two-thirds vote of the Legislature, through the 2017-18 budget process when the in general some nexus between the source and administration proposed to significantly increase landing use of the funds must exist to be considered a fees for the commercial fishing industry . constitutionally legal use of a fee . Second, using Moreover, outstanding questions about DFW’s the TRMF to expand ongoing programs at DFW budget complicate the Legislature’s funding decisions . could present the Legislature with another funding As noted earlier, fundamental questions remain shortfall to address in 2024, when the per-tire fee regarding exactly how DFW’s different funding level is scheduled to drop significantly and the sources support the various components of the Governor proposes ending the transfer to DFW . department’s responsibilities . Even if it seems clear Third, the proposal is contingent on spending that the department needs additional resources overall, $26 million in GGRF to backfill the air pollution determining the appropriate source for funding new programs for the loss of TRMF, assuming the activities is difficult without first reviewing the findings of Legislature wants to sustain existing service levels DOF’s mission-based budgeting analysis . For example, at CARB . This thereby limits the amount of GGRF if that analysis finds that the department has been using available for the Legislature to direct to other fees paid by recreational fishermen to largely subsidize priorities . work that serves the public trust (such as monitoring of non-sport fish like the Delta Smelt), that would suggest Instead of or in addition to the Governor’s TRMF or that recreational fees might need to be reduced and MVA proposals, the Legislature could look to other fund replaced with funding from an alternative source such sources for DFW . These could include providing more as the General Fund . If, in contrast, the analysis finds from the General Fund, given that much of DFW’s work that a large share of General Fund has been used to contributes to broad public benefits . The Legislature manage hunting activities on department-owned lands could also consider imposing a new, dedicated tax or to process permit applications for construction on specific goods or activities related to the type of projects, that would suggest that those corresponding work the department conducts . Another option is fees should be raised . Adding a significant amount raising the fees collected from recreational hunters of new funding for the department to conduct new and fishermen, the commercial fishing industry, and/or activities without first understanding the budget permit applicants for projects over which DFW has foundation upon which that augmentation is built raises regulatory responsibilities . For example, the Legislature some concerns . could consider raising fees to support some or all of the proposed $8 .4 million increase to marine fisheries LAO Recommendations management and data collection . Because many of Adopt Funding Package to, at a Minimum, these activities would directly benefit the commercial Address FGPF Shortfall. We recommend the and recreational fishing industries, the Legislature Legislature identify sufficient new ongoing revenues could look to increase their fees to help support those to provide at least $19 .6 million to support DFW’s expanded services . existing activities . Failure to do so would further limit Like using the MVA and TRMF, however, these the department’s ability to implement current law and alternative revenue sources all involve trade-offs . Using protect the state’s public trust resources . While the 40 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET department has sustained its service levels in recent approving the use of MVA for DFW . To the extent years using one-time budget solutions, we recommend the department is able to quantify its vehicle-related the Legislature address this issue with a permanent workload, we recommend the Legislature appropriate a solution in 2018-19 and avoid further uncertainty or the corresponding amount of MVA to DFW . need to repeatedly revisit how to address the funding Reject Proposed Use of TRMF. We recommend gap in future budgets . The Proposition 64 requirement the Legislature reject the Governor’s proposal to use to spend an additional $6 .6 million in General Fund can $26 million from the TRMF for DFW . We believe the begin to address this shortfall, and the Legislature could department has not sufficiently justified the legal nexus provide the additional $13 million from a combination for using tire fees to support its workload . Furthermore, of other sources, including MVA or additional General given the fund is scheduled to experience a significant Fund . drop in revenues in 2024—and the Governor proposes Adopt Ongoing Augmentation Package That to stop using it for DFW at that time—we recommend Reflects Legislative Priorities. We concur with the the Legislature avoid using it to establish new ongoing administration that providing the department with activities and positions that will be difficult to sustain some additional resources would improve its ability to in the future . Correspondingly, we also recommend respond to both existing and growing responsibilities . against directing $26 million from the GGRF to CARB, We therefore recommend the Legislature augment as rejecting the proposed TRMF transfer to DFW would DFW’s budget based on what it views as the highest negate the need for that backfill . state priorities . We find that the Governor’s proposal Balance Use of Other Funding Sources With provides a reasonable starting place, but the Legislature Other State Priorities, Consider Revisiting Based can add, modify, or remove activities based on its on Results of Budgetary Review. As noted above, assessment of the most important priorities . Because we were not able to identify an obvious source for we find that both the threats to wildlife—particularly augmenting DFW’s budget—all of the options before species that are already threatened or endangered— the Legislature come with trade-offs . The Legislature and the associated responsibilities for the department will need to balance the strengths and weaknesses of will increase with the effects of a changing climate, each source to fund the service levels it wants DFW to we recommend prioritizing proposals that respond to provide . Moreover, as discussed earlier, determining such pressures . These include those that would protect the right mix of General Fund and fees for a budget endangered salmon, increase enforcement in Marine augmentation is complicated by the uncertainty Protected Areas, and monitor and assist species surrounding DFW’s use of existing revenues . Assuming identified under CESA . it chooses to focus program augmentations on Require DFW to Provide More Detailed new activities that benefit the public trust—such as Justification for Use of MVA, Approve protecting native species—relying primarily on the Corresponding Amount of Funding. While the General Fund for program expansions in 2018-19 proposed use of MVA for DFW’s vehicle-related tasks would be appropriate . However, the Legislature may seems reasonable in concept, at the time this report want to revisit the mix of funding sources in future was prepared the department had not yet provided years once additional information on the department’s sufficient justification for what amount of funding would existing budget is available . For example, if DOF’s be appropriate . We therefore recommend requiring that budget analysis reveals that significant General Fund DFW provide the budget subcommittees an accounting is being used to support activities that benefit specific for how much of its workload is directly related to motor groups—such as hunters, recreational or commercial vehicles . While we understand this exercise might be fishers, or permit applicants—the Legislature may want difficult given the multiple activities that staff such as to raise corresponding fees and reduce the General wardens may undertake in a given day—only some Fund support . of which might be related to vehicles—we believe Require DFW and DOF to Provide Update on developing a reasonable estimate is important to justify Progress of Budgetary Review. We recommend the use of MVA for this new purpose . We recommend requiring DOF and DFW to provide the Legislature with the budget subcommittees review these data before updates on their mission-based budgeting review . www.lao.ca.gov 41 analysis full gutter 2018-19 BUDGET Specifically, we recommend requesting a verbal update (3) instances where DFW appears to have insufficient on the status of the review during spring budget funding—either in total, or from a particular source— hearings, and enacting budget bill language to require to implement specific statutory responsibilities; a formal written update and summary of initial findings (4) instances where DFW might be undertaking to be provided no later than October 1, 2018 . This activities outside of its core mission; (5) instances where information will be important for informing development statutory changes might be needed to improve DFW’s of the 2019-20 budget . We recommend requiring that service delivery; (6) data or information that is lacking this written update include a summary of initial findings or unavailable and therefore precludes answering some related to (1) how DFW uses its existing revenues and of these key budgetary questions, and suggestions for which fund sources support which types of activities; how to overcome those gaps, and (7) to the degree (2) instances where DFW should readjust how it is that the full review is not yet complete, what data and directing existing revenues to support its activities and questions remain to be analyzed, and a timeline for its to better meet legal and programmatic requirements; completion . DEPARTMENT OF PARKS AND RECREATION The state park system, administered by the PARKS FUNDING AUGMENTATION Department of Parks and Recreation (DPR), contains 280 parks and serves about 75 million visitors per year . LAO Bottom Line. The administration’s proposal State parks vary widely by type and features, including to utilize the recently authorized transfer of increased state beaches, museums, historical sites, and rare fuel taxes to (1) address the State Parks and ecological reserves . The size of each park also varies, Recreation Fund (SPRF) structural deficit and build ranging from less than one acre to 600,000 acres . a reserve, (2) increase service levels at state parks, In addition, parks offer a wide range of amenities— and (3) continue certain activities begun in the current including campsites, golf courses, ski runs, visitor year is reasonable, but the Legislature can consider information centers, tours, trails, fishing and boating other spending alternatives . We recommend that the opportunities, restaurants, and stores . Parks also vary Legislature identify park services and programs that it in the types of infrastructure they maintain, including prioritizes and adopt a budget package that reflects buildings, roads, power generation facilities, and water those priorities . and wastewater systems . Background For 2018-19, the Governor’s budget proposes $1 .1 billion in total expenditures for the department . Major Funding Sources for State Park This includes $480 million for state park operations, Operations. Operation of the state’s park system $601 million for local assistance grant programs, involves various activities, including utilizing rangers and $11 million for capital projects . The proposed to maintain public safety, providing educational and budget total represents an increase of $224 million, or enrichment experiences to the public, maintaining 20 percent, above the estimated level of current-year facilities and trails, and performing revenue collection spending for state parks . This increase largely reflects and other administrative activities . The state park a proposal for $468 million from SB 5 bond funds system receives funding from many sources to support in 2018-19 (discussed in more detail earlier in this its operations, including: report), as well as a proposal to increase spending on • State Parks and Recreation Fund. The various park services using revenue from a recent fuel department’s largest fund source for operations tax increase (discussed below) . These increases are has been the SPRF . This fund source is proposed partially offset by the carryover of one-time funds in the to support about half of the department’s 2017-18 budget . operations in 2018-19 . The fund is supported primarily by revenues collected from fees charged 42 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET to park users . Parks frequently charge user fees, allocated for parks, including funding for DPR including for parking, park entrance, and specific to administer grants to local park systems . If recreational activities (such as the use of overnight approved by voters, SB 5 would provide an campsites) . The fund also receives revenue from additional $1 .3 billion for state and local parks . contracts with state park concessionaires that Recent SPRF Shortfalls. Changes to DPR’s budget provide certain services . Revenue from user fees since 2011-12 resulted in a SPRF operating deficit and and concession agreements is estimated to be depletion of the SPRF fund balance . During the recent about $140 million in 2018-19 . recession, the 2011-12 and 2012-13 budgets reduced • General Fund. With a few exceptions, state baseline General Fund support for the department parks cost more to operate and maintain than by a total of $22 million to achieve General Fund they currently generate in revenue . Moreover, savings . In response to the reduction, the Legislature parks provide many broad public benefits, provided additional SPRF funding on a temporary such as preservation of California’s natural and basis in order to prevent the closure of state parks . cultural resources . For these reasons, state This action, coupled with other one-time and ongoing park operations are partly funded from the state spending, caused expenditures from SPRF and its General Fund . The Governor’s 2018-19 budget subaccounts to increase by more than revenues and includes $147 million in General Fund support for transfers to the fund over that period . These trends DPR operations . resulted in a structural deficit and drew down the SPRF • Transfers From the Motor Vehicle Fuel fund balance . The recent passage of SB 1 provided Account (MVFA). Historically, fuel tax revenue additional revenue and eliminated the shortfall . that is attributable to gasoline and diesel Parks Forward Commission and Transformation purchased for boats and off-highway recreational Team Initiated Service-Based Budgeting. The vehicles usually has been transferred to the California State Parks Stewardship Act of 2012 Harbors and Watercraft Revolving Fund and (Chapter 533 of 2012 [AB 1589, Huffman]) and the Off-Highway Vehicle (OHV) Trust Fund, Chapter 530 of 2012 (AB 1478, Blumenfield) called respectively . (Some funds, however, were for the formation of an advisory council to conduct an transferred to SPRF instead of the OHV Trust independent assessment of the state parks system . Fund in 2016-17 to address a shortfall .) One of the results was the design and implementation These two funds are primarily used to support of “service-based budgeting” (SBB), which was first opportunities for boating and OHV recreation . used in 2017 . This new tool uses estimates of the Under recent legislation—Chapter 5 of 2017 number of staff hours and other costs necessary (SB 1, Beall)—that increased fuel taxes, any to carry out different tasks (such as public safety additional revenue from these increased taxes patrols and specific facility maintenance tasks) . These associated with boating or OHV usage is estimates are then used to calculate the amount of transferred into the SPRF . Incremental revenue services parks can provide at varying levels of funding . from the recent fuel tax increases is projected The department has used its SBB tool to compare to be $79 million in 2018-19 . (For additional current service levels across parks, as well as to information regarding revenues generated from estimate the level of resources necessary for each park the implementation of SB 1 and their proposed to achieve its “optimum service level” based on its expenditure, please see our recent report The mission, facilities, and other factors . DPR then identified 2018-19 Budget: Transportation Proposals.) both across the parks system and for various types of • Other Special Funds and Bond Funds. State services where there were the largest gaps between the parks also receive support from various special current and optimum service levels . funds, including revenue from the state boating gas tax, federal highway dollars for trails, and Governor’s Proposal various state revenue sources earmarked for Additional Funding to Address Several natural resource habitat protection . In addition, Purposes. The Governor’s proposed budget since 2000, $3 .5 billion in bonds have been www.lao.ca.gov 43 analysis full gutter 2018-19 BUDGET assumes that $79 million of fuel tax revenue will be Park District—and are proposed for expenditure in transferred to SPRF in 2018-19 as a result of SB 1 . 2018-19 . This is an increase of $25 million from the amount More Than Half of Additional Resources for transferred in 2017-18, which primarily reflects the full Main Functions, Largest Increase for Facilities and implementation of the fuel tax increases established Maintenance. As mentioned above, $41 .9 million in SB 1 . The Governor proposes to use the funds of the total $79 million estimated to be transferred transferred in 2018-19 for three main purposes . First, to SPRF is proposed for the expansion of state park the budget provides $26 .6 million to address the service levels . The department utilized its newly SPRF deficit and $7 .7 million to build up the fund’s implemented SBB system to help determine the year-end reserve . Second, it provides $41 .9 million proposed allocation of resources and positions across ongoing and 361 positions to expand service levels the main functions of state parks . The budget provides throughout the state park system . (We describe each additional staff and resources to expand service levels of the components of this part of the administration’s in the following areas of operation: proposal in more detail below .) Third, it continues • Facilities and Maintenance ($8.5 Million). $3 million in support that was initiated in 2017-18 for The largest augmentation is for facilities and recruitment and training, OHV grants, and abandoned maintenance, which includes maintaining clean watercraft abatement grants . Figure 16 shows how water supplies, clean restrooms, trail systems, the SB 1 revenues transferred to SPRF under SB 1 historic structures, and roads . The additional are being spent in 2017-18—which included one-time resources requested are intended to increase repairs to parks affected by winter storms and a large local assistance grant to Jurupa Area Recreation and Figure 16 Additional Revenue From SB 1 Increases SPRF Expenditures, Fund Balance (Dollars in Millions) 2018-19 Revenue 2017-18 Amount Amount Positions Transfer From Increased Fuel Taxes $54.3 $79.2 — SPRF Fund Condition 1.8 34.3 — Backfill shortfall — 26.6 — SPRF reserve 1.8 7.7 — Expanded Service Levels — 41.9 361 Facilities and maintenance — 8.5 103 Natural resource management — 7.6 45 Local engagement — 6.0 33 Public safety — 5.9 51 Cultural resource management — 4.6 42 District services — 4.0 34 Interpretation and education — 2.7 26 Revenue generation — 2.7 28 Programs and Grants 3.0 3.0 3 Recruitment and training program 1.0 1.0 3 OHV grants 1.0 1.0 — Abandoned watercraft abatement grants 1.0 1.0 — Other One-Time Spending 49.5 — — Jurupa Area Recreation and Park District 18.0 — — Repairing storm damage 31.5 — — SPRF = State Parks and Recreation Fund and OHV = off-highway vehicle. 44 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET maintenance activities and reduce the amount of LAO Assessment maintenance that is deferred . We find that the Governor’s proposal is a reasonable • Natural Resource Management ($7.6 Million). way to utilize the MVFA transfer . However, the proposal The budget proposes additional funding for reflects the administration’s spending priorities, and natural resource management, which includes the Legislature could consider alternative spending thinning forests, restoration projects, protecting approaches . We describe some issues for legislative habitat, and monitoring rare and endangered consideration below . species . For example, it includes $1 .9 million Backfilling the Shortfall and Building a Reserve ongoing for maintenance of the sediment basins Make Sense. In our view, it is reasonable to stabilize at Border Field State Park . the financial condition of SPRF by backfilling the • Local Engagement ($6 Million). Additional shortfall and leaving additional funds to build a year-end funding for local engagement would support fund balance . Under the Governor’s budget, SPRF community outreach, concessions management, would end 2018-19 with a reserve of $26 million, an local partnerships, marketing, and volunteer amount equal to about 10 percent of annual revenues management . It also includes $500,000 to and transfers . Figure 17 (see next page) shows continue a pilot seeking to improve access to that the proposal would reverse the recent trend of parks . depleting the SPRF fund balance . In our view, the • Public Safety ($5.9 Million) . The budget proposal would result in a reasonable fund balance, proposes additional funding and positions though the Legislature could choose a higher or lower (primarily park rangers and lifeguards) for law amount depending on its priorities . For context, we enforcement, aquatics safety, resource protection, note that the proposed fund balance is likely to be and emergency preparedness . more than sufficient to cover typical fluctuations in the • Cultural Resource Management ($4.6 Million). amount of revenues generated from park user fees, The budget includes resources to inventory, which can fluctuate from year to year . For example, evaluate, and manage departmental cultural these revenues decreased by $4 .3 million in 2012-13 . resources . Examples include properties or However, the proposed fund balance would only structures that are significant to the labor barely have been sufficient to cover the reduction in movement, agricultural history, and the state’s General Fund provided to the department during the ethnic heritage . recession—a decrease of $22 million . • District Services ($4 Million). The budget SBB Provides Reasonable Tool for Determining provides additional funding for various Priorities. In our view, the new SBB system appears administrative services related to regional and provides the department an improved approach to statewide operations, planning, and compliance . evaluating its current resources and estimating the • Interpretation and Education ($2.7 Million). largest gaps between those resources and what The budget includes funding for public information increases would be necessary to achieve the goals and programming related to state parks’ natural, of park administrators . However, the allocation of cultural, historical, and recreational resources . resources among needs still reflects the administration’s Some examples include the Junior Ranger prioritization of different state park functions . While program, online resources for teachers and we have no specific concerns with the activities and students, and educational tours . position authority proposed, we think the Legislature • Revenue Generation ($2.7 Million). The budget should evaluate whether the proposed mix of activities provides additional funding for parks to implement reflects its top priorities for the department . To the new projects and services designed to increase extent the Legislature preferred a different mix, it revenues, such as marketing, developing new could dedicate a greater share of the funding towards programming to attract visitors, and providing particular services . kiosks to increase fee collection . We find, for example, that the administration’s proposed funding for increased maintenance makes www.lao.ca.gov 45 analysis full gutter 2018-19 BUDGET sense given the department’s history of deferred The Governor’s proposal is mostly for additional maintenance and because properly maintaining facilities staffing for the functions described above . The can reduce costs in the long term if costly repairs are Legislature could also consider using the proposed avoided in the future . We also note that several areas funding in other ways . For example, the funds could of proposed spending could encourage visitorship be used to fund specific projects, such as building and enhance the public’s enjoyment of state parks, more campsites or implementing deferred maintenance including efforts to maintain trails and facilities, increase projects . public engagement, and provide more educational LAO Recommendations services . Lastly, the administration’s proposal includes $2 .7 million for revenue generation efforts . We note Ensure That Needs Identified by SBB Align that this is consistent with existing statutory direction With Legislative Priorities. To the extent that the that directs DPR to increase park-generated revenue . Legislature’s priorities differ from the administration’s, If these or other services are a higher priority for the the Legislature could request additional information on Legislature than what is reflected in the Governor’s current service levels throughout the state, the cost proposal, the Legislature could increase funding for associated with reaching its desired service levels for those particular services . However, doing so would certain functions, or what services are not included for require a commensurate reduction in funding for other funding in the proposal . Ultimately, we recommend that services and/or the amount of funds going towards the the Legislature utilize this information to adopt a budget fund balance . package that reflects its priorities . Figure 17 SPRF Fund Condition Would Improve Under Proposal (In Millions) $300 250 200 150 Expenditures Revenues and Transfers 100 Year-End Fund Balance 50 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17a 2017-18b 2018-19b a The 2016-17 budget included a one-time diversion of $31 million in motor vehicle fuel tax revenues to SPRF. b Revenue increases due to Chapter 5 of 2017 (SB 1, Beall) which directed any additional revenue from increased motor vehicle fuel tax revenue attributable to off-highway recreational vehicles to SPRF. SPRF = State Parks and Recreation Fund. 46 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET REGIONAL INFRASTRUCTURE enough for larger projects . DPR develops guidelines for each competitive grant program that are based PROJECTS on statewide priorities as determined by its Statewide LAO Bottom Line. The Governor’s budget proposes Comprehensive Outdoor Recreation Plan or statutory $7 .5 million from the General Fund on a one-time direction . basis for two local parks projects, but it has not In addition, in some cases, the Legislature has provided a clear explanation as to why it selected these appropriated funds for specific local park projects . For specific projects to receive General Fund support . example, the 2017-18 budget included a $4 million Moreover, Proposition 68, which will appear on the grant to the San Mateo County Resource Conservation June 2018 ballot, would provide local jurisdictions with District for its Butano Channel Restoration and additional resources for parks and recreation . Should Resiliency project and $3 .5 million was provided for the the voters approve Proposition 68, we recommend restoration of the Geneva Car Barn and Powerhouse, the Legislature reject the Governor’s proposal . If an art center and event space in San Francisco . Both Proposition 68 is not approved, the Legislature will want grants were supported from the General Fund . to weigh these two projects against other General Fund Governor’s Proposal priorities . The Governor’s budget includes $7 .5 million from the Background General Fund for one-time local assistance grants for Existing DPR Local Assistance Programs. DPR the construction of a Young Men’s Christian Association has historically administered several local assistance (YMCA) Active Living Center in Anaheim and to the programs, including grants to build, maintain, or restore restoration of the Fox Fullerton Theatre . local parks and outdoor spaces, recreational facilities, • Anaheim YMCA Active Living Center historical structures, trail systems, and museums . The ($5 Million). The administration proposes to department has administered approximately $3 billion provide this funding to the Anaheim Family YMCA in grant funding throughout California since 2000— to construct a new four-acre, 16,800 square mostly federal and bond funds, including grants from foot indoor and outdoor facility that would Propositions 84 (2006), 40 (2002), and 12 (2000) . The include outdoor soccer arenas, an indoor types of projects funded by these bond programs gymnasium, a teaching kitchen, and community include the development of new youth sports recreation gathering spaces . Total costs are estimated to facilities, as well as restoration and rehabilitation of be $10 million, with the difference between the historic buildings . Most of funds—over 90 percent— proposed state funding and the cost to be made authorized in these bonds for local parks have been up by fundraising efforts . Proponents estimate that spent or are now committed to projects . Additionally, more than 3,000 residents would visit each week . DPR’s Office of Historic Preservation administers grants from the federal Certified Local Government • Fox Fullerton Theater ($2.5 Million). The program, which encourages the direct participation administration proposes funding to the City of of local governments in the identification, evaluation, Fullerton to support the restoration of the Fox registration, and preservation of historic properties . Four Fullerton Theatre, which was built in 1925 and is cities received a total of $160,000 under this program in listed in the National Register of Historic Places . 2017-18 . Renovation of the theater is already underway, and is expected to cost at least $15 million, with Local Assistance Funds Generally Awarded as the funds coming mostly from grants, donated Per Capita or Competitive Grants. Typically, DPR supplies, and volunteer hours . awards funds to local jurisdictions on either a per capita basis or through competitive grant awards based on the requirements of the bond . Cities, counties, and LAO Assessment districts are eligible to apply for per capita grants Unclear Why These Projects Selected for General and are frequently used by local agencies to address Fund Support. While there are a few exceptions, as high priority maintenance items, but generally are not noted above, the state generally funds local projects www.lao.ca.gov 47 analysis full gutter 2018-19 BUDGET through grant programs, often through a competitive awarded to all jurisdictions for local park rehabilitation, application process . At the time of this analysis, the creation, and improvements, and these projects administration has not provided an explanation as to could also compete for the competitive grants . While why these proposed projects were selected for General DPR has not yet drafted its guidelines for the grant Fund support, such as by identifying a statewide benefit programs that would be funded by Proposition 68, we that would be achieved . Additionally, assessment of the think it seems possible that these projects could be potential merits of these proposals is difficult to evaluate eligible . Even if the projects are ultimately not eligible because the administration has not provided many for Proposition 68, the cities will still receive per capita details, such as why they were selected for funding over grants and other projects in their jurisdiction could be other projects, how they contribute to achieving state awarded competitive funds . This could free up funds goals, or detailed cost and revenue information . in the cities’ park and recreation budgets for these Projects Potentially Could Apply for Traditional projects . Grant Programs Should Voters Approve LAO Recommendation Proposition 68. State voters will have the chance to consider Proposition 68 on the June 2018 ballot . Require Projects to Go Through Typical (Proposition 68 was put on the ballot by Chapter 852 of Process if Proposition 68 Is Enacted. Should 2017 [SB 5, de León] .) This measure, if approved, the voters approve Proposition 68, we recommend would provide about $1 billion to DPR for local that the Legislature reject the Governor’s proposal assistance, including $725 million for the competitive and encourage the project proponents to apply for grant program established by the Statewide Park Proposition 68 grant funds . If recreational facilities and Development and Community Revitalization Act of 2008 historical restoration projects are a high priority for the for park-poor neighborhoods, as well as $215 million Legislature, it could ask the department to prioritize for per capita block grants . The Governor’s budget those types of projects when designing guidelines . includes $460 .3 million from Proposition 68 in 2018-19 If Proposition 68 does not pass, the Legislature will for DPR local assistance . Accordingly, the jurisdictions want to weigh these two projects against other General in which these two proposed projects are located Fund priorities . If they are a high enough priority, the would have access to two new pots of funding for local Legislature can still fund them directly, despite that not park projects . The per capita block grants would be being the typical process for providing local assistance . DEPARTMENT OF FORESTRY AND FIRE PROTECTION The California Department of Forestry and Fire CalFire in 2018-19 . This total represents a decrease of Protection (CalFire), under the policy direction of the $425 million, or 20 percent, from current-year estimated Board of Forestry and Fire Protection, provides fire expenditures . This is primarily due to one-time protection services directly or through contracts for expenditures of $469 million from the General Fund in timberlands, rangelands, and brushlands owned the current year for emergency fire suppression . privately or by state or local agencies . These areas of CalFire responsibility are referred to as “state HELICOPTER FLEET REPLACEMENT responsibility areas” and represent approximately one-third of the acreage of the state . In addition, LAO Bottom Line. The Governor’s budget proposes CalFire regulates timber harvesting on forestland $98 million (General Fund) for CalFire to purchase owned privately or by the state and provides a variety four helicopters . While CalFire’s helicopter fleet will of resource management services for owners of eventually need to be replaced, the administration has forestlands, rangelands, and brushlands . not provided the type of accompanying information that is typical for budget augmentation . Specifically, The Governor’s budget proposes $1 .8 billion—over the administration has not provided estimates of the 80 percent from the General Fund—for support of ancillary costs associated with fleet replacement or 48 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET possible alternatives, which makes it difficult for the The cost of the first helicopter will be $24 .5 million . The Legislature to weigh the relative trade-offs of this notification included some additional details, such as proposal . We recommend that the Legislature withhold identifying that the cost of replacing all 12 helicopters action on the proposal pending this information from would be $296 million and specifying the department’s the department at budget hearings . Based on the intention to fully replace the fleet over the next three information presented by the administration, the fiscal years . However, the department’s notification did Legislature can determine whether the proposed fleet not include other details, particularly estimates of the replacement plan is consistent with its General Fund ancillary costs associated with the new helicopters . priorities . Prior to purchasing the first helicopter, the department is required to again notify the JLBC . Background Governor’s Proposal CalFire Utilizes Helicopter Fleet for Fighting Wildfires. When fighting wildland fires, CalFire uses The Governor’s budget includes $98 million from the helicopters to quickly deliver fire crews and to perform General Fund for CalFire to purchase four additional water or retardant drops that slow the fires’ spread . helicopters in 2018-19 . Helicopters are also used for other firefighting and fire LAO Assessment prevention operations, medical evacuations, cargo transport, mapping, rescues, and other missions . The Funding Request Lacks Key Information. While department currently has 12 helicopters that were we agree that the eventual replacement of CalFire’s acquired in 1990 through the Federal Excess Personal helicopter fleet is reasonable given the capabilities, Property Program at no cost to the state . They were maintenance needs, and age of the current fleet, originally owned by the U .S . Army from 1963 to 1975 it is difficult for the Legislature to weigh the relative for troop and cargo transport . Once acquired by trade-offs of the proposed plan without additional CalFire, these helicopters were modified for wildland information . The Governor’s request for funds firefighting at a cost of about $500,000 per aircraft . associated with helicopter fleet replacement did not 2016-17 Budget Authorized First Step of include the type of accompanying information that Fleet Replacement. The 2016-17 budget included is typical for budget augmentation . In particular, the $12 million (General Fund, one time) and related budget administration has not provided an estimate of ancillary bill language for the procurement of one helicopter as costs associated with fleet replacement, nor has it the initial phase of a plan by the department to replace provided an analysis of possible alternatives, such its entire helicopter fleet . At the time the budget was as acquiring other helicopter models or on a different passed, the procurement process was still underway, timeline . This information should be provided to the and many details about the replacement plan were Legislature because of the likelihood that the costs unknown, including details on the helicopter model and to replace the helicopter fleet will be sizable when its costs, as well as potential ancillary costs related to accounting for both the direct and ancillary costs . facility upgrades, staffing, and equipment costs . Given While the department has not provided estimates of this uncertainty, the budget provided funds for just one the potential ancillary costs, they could total a few helicopter, which allowed the procurement process to hundred million dollars spread over several years . proceed without committing to a full fleet replacement . Without information on the proposal’s full costs for each In December 2017, the administration notified year, it is difficult for the Legislature to determine if fleet the Joint Legislative Budget Committee (JLBC) that replacement should be funded before other competing CalFire and the Department of General Services had General Fund priorities or whether an alternative completed a competitive procurement and that the approach to fleet replacement should be considered . department was ready to award a zero-commitment LAO Recommendations contract as a result . A zero-commitment contract does not obligate the state to purchase any helicopters—it Require Department to Provide Additional only designates the specifications, pricing, and other Information. We recommend that the Legislature terms that were determined in the bidding process . withhold action on the Governor’s proposal pending a www.lao.ca.gov 49 analysis full gutter 2018-19 BUDGET report from CalFire at budget hearings on all ancillary staffing needs . We also recommend requiring the costs associated with fleet replacement, as well as the department to report on alternative helicopter models anticipated timing of when those expenditures would or procurement timelines that were considered and the occur . The main ancillary costs we have identified rationale for selecting this replacement plan . Based on are facility modifications that could be needed to the department’s report, the Legislature can decide if accommodate the new helicopters, increases in it wants to support the fleet replacement and at what operational and maintenance costs, and additional pace . DEPARTMENT OF WATER RESOURCES The Department of Water Resources (DWR) protects the proposal, but require the board to submit a report and manages California’s water resources . In this in February 2019 that provides an update on its capacity, DWR plans for future water development and revenue-generation efforts . offers financial and technical assistance to local water Background agencies for water projects . In addition, the department maintains the State Water Project, which is the CVFPB Oversees Central Valley Flood Protection nation’s largest state-built water conveyance system . System on Behalf of the State. Formerly called the Finally, DWR performs public safety functions such as State Reclamation Board, the CVFPB was created constructing, inspecting, and maintaining levees and in 1911 to address flood issues in the Central Valley . dams . Funding for CVFPB is included in DWR’s budget, The Governor’s 2018-19 budget proposes a total though the board is an independent agency with its of $475 million from various funds for support of the own regulatory authority . The board oversees the State department . This is a net decrease of $1 .5 billion Plan of Flood Control (SPFC) on behalf of the state . compared to projected current-year expenditures . The SPFC is a system of flood protection infrastructure This year-to-year decrease is primarily due to the way along the main stem and certain tributaries of the bond funds are accounted for in the annual budget . Sacramento and San Joaquin rivers, consisting of Specifically, DWR had $1 .8 billion in 2017-18 spending about 1,600 miles of levees and other flood protection authority from bond funds appropriated over the structures such as dams and weirs . Although past several years, compared to roughly $310 million many SPFC components were locally or federally proposed for appropriation in 2018-19 . (These totals constructed, in the 1950s the state committed to the exclude the roughly $1 .7 billion in annual payments federal government that it would oversee the SPFC from water contractors for DWR’s work on the State system and maintain it pursuant to federal standards . Water Project, as those funds are not appropriated For most segments of SPFC levees, the state has through the annual budget act .) developed formal agreements with local governments (primarily local reclamation districts) to handle regular CENTRAL VALLEY FLOOD operations and maintenance responsibilities . CVFPB’s activities include: (1) collaborating with local agencies PROTECTION BOARD to improve SPFC flood protection structures; (2) issuing LAO Bottom Line. The Governor proposes permits for work on SPFC levees and facilities; providing a $1 .4 million increase in General Fund to and (3) ensuring that levees are maintained up to replace expiring bond funds and support ten existing required standards, including ensuring that levee positions at the Central Valley Flood Protection Board “encroachments” such as pipes or docks either meet (CVFPB) . The proposal requests the augmentation on code requirements and receive permits or are removed . a two-year basis to allow the board time to explore A court decision in 2003 found that the state was options for generating other sources of revenue that ultimately financially responsible for the failure of SPFC might be able to support these positions beginning facilities, even when they had been maintained by local in 2020-21 . We recommend the Legislature adopt entities . 50 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET The board also oversees state-owned properties also would maintain staffing levels at current-year within the Sacramento San Joaquin Drainage District levels—47 authorized positions . (SSJDD), which is a statutorily defined area containing Proposes Shifting $1.4 Million for Ten Existing the SPFC that encompasses over 1 .7 million acres in Positions From Bond Funds to General Fund. 14 counties . Such properties include land holdings as The Governor’s budget proposal would increase well as flood-related structures like levees . Besides General Fund support for CVFPB by $1 .4 million and overseeing the flood protection system, as part of its reduce funding from Proposition 1E by a like amount . property management role the board also oversees Proposition 1E is a general obligation bond approved leases for state-owned lands—primarily located within by voters in 2006 for flood protection activities . This flood bypasses—for farming, natural gas extraction, or funding supports personnel costs for ten of the board’s other purposes . existing positions . The administration proposes this 2017-18 Budget Included Funding and Staffing fund shift because Proposition 1E funds are nearly Augmentation, New Fee Authority. The 2017-18 fully expended and will no longer be available for the Budget Act provided an increase in funding and budget year . Although these positions were previously staffing for CVFPB to better accomplish its statutory funded with bond funds, they carry out ongoing, core responsibilities . Specifically, the budget provided responsibilities for the board that are not exclusively an increase of $2 .2 million in General Fund and linked to the bond, including processing permit authorized nine new positions . This brought the board’s applications for SPFC projects . Consistent with the total funding to $9 .6 million and total staffing to 47 approach the administration used to fund the board in authorized positions . About half of the new funding the current year—to provide funding on a limited-term was to support the new positions, and the remainder basis while CVFPB pursues options for generating was for the board to contract with DWR to develop a additional revenues—this proposal requests the comprehensive database of the property owned by $1 .4 million in General Fund for just two years even the state within the SSJDD . All of this new funding— though the workload is ongoing . including the funding for the positions—was provided LAO Assessment on a three-year basis and will expire in 2020-21 . Though the workload for these positions is ongoing, Proposed Funding Needed to Maintain Existing the funding was provided on a limited-term basis Activities. The Governor’s proposal would sustain because the administration wants the board to develop existing work and enable CVFPB staff to continue options for generating additional revenue to support meeting the board’s statutory responsibilities . For its operations in future years in lieu of General Fund example, the staff will continue to review permit support . applications for work on SPFC levees; coordinate with Additionally, the 2017-18 budget package gave local, state, and federal agencies for SPFC system CVFPB expanded statutory authority to charge maintenance and improvements; and identify unsafe fees to cover the costs of its services, including its and illegal levee encroachments and enforce their costs related to issuing permits for encroachments, removal . Failing to provide this funding could increase inspecting encroachments on SPFC levees, and both flood risk and state liability for flood damage managing SSJDD property . because the board would find it more difficult to sufficiently oversee and enforce the integrity of the Governor’s Proposal SPFC system . Because CVFPB is implementing the The 2018-19 Governor’s Budget proposes total state’s responsibility over state-owned infrastructure, expenditures of $9 .6 million for CVFPB, which is the General Fund is an appropriate funding source for these same overall expenditure level estimated for the current activities . year . As we discuss below, the Governor proposes Board Will Face Significant Funding Reduction to increase General Fund support for the board to Beginning in 2020-21. CVFPB is requesting funding replace expiring bond funds—thereby making it fully for these ten positions for only two years . Combined supported by the General Fund . The budget proposal with the three-year funding that was provided in 2017-18, this means that the funding for 19 of CVFPB’s www.lao.ca.gov 51 analysis full gutter 2018-19 BUDGET positions—40 percent of its total position authority—will precluded the board from fully realizing the potential expire in 2020-21 . The administration states that the to generate revenues from them . (Funding provided board currently is laying the groundwork for generating in 2017-18 is helping CVFPB and DWR develop a additional revenues to support its workload, and is database of these properties .) Because the board requesting General Fund on a limited-term basis to has not yet fully implemented any of these options, provide the state the opportunity to reassess potential estimating how much revenue each might generate— funding sources for CVFPB in the future . and whether it will be sufficient to support 19 positions How Much New Revenue Could Be Generated Is beginning in 2020-21—is difficult . Unclear. CVFPB is pursuing four potential options for In addition to these four options, the board could raising additional revenues . The four options are: also pursue the possibility of reestablishing SSJDD as an assessment district that could assess charges • Permitting Fees. Fees could cover the staff time on property owners to help pay for flood protection needed to review, issue, and manage permits . activities . This authority currently exists in statute; • Inspection Fees. Fees could cover the staff time however, no assessment has been charged for over and travel costs for inspecting initial construction 80 years, and current law limits the use of such of levee projects and for conducting ongoing revenues to capital improvements for the SPFC . Some monitoring inspections of levee encroachments to stakeholders—including CVFPB and DWR—have raised ensure permit conditions continue to be met . the possibility of revising statute to reauthorize the district • Noncompliance Penalties. Issuing fines to to conduct assessments and allow the revenues to be landowners for levee encroachments that used for ongoing operations and maintenance of the violate codes, are unpermitted, or violate permit SPFC . Should this approach be pursued, a portion of the conditions could help support the board’s funding generated could potentially be used to support enforcement workload . CVFPB’s role in overseeing and maintaining the system . • Lease and Royalty Revenues. Renewing LAO Recommendations existing agreements or entering into new lease and royalty agreements for SSJDD-owned Approve Governor’s Proposal. We recommend properties—including for land use and oil and the Legislature adopt the Governor’s proposal . Allowing gas production—or selling such properties could CVFPB to continue its existing level of oversight of provide funding to support the share of CVFPB SPFC facilities is an important component of state operations related to managing these leases efforts to maintain flood protection and public safety . and agreements . Some revenues have been We also find merit in the Governor’s proposal to provide generated from these properties in the past, the funding on a two-year basis, as this would allow but they have been transferred into the General the board the opportunity to exercise its existing fee Fund—rather than used to directly support authority and begin generating additional revenues to the board—and CVFPB staff is unaware of the use in lieu of General Fund in the future . amounts . Require CVFPB to Provide Status Update on Revenue-Generating Activities. We recommend the In all of these cases, the board currently has the Legislature adopt supplemental reporting language authority to collect revenues to support its workload— requiring CVFPB to submit a report to the Legislature such as by implementing new fees—but thus far has by February 1, 2019 that provides an update on its not done so . In some cases, such as for inspections activities to generate additional revenues . This would of encroachment-related permits, this is because the help prepare the Legislature for how it might approach Legislature only recently granted CVFPB the authority funding the existing positions whose General Fund is to charge fees . In other cases, such as for issuing scheduled to expire . Having this information before it penalties for noncompliant encroachments, the board faces that 2020-21 budget decision would also allow received authority several years ago but thus far has the Legislature the opportunity to provide additional been able to resolve compliance issues before resorting direction or assistance to CVFPB if the board is to issuing fines . Additionally, a lack of comprehensive encountering barriers or making insufficient progress in information about SSJDD’s property rights has 52 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET implementing new revenue-generating practices . We the following information: (1) status of implementation, recommend the report address five potential options for (2) amount of revenue generated thus far, (3) estimated generating new revenues: permitting fees, inspection annual revenues in 2020-21 and future years, fees, noncompliance penalties, lease and royalty (4) barriers to implementation, and (5) suggestions for revenues, and a new SSJDD assessment . For each addressing those barriers . of these options, we recommend the report provide STATE LANDS COMMISSION The State Lands Commission (SLC) manages adopt the Governor’s proposed funding request so California’s sovereign lands and resources for the that work can begin immediately . We also recommend benefit, use, and enjoyment of the public . These lands requiring SLC to provide the Legislature with a status include tidelands situated between the ordinary high update on funding, work, costs, and the terms of other water and low water marks of tidal waters; submerged offshore leases by January 10, 2019 . The ultimate cost lands reaching from the ordinary low water mark to the state is likely to be less than the $109 million out to the state-federal fixed boundary three miles that is requested, as the state is in active negotiations offshore; navigable natural waterways (such as lakes for a prior lessee to pay some of the costs . Any funds and rivers) that existed upon statehood in 1850; and that the state ultimately receives would reimburse the “school lands,” mostly in the desert, which the federal General Fund for these upfront appropriations . government conveyed to the state to generate revenue Background for schools . On some of these state lands, SLC grants and oversees leases and permits for extraction and SLC Responsible for State’s Coastal Oil and production of oil, gas, minerals, and geothermal energy . Gas Resources. Many of California’s most productive The 2018-19 Governor’s Budget proposes total oil and gas resources are located along its coastline . expenditures of $98 million for the commission, In 1921, the Legislature created the first program to which is more than double the current-year estimated permit oil and gas development in the state’s coastal expenditure level . The significant increase is due to waters . According to SLC, between 1921 and 1929 the two proposals to plug offshore oil and gas wells, as state issued approximately 100 permits and leases, described below . Of the total proposed expenditures, and over 850 wells were drilled in Santa Barbara and $77 million (79 percent) is from the General Fund, Ventura Counties . Environmental concerns regarding $14 million (14 percent) is from the Oil Spill Prevention offshore drilling have, however, led to various limitations and Administration Fund, and the remainder is from on such development in the ensuing years . Following various other special funds . a large oil spill off the coast of Santa Barbara in 1969, the commission enacted a moratorium on new ABANDONED OIL AND GAS WELLS offshore leases, and in 1994 the Legislature enacted the California Coastal Sanctuary Act, which prohibited LAO Bottom Line. The Governor’s budget includes the state from entering into new leases for oil and gas $58 million in 2018-19 and an additional $51 million development in the state’s coastal waters . Many of the over the subsequent two years from the General preexisting leases and facilities remain in operation and Fund to plug and secure two offshore oil and gas under SLC’s jurisdiction . Specifically, SLC oversees sites . SLC has assumed control and responsibility for leases for four offshore oil platforms in state waters: the facilities at these sites after the lessees declared platforms Holly in Santa Barbara County, Eva and fiscal insolvency and quitclaimed the leases they had Emmy in Huntington Beach, and Esther off Seal Beach . held with the state . Because these wells and facilities The commission also has some jurisdiction over five are on state lands and will continue to pose risks to artificial islands built for oil and gas drilling—four in the environment and public health until they are fully the Long Beach Harbor, and Rincon Island in Ventura plugged and secured, we recommend the Legislature County . www.lao.ca.gov 53 analysis full gutter 2018-19 BUDGET State Recently Assumed Control of Two Currently, SLC is undertaking the initial steps to Facilities After Lessees Declared Insolvency. In two permanently plug the wells and prepare the facilities at separate instances, SLC recently had to take control these two sites for safe abandonment . of offshore oil and gas drilling and production facilities . Governor’s Proposals In both cases, the holders of the leases declared fiscal insolvency, failed to meet their lease obligations The Governor’s budget proposes limited-term to remove the facilities and restore the land to its funding from the General Fund to plug and “abandon” natural condition, and relinquished the facilities back (secure) the wells and facilities at Platform Holly and to the state, resulting in the state having to assume Rincon Island . Specifically, $58 million in 2018-19— responsibility for protecting against the release of oil into $38 million for Platform Holly and $20 million for Rincon the marine environment . The two sites of these facilities Island—and decreasing amounts in the two subsequent are: years . As shown in Figure 18, the total amount requested over the three-year period is $108 .5 million . • Platform Holly. The lease for Platform Holly (and its associated processing facilities) was held by $58 Million Over Two Years to Address Platform Venoco LLC from 1997 to 2017 . ExxonMobil Holly. SLC requests funding to prioritize plugging Corporation was a prior lessee of these facilities . the most complex wells at Platform Holly—the ones The oil produced from the offshore platform flows with the greatest hydrogen sulfide gas capacity . The through subsea pipelines and is processed and commission anticipates permanently plugging and stored at the Ellwood Onshore Facility, which also abandoning between 6 and 12 of the 32 wells in the incinerates the hydrogen sulfide gas produced first year of work . Once the most complex wells are at the platform . No production has taken place addressed, the gas levels will be better controlled at Platform Holly since 2015, when the pipeline and the pace of subsequent work should accelerate . that transported the oil produced from these Funding will also be used to continually staff the facilities ruptured, causing the Refugio oil spill . facilities and monitor well integrity and gas pressure That pipeline, which is owned by another entity, until all of the wells are plugged . The commission is still not operational . In April 2017, Venoco filed anticipates that plugging and abandonment operations for bankruptcy and quitclaimed its oil and gas will take a total of between 24 and 30 months . We leases back to SLC . Since that time, SLC has note that the $38 million proposed for 2018-19 is in been staffing and operating Platform Holly, the addition to $22 million that was authorized in 2017-18 associated 32 wells, and the Elwood Onshore for initial activities at Platform Holly . The Legislature Facility . authorized SLC to access up to $22 million from the General Fund as part of the 2017-18 budget . SLC has • Rincon Island. The lease for Rincon Island was since received payment from a $22 million performance held by the Rincon Island Limited Partnership bond held by Venoco, and will ultimately be able to (RILP) from 1995 to 2017 . The Atlantic Richfield reimburse the General Fund for any of the state funds Company (ARCO) was a prior lessee of these it ends up spending in 2017-18 . While the state is in facilities . This artificial island, which is connected negotiations with prior lessee ExxonMobil to cover to the shore by a causeway, has 49 wells and some of the remaining costs, the administration is contains various other processing equipment requesting a General Fund appropriation for 2018-19 and facilities . Rincon Island has not produced oil so it can continue work without delay . (Any contribution or gas since 2008, due in part to damage to the from ExxonMobil that SLC eventually receives will be causeway that connects the island to shore . RILP deposited into the General Fund .) failed to meet regulatory and contractual terms for several years, resulting in significant deterioration $51 Million Over Three Years to Address Rincon of the facilities and leading SLC to initiate Island. The funding requested for Rincon Island termination of the lease in 2016 . That termination would be used to plug and abandon its 49 wells, was preempted by RILP declaring bankruptcy, remove and decommission the oil production and and the bankruptcy court granted SLC a quitclaim processing equipment on the island, and remove of the lease in December 2017 . the 3,000-foot long causeway connecting the island 54 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET to shore . While SLC has not yet Figure 18 developed a detailed timeline for Governor’s Proposals to Secure conducting this work, it estimates Offshore Oil and Gas Facilities both planning and execution will take between 24 and 36 months . We note General Fund (In Millions) that the $20 million proposed for Site 2018-19 2019-20 2020-21 Totals 2018-19 is in addition to $8 million Platform Holly $38.0 $20.0 — $58.0 that the commission received as a Rincon Island 20.0 20.0 $10.5 50.5 settlement from prior lessee ARCO . Totals $58.0 $40.0 $10.5 $108.5 (This settlement absolved ARCO of liability for any additional costs .) The other offshore platforms and four artificial islands commission also anticipates it will that are still operational . While SLC indicates that the receive an additional $9 .7 million from a performance lessees of those sites appear to maintain healthy fiscal bond held by RILP . solvency, the commission is taking steps to revise those LAO Assessment lease terms to protect the state’s liability and prevent a recurrence of the Venoco and RILP outcomes . Immediate Action Needed to Address Specifically, SLC is negotiating to build in conditions Environmental and Public Health Risks. We concur such as (1) increasing the amount of the performance with the administration that commencing work to bonds the lessees must hold; (2) requiring the lessees plug and abandon Platform Holly and Rincon Island to begin plugging and abandoning idle wells now, rather immediately would be prudent . The potential for an than delaying until the leases expire; (3) placing liens on oil spill or gas leak from these active facilities poses a other properties the lessees own; and (4) establishing dangerous environmental and public health risk that terms that name SLC as a priority claimant if should be addressed as quickly as possible . State bankruptcy were to be declared . action requires a General Fund appropriation because State Will Face Future Decisions Regarding payouts from ExxonMobil and the RILP performance Decommissioned Facilities. The amount of funding bond are uncertain and could take years to be paid . requested by the Governor will not cover the full Moreover, the state is already incurring the costs of costs of decommissioning Platform Holly and Rincon staffing and monitoring these facilities in the interim, and Island . The proposed $108 .5 million is to undertake these costs will continue to accrue until the plugging the plugging and abandoning activities that will render and abandonment activities are completed . the facilities safe and stable, but is not sufficient to State Costs Could Ultimately Be Significantly fully remove the platform and island . SLC indicates Lower. While the Governor’s proposal represents a that once the initial abandonment activities are significant multiyear General Fund expenditure, the completed, it will undertake a California Environmental ultimate cost to the state is likely to be less than the Quality Act review—in collaboration with input from $108 .5 million that is requested . In particular, SLC is local residents and stakeholders—to identify the negotiating with ExxonMobil to cover a considerable implications of removing, partially removing, or retaining portion of costs to plug and abandon Platform Holly . and repurposing the remaining infrastructure . The The commission believes that under the terms of its Legislature should expect future budget requests prior lease, ExxonMobil retains significant liability to for the planning and implementation of the final plug, abandon, and decommission Platform Holly decommissioning phases for these sites . since the subsequent lessee is unable to do so . While ExxonMobil acknowledges these terms, it disputes the LAO Recommendations extent of that liability, and the state could pursue future Adopt Governor’s Proposals. Because Platform litigation to resolve the dispute . Holly and Rincon Island (and their associated wells and SLC Taking Steps to Protect State From Future facilities) continue to pose risks to the environment and Liability. As noted earlier, in addition to Platform Holly public health until they are fully plugged and secured, and Rincon Island, the state has leased out three www.lao.ca.gov 55 analysis full gutter 2018-19 BUDGET we recommend the Legislature adopt the Governor’s Legislature adopt supplemental reporting language proposed funding request so that work can begin requiring SLC to provide a report by January 10, immediately . 2019 that includes an update on the following: (1) the Require SLC to Provide Funding Update in 2019. status of negotiations with and amount of funding Given the uncertainty surrounding how much funding received from ExxonMobil for the Platform Holly project SLC may ultimately receive from ExxonMobil, we and the amount ultimately received from the RILP recommend that the Legislature require the commission performance bond; (2) the project status and work to provide an update to inform the 2019-20 budget accomplished, timelines for completion, and latest process and the need for General Fund support . This project cost estimates for both Platform Holly and would also be a good opportunity for the Legislature Rincon Island; and (3) the status of lease renegotiations to monitor the work in progress and the status of with existing offshore platform and island lessees and other offshore leases . Specifically, we recommend the the specific protections put in place to limit future state liability . DEPARTMENT OF CONSERVATION The Department of Conservation (DOC) is charged oil, natural gas, and geothermal wells . The division is with the development and management of the state’s charged with ensuring the safe development of oil, land, energy, and mineral resources . The department natural gas, and geothermal resources in the state manages programs in the areas of (1) geology, through sound engineering practices that protect the seismology, and mineral resources; (2) oil, gas, environment, prevent pollution, and ensure public and geothermal resources; and (3) agricultural and safety . The division’s regulatory responsibilities include open-space land . The Governor’s budget proposes (1) well permitting and testing; (2) safety inspections; $126 million for DOC in 2018-19, a decrease of about (3) oversight of oil, natural gas, and geothermal $16 million (11 percent) from estimated expenditures in well drilling; (4) inspecting oil field tanks, pipelines, the current year . The year-over-year decrease is mainly and sumps; (5) oversight of well stimulation such explained by a reduction in Greenhouse Gas Reduction as hydraulic fracturing and steam injection; and Fund spending of $15 .8 million . (6) oversight of plugging and abandonment of wells . The division works in collaboration with local WELL STATEWIDE TRACKING AND governments and other state agencies to meet its REPORTING (WELLSTAR) regulatory mandate . For example, the division collects information on water production, water use, and water LAO Bottom Line. We recommend the Legislature disposal from oil and natural gas production operations only approve the request for $15 million in 2018-19 to and provides this information to the State Water fund just the second year of development of the Resources Control Board (SWRCB) . This information WellSTAR database system, rather than the multiyear helps SWRCB identify oil and natural gas injection funding plan proposed by the Governor . This approach wells that may be injecting fluids into aquifers used for will require the administration to return with additional drinking water . funding requests annually until the project is fully U.S. Environmental Protection Agency (EPA) implemented, thereby ensuring that the Legislature has Letter Requires California to Improve Oversight of additional opportunities to exercise oversight over this Oil and Gas Production. In February 2015, DOGGR complex information technology (IT) project . and SWRCB submitted a comprehensive plan to the U .S . EPA to bring California’s Class II Underground Background Injection Control (UIC) program into compliance with Division of Oil, Gas, and Geothermal Resources the federal Safe Drinking Water Act . (Class II wells are (DOGGR) Regulates Oil and Natural Gas wells where fluids associated with oil and natural gas Production. DOGGR regulates onshore and offshore production are injected into the ground .) In a letter 56 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET sent in March of 2015, the U .S . EPA responded to system, which has since been named WellSTAR . (The California’s plan and directed DOGGR to create a $10 million approved for 2016-17 was subsequently searchable injection well database . U .S . EPA stated reappropriated in 2017-18 .) In 2017-18, the Legislature that an effectively designed searchable database approved an additional $21 .1 million to continue the is necessary for (1) DOGGR to properly manage development of the project . WellSTAR is designed to permitting and enforcement of injection activity across give DOGGR, other state agencies, industry, and the the state, (2) U .S . EPA to conduct its oversight of the public an integrated information system that provides Class II UIC program, and (3) the public to monitor data on oil and gas production operations as required injection activity . by recent legislation and U .S . EPA . DOGGR entered Recent Legislation Mandates DOGGR to Collect into an agreement with the California Department of Data on Oil and Gas Wells. In Chapter 313 of 2013 Technology (CDT) to complete the state’s IT planning (SB 4, Pavley), the Legislature found that insufficient process—known as the Project Approval Lifecycle— information is available to fully assess the potential with assistance and direction of staff from the CDT effects of hydraulic fracturing and other well stimulation Project Management Office . treatments in California, including environmental, WellSTAR Project on Schedule and on Budget occupational, and public health hazards and risks . The According to CDT. According to the December Legislature enacted several requirements designed to 2017 Independent Project Oversight Report (IPOR) provide greater transparency and accountability to the prepared by CDT, the overall health of the WellSTAR public regarding well stimulation treatments; emissions project is “satisfactory,” meaning no corrective action to the environment; and the handling, processing, and is necessary at this time . For example, the project disposal of well stimulation wastes . Chapter 561 of is operating (1) on schedule, (2) within the approved 2014 (SB 1281, Pavley) requires reporting of specific budget, and (3) within the approved scope . The project data regarding the source, volume, and storage and is also meeting other requirements for a satisfactory disposal status of water produced during oil and natural rating in seven other areas tracked on IPOR’s gas drilling operations . This reporting should provide independent project oversight dashboard (such as regulators and policy makers with key information to having an approved staff management plan in place) . evaluate how industry practices affect groundwater . Governor’s Proposal Funding for Oil and Gas Data Management System. The Legislature approved $20 million in As shown in Figure 19, the Governor’s budget 2015-16—$10 million per year in 2015-16 and plan proposes a total of $24 .4 million (Oil, Gas, and 2016-17—to create an oil and gas data management Geothermal Administrative Fund [OGGAF]) over four Figure 19 Governor’s Budget Request for WellSTAR (In Millions) Project Stages Design, Development, and Implementation Stages Stabilization and M&O M&O 2021-22 Four-Year 2018-19 2019-20 2020-21 (Ongoing) Total Vendor services $12.9 $4.1 $2.2 $1.0 $20.2 CDT services 0.8 0.1 — — 0.9 DOC staff 1.3 1.3 0.3 0.3 3.3 Totals $15.0 $5.5 $2.5 $1.3 $24.4 WellSTAR = Well Statewide Tracking and Reporting; M&O = maintenance and operation; CDT = California Department of Technology; and DOC = Department of Conservation. www.lao.ca.gov 57 analysis full gutter 2018-19 BUDGET years beginning in 2018-19 to continue implementation Legislature would ensure that the administration will of WellSTAR . This includes a request of $15 million for have to return with an additional funding request 2018-19 . The activities funded in this proposal will be annually as part of the Governor’s budget proposal until performed by a mix of external vendors, CDT staff, and the project has reached the M&O stage in 2020-21 . DOC staff . The bulk of the funding occurs in 2018-19 This would trigger a review of WellSTAR’s development and would support project design, development, and and implementation as part of the annual state budget implementation costs . In 2019-20, funding primarily process, thereby ensuring an opportunity for the would support one year of stabilization costs (related Legislature to exercise further oversight of the project . to transitioning operational ownership of the project from the developer to DOC), as well as the first year of REGULATORY FIELD INSPECTION ongoing maintenance and operation (M&O) costs . This M&O is essential for maintaining system technologies LAO Bottom Line. We recommend the Legislature and for making any necessary fixes identified by approve funding for three years—rather than on an DOGGR during operational use . The M&O estimated ongoing basis as proposed by the Governor—to cost does not include any enhancements to WellSTAR increase inspections and enforcement activities on that may be necessary to comply with future legislation oil and natural gas fields by establishing 21 positions . or regulations . We further recommend the Legislature require DOC to annually report on the extent to which it is performing LAO Assessment certain regulatory and oversight activities . Funding the positions for three years, combined with requiring some The WellSTAR project is necessary to comply additional reporting, would require the administration with U .S . EPA requirements and to implement the to return with additional funding request, and allow requirements of Chapters 313 and 561 . However, we the Legislature to make a better-informed decision have concerns regarding how effectively the Legislature about the number of positions that are justified on a will be able to exercise oversight of the WellSTAR permanent basis . project if the administration’s proposal is approved as budgeted . As proposed, the request would be Background approved for funding in 2018-19 for project design, development, and implementation costs, and then from DOGGR Field Inspectors Perform Various 2019-20 onward for stabilization costs and ongoing Regulatory Functions. DOGGR’s field inspectors M&O costs . Under this proposal, the administration evaluate the condition of oil and natural gas production would not have to make a request for additional facilities and equipment . This includes testing of oil expenditure authority unless the project experienced a and natural gas production equipment and practices shortfall . Typically, IT projects—especially complicated to ensure they meet specified standards . For example, projects such as WellSTAR, a project with an estimated inspectors can require that a production crew perform total cost of $69 million—are funded on a year-to-year a drill to demonstrate its ability to quickly and safely basis until fully implemented . This funding approach control a well during an emergency such as a blowout . ensures that the administration will submit a request In addition, when a well operator has been issued for funding for such projects as part of the Governor’s a permit by DOGGR for oil and gas operations, annual budget plan, providing an opportunity for the the operator is required to notify the division when Legislature to exercise oversight of the project in budget certain operations and testing will be performed . subcommittee hearings . This allows DOGGR to dispatch a field inspector to observe the operations and/or testing and ensure the LAO Recommendation operator is in compliance with state regulations . Field inspectors also are charged with ensuring that wells Approve Only Budget-Year Funding. We and facilities are constructed according to applicable recommend that the Legislature only approve the laws and regulations and ensure key production and request for $15 million in 2018-19 to fund the next year maintenance information is submitted by operators . of WellSTAR design, development, and implementation . By taking this year-by-year approach to funding, the 58 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET DOGGR Is Mandated to Witness Certain production wells are located in the Southern, Inland, Operations and Testing. State law and regulations and Coastal districts . require DOGGR to witness certain oil and gas Governor’s Proposal production operations and testing of equipment— the division calls these “shall-witness” operations . The administration requests $4 .3 million in According to DOGGR, there are about 30 different 2018-19 ($3 .7 million ongoing) from the OGGAF shall-witness operations . For example, the plugging and 21 permanent positions to increase inspections and abandonment of a well encompasses numerous and enforcement activities on oil and gas fields . tests that are required to be witnessed by field The department’s goal is to observe 100 percent of inspectors . The requirements for a shall-witness shall-witness and critical may-witness operations and designation are based upon technical risk factors and testing . The requested funding includes costs for eight the probability that an oil or natural gas operation could vehicles to be purchased in 2018-19 and used by lead to an incident such as (1) well blowout, (2) the field engineering staff who travel to perform regulatory release of hazardous fluids into the environment, or activities such as witnessing oil and natural gas (3) contamination to groundwater and surface waters . operations . DOGGR May Witness Certain Operations and LAO Assessment Testing at Its Discretion. State law and regulations allow DOGGR to witness certain oil and natural gas DOGGR Does Not Witness All Shall-Witness production operations and testing of equipment—the and May-Witness Field Operations. As shown in division calls these “may-witness” operations . Generally, Figure 20, in the Inland, Coastal, and Southern districts DOGGR places a higher priority on sending field the divisions’ inspectors witnessed 71 percent of the inspectors to observe may-witness operations when shall-witness operations in 2016, and 72 percent of the they are performed near a building intended for human shall-witness operations in 2017 . Similarly, the division’s occupancy such as a home, apartment building, or inspectors witnessed 48 percent of the may-witness school . Under such circumstances, the well is deemed “critical” by DOGGR . Due to these wells’ Figure 20 proximity to urban areas, DOGGR Oil and Natural Gas Operations indicates they represent a greater Witnessed by Inspectors in Selected Districtsa risk to human health and safety than Number of Operations (In Thousands) wells located in rural areas . Because of urban encroachment, 30 many wells that were not deemed Not Witnessed critical decades ago when they were 25 28% Witnessed drilled are now deemed critical by the division . About 91 percent of 20 29% critical wells are in three of DOGGR’s 15 regulatory districts . The Southern District (which includes the Los 10 71% 72% Angeles metro area) has 50 percent of the state’s critical wells . Two other 5 52% districts, Inland (which includes 38% the Tulare basin) and Coastal 48% 62% (which includes the coast between Shall May Shall May Witness Witness Witness Witness Los Angeles and Monterey) have 41 percent of the states remaining 2016 2017 critical wells . More than 90 percent a Inland, Coastal, and Southern districts. of California’s oil and natural gas www.lao.ca.gov 59 analysis full gutter 2018-19 BUDGET operations in 2016 and 62 percent of the may-witness LAO Recommendation operations in 2017 . DOC does not regularly track the Approve Three-Year Funding. We recommend number of may-witness operations it observed in 2016 the Legislature approve the Governor’s proposal on and 2017 that were performed on critical wells . a three-year, limited-term basis, rather than on an DOGGR Field Inspection Workload Can Vary ongoing basis . In our view, the amount of annual Due to a Number of Factors. The amount of annual inspection workload is uncertain because (1) the inspection workload is somewhat uncertain from year department has not tracked the number of unobserved to year . There are a number of factors that can affect critical may-witness operations and testing activities DOGGR’s field inspection workload . These factors and (2) variability in workload due to market conditions include: and other factors . By approving funding for the • Market Forces That Impact Amount of Oil and positions for three years, the department would need to Natural Gas Production. The amount of oil and report back to the Legislature on its progress towards natural gas produced in California varies from year improving its oversight of oil and natural gas field to year depending on market factors . Generally, operations if it requests ongoing resources in the future . significant production slowdowns in California’s Require Annual Reporting on Completion of oil and natural gas industry result in a decrease in Mandated Oversight Activities. We recommend the enforcement-related workload for the division . Legislature enact budget trailer legislation to require the • Travel Time to Field. In the Inland and Coastal department to annually report the following information districts, the amount of time it takes to witness statewide by district: (1) number of shall-witness and oil and natural gas operations and testing varies may-witness operations performed, (2) number of depending on the distance the inspector has to shall-witness and may-witness operations observed by travel to get to the field . In the Southern district, DOGGR, (3) number of critical may-witness operations travel time may vary due to traffic congestion performed, and (4) number of critical may-witness in the Los Angeles metro area . As a result, operations observed . This information would help the the amount of time it takes for an inspector to Legislature to monitor the division’s progress towards witness an operation can vary significantly from complying with mandated inspection requirements . The observation to observation . department could fulfill this reporting requirement by posting the information to their website or preparing a Due to the factors described above, it is difficult written report for the Legislature . The information would to determine the precise number of field inspectors also help inform the Legislature’s decision about the necessary to ensure that the division complies with its level of permanent resources needed for the division to mandate to observe all shall-witness operations and perform inspection and enforcement activities . has the capacity to observe may-witness operations deemed critical . CALIFORNIA ENERGY COMMISSION The Energy Resources Conservation and (12 percent) compared to estimated expenditures in Development Commission (commonly referred to as the the current year . This net decrease is primarily the result California Energy Commission, or CEC) is responsible of a technical issue related to unspent prior-year funds for forecasting energy supply and demand, developing being carried over into the current year . This decrease and implementing energy conservation measures, is partially offset by a proposed increase in one-time conducting energy-related research and development spending for zero-emission vehicle (ZEV) fueling programs, and siting major power plants . infrastructure, which we discuss below . The Governor proposes to allocate $604 million for CEC in 2018-19, a net decrease of $79 million 60 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET ZEV INFRASTRUCTURE efforts to achieve federal air quality standards and statewide GHG limits, CARB has established a goal LAO Bottom Line. We recommend the Legislature of 4 .2 million ZEVs by 2030 . On January 26, 2018, direct the administration to provide (1) a more detailed Governor Brown issued Executive Order B-48-18, justification for the amount of funding requested for establishing a new state goal of 5 million ZEVs by 2030 . ZEV infrastructure; (2) additional information about State Has a Variety of Programs Intended to how the funding would affect key policy outcomes, Promote ZEVs. The state has several programs such as greenhouse gas (GHG) emission levels; (3) its intended to increase the number of ZEVs in the assessment of potential risks and costs associated state . These include: (1) CARB regulations requiring with a substantial expansion of ZEVs, and (4) a plan for that automobile manufacturers produce a certain evaluating outcomes after program implementation . percentage of ZEVs; (2) state programs that provide Additionally, we recommend the Legislature direct consumer rebates for purchasing ZEVs, including the the administration to develop a detailed strategy for Clean Vehicle Rebate Project; and (3) High-Occupancy coordinating spending for ZEV infrastructure across Vehicle lane decals for ZEVs . Additionally, as shown in various state programs . We further recommend the Figure 21 (see next page), the state funds or oversees Legislature consider whether the administration’s several programs designed to expand ZEV charging proposal to use various special funds and ratepayer and fueling infrastructure . funds to support ZEV infrastructure is consistent with ARFVTP Funds Activities Intended to Reduce legislative priorities . Vehicle Emissions. Chapter 750 of 2007 (AB 118, Background Núñez) temporarily authorized vehicle-related charges— such as smog exemption fees for newer vehicles—and State ZEV Goals. Light-duty ZEVs are passenger directed the resulting revenues to programs intended to vehicles that do not directly produce emissions of either reduce vehicle emissions . Chapter 401 of 2013 (AB 8, GHGs or smog-forming air pollution . There are two Perea) extended the charges and funding for these primary types of ZEVs: (1) electric vehicles, which are programs through 2023 . Currently, about $40 million battery powered vehicles that are typically recharged annually is deposited in the Air Quality Improvement by connecting to an electric outlet or charging station Fund (AQIF) and is used for clean vehicle loans and (2) hydrogen fuel cell electric vehicles, which administered by CARB . Another $100 million annually are powered by hydrogen gas that is distributed at is deposited in the Alternative and Renewable Fuels hydrogen fueling stations . There are currently about and Vehicle Technology Fund (ARFVTF) to support 350,000 light-duty ZEVs in the state, including more the Alternative and Renewable Fuels and Vehicle than 1,600 hydrogen vehicles . About 14,000 public Technology Program (ARFVTP) . The ARFVTP supports charging stations and 31 hydrogen refueling stations grants for projects intended to transform California’s currently are operating in California . fuel and vehicle types to help meet the state’s GHG Both the Legislature and the Governor have adopted reduction goals . Programs funded from ARFVTF include goals for increasing the number of statewide ZEVs as a the following: means of achieving GHG reduction goals and improving • Low-Carbon Fuel Production. Supports the local air quality . For example, in 2012, the Governor expansion of the production of low-carbon fuels, issued Executive Order B-16-12, which directed such as biomethane and gasoline and diesel state agencies to take actions to achieve 1 .5 million substitutes from waste-based and renewable ZEVs on California roads by 2025 . Chapter 530 of feedstocks in the state . 2014 (SB 1275, de León) set a state goal of at least 1 million ZEVs and near ZEVs in the state by 2023 . • Advanced Freight and Fleet Technologies. Subsequently, Chapter 547 of 2015 (SB 350, de León) Promotes the development of zero- and directed state agencies such as the CEC, California near-zero-emission freight and fleet vehicles and Public Utilities Commission (CPUC), and California technologies . Freight and fleet vehicles produce Air Resources Board (CARB) to support widespread 22 percent of the state’s on-road GHG emissions transportation electrification . As part of its planning and are a primary source of local air pollution . www.lao.ca.gov 61 analysis full gutter 2018-19 BUDGET • Manufacturing. Provides funding to alternative To date, the ARFVTP has provided more than vehicle developers to create economical and $757 million to 600 alternative fuels and technologies viable manufacturing processes that enable full projects . CEC is required to submit an annual commercialization of their products . Such grants investment plan update recommending changes are provided to companies that may have difficulty in future program funding allocations based on the obtaining enough funding from traditional lenders identified needs and opportunities of various alternative because of the high-risk nature of developing fuels and vehicle technologies . unproven manufacturing processes . New Solar Homes Partnership (NSHP) Program • Workforce Training and Development. Spending Authority Expires in 2018. CEC administers Supports training and development of a qualified the NSHP, which provides financial incentive rebates alternative transportation workforce . For example, for the installation of solar energy systems in new the CEC works with academic organizations and homes . Chapter 132 of 2006 (SB 1, Murray) authorized industry partners, such as community colleges $400 million for the NSHP program with the goal and alternative fuel and vehicle manufacturers, to of achieving 360 megawatts (MW) of solar capacity identify workforce skills needs and provide training installed by 2016 . The program was originally funded in those skills . with a portion of revenue from a surcharge on electricity bills, also known as the public goods charge . However, Figure 21 Funding for Major State Zero-Emission Vehicle (ZEV) Infrastructure Programs Program Agency Funding Amount Description Volkswagen (VW) ZEV California Air Resources $800 million over ten years A 2016 settlement requires VW to invest investment commitment Board $800 million in ZEV projects—mostly for ZEV fueling infrastructure—in California over ten years. The first round of spending will invest $120 million to construct 350 neighborhood charging stations and 50 fast charging stations Investor-owned utilities California Public Utilities $200 million since 2016 Since 2016, CPUC has approved over $200 million (IOU) electric vehicle Commission (CPUC) for ZEV infrastructure pilot projects. CPUC is infrastructure currently evaluating IOU proposals to spend an additional $1 billion on ZEV infrastructure. NRG settlement CPUC $100 million one time A 2012 settlement requires the energy company NRG to install at least 200 public fast- charging stations and infrastructure for up to 10,000 privately owned charging stations at residences and workplaces, estimated to cost about $100 million. Alternative and Renewable Energy Commission $40 million annually Spends roughly $40 million annually for public Fuel and Vehicle ZEV infrastructure and has funded the Technology Program construction of about 7,000 charging and fueling stations to date. Highway charging Department of $20 million one time The 2017-18 budget provided $20 million to install Transportation 32 electric vehicle chargers along highway corridors. Vehicle charging at state Department of General $7 million in 2017-18 The 2017-18 budget provided $7 million to install buildings Services 230 chargers at state buildings. The proposed 2018-19 budget includes $16 million for 1,200 chargers. The administration has a long- term plan to spend $87 million over four years to install over 6,200 charging stations. 62 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET the public goods charge expired in 2012 before the proposed spending plan for ZEV infrastructure includes entire $400 million was collected for NSHP . In 2016, the one-time use of several funds in the budget year . the CPUC authorized investor-owned utilities (IOUs) In addition, the plan proposes to shift over a two-year to collect about $112 million to pay for the shortfall in period all ARFVTF to exclusively being used for ZEV funds for the program after the public goods charge infrastructure through 2025-26 . These actions would expired . Current law authorizes CEC to spend the provide a total of $235 million for ZEV infrastructure in NSHP funds through June 2018 . According to the 2018-19, decreasing to $95 million annually thereafter . administration, the state has not yet met the 360 MW After the budget year, there would be no ongoing goal established in Chapter 132 . allocations for the other types of projects that are currently funded from the ARFVTF . Governor’s Proposal Budget-Year Spending From Multiple Sources. Plan to Significantly Increase Spending on The $235 million allocated to ZEV infrastructure in ZEV Infrastructure Over Eight Years. To help 2018-19 includes the following: achieve the Governor’s new state goal of 5 million • $77 Million From Annual ARFVTF Allocation. ZEVs by 2030, the CEC requests to provide a total of The administration proposes to use $77 million $900 million over eight years from the ARFVTF and out of the total annual $95 million ARFVTF other funds to support the construction of ZEV fueling allocation for ZEV infrastructure . In 2018-19, infrastructure . (The budget also includes a proposal $18 million of ARFVTF funds would continue to be for $1 .6 billion over eight years to fund rebates for used for alternative freight and fleet technologies . consumers purchasing ZEVs, which we discuss in (After 2018-19, the full annual allocation would the cap-and-trade section of this report .) According be provided for ZEV infrastructure .) Low-carbon to the administration, these funds would be used to fuel production projects would receive $25 million construct a portion of the additional 146,000 charging from the Greenhouse Gas Reduction Fund stations and 135 hydrogen refueling stations the state (GGRF) in 2018-19 under the Governor’s would need on top of those already projected to be 2018-19 cap-and-trade proposal . constructed in order to have a total of 250,000 charging • $70 Million One Time From Special Fund stations and 200 hydrogen refueling stations in the Balances. The proposal includes a one-time state by 2025 . allocation of ARFVTF ($55 million) and AQIF Figure 22 shows how the administration’s proposal ($15 million) fund balances . would change funding for ZEV infrastructure and the existing ARFVTF-funded activities . The administration’s Figure 22 Annual Funding Under Governor’s Zero-Emission Vehicle Infrastructure Proposal (In Millions) Governor’s Proposal Current Spending 2017-18 2018-19 2019-20 Through 2025-26 Zero-emission vehicle infrastructure $36 $235a $95 Low-carbon fuel production 23 25b — Alternative fuel vehicles 27 18 — Manufacturing 5 — — Workforce training 3 — — Other 2 — — Totals $97 $278 $95 a Includes $70 million one-time funding from the Alternative and Renewable Fuel and Vehicle Technology Fund and Air Quality Improvement Fund as well as $88 million from ratepayer funds reserved for New Solar Homes Partnership. b One-time funding from Greenhouse Gas Reduction Fund. www.lao.ca.gov 63 analysis full gutter 2018-19 BUDGET • $88 Million One-Time Allocation of Unspent could pose both challenges and benefits to electricity NSHP Funds. The administration estimates that grid operators trying to balance supply and demand . there will be $88 million in unspent NSHP funds The effects on grid operations largely depend on when CEC authority to spend the funds expires when future owners charge the vehicles . If vehicle in June 2018 . The administration proposes owners were to charge often when there is an excess to redirect these funds to ZEV infrastructure . supply of electricity—such as when there is abundant According to the administration, it will propose solar energy during the early afternoon—then these budget trailer legislation to authorize the proposed vehicles could have minimal adverse (or even beneficial) use of these funds, and CPUC might need to impacts on grid operations . However, if owners were authorize the change . to charge the vehicles when demand is typically high relative to the supply of electricity, the additional ZEVs LAO Assessment could make it more difficult to balance supply and demand, potentially resulting in less grid reliability . ZEV Proposal Raises Key Policy Questions. Another potential risk is that a significant increase in The administration’s new ZEV goal raises key policy ZEVs could cause a considerable decline in gas and questions that the Legislature will want to consider diesel tax revenue that might not be offset by a newly before allocating additional funding . For example, implemented registration fee on ZEVs . To the extent are state goals and policies—such as ZEV-specific this were to occur, it would reduce available funds policies—that are aimed at supporting specific for transportation infrastructure . If the Legislature technologies or reducing emissions from certain determines that an increase in ZEVs could result in sources a necessary or cost-effective way to achieve significant risks or costs, it might want to consider the Legislature’s GHG goals? The state has several options to mitigate potential adverse consequences major initiatives aimed at reducing GHG emissions, from ZEV policies . For example, the state might want including a cap-and-trade program designed to to consider designing retail electricity rate structures encourage cost-effective GHG emission reductions to minimize grid impacts . This could be done by by placing a price on emissions . Furthermore, establishing pricing structures, such as time-of-use policies targeted at emission reductions from capped pricing, that discourage ZEV charging when electricity sources—such as transportation-related emissions— demand is high and electricity supply is relatively low . likely would not be necessary to meet the state’s Justification for Amount of Additional ZEV GHG goals and likely increase the overall costs of Infrastructure Funding Is Unclear. The administration emission-reduction activities . (For more details, see our provided our office a summary of the gap analysis it 2016 report Cap-and-Trade Revenue: Strategies to used as the basis for the total estimated amount of Promote Legislative Priorities .) In light of these factors, funding needed to support its ZEV goal . Figure 23 the Legislature will want to consider the rationale summarizes this analysis . The administration projects and justification for more aggressive policies focused that current programs and settlements supporting specifically on ZEVs . For example, the Legislature could ZEV infrastructure will result in the installation of an direct the administration to explain (1) whether state additional 90,000 charging stations and 34 hydrogen funding for ZEV infrastructure is necessary to address fueling stations . Combined with the current amount a market failure that cap-and-trade does not; (2) the of charging and fueling stations, this leaves a gap of extent to which ZEV infrastructure spending would be 146,000 charging stations and 135 fueling stations the the most effective way to achieve other goals, such as state would need to make up in order to achieve the reducing local air pollution; and (3) in what cases the administration’s goals . The administration estimates the private sector is unlikely to supply enough charging total cost to install those stations—including public and and refueling stations to support increased consumer private funds—would be $1 .5 billion to $2 .1 billion . demand for ZEVs, thereby requiring state support . However, the administration has not provided Furthermore, the Legislature will want to evaluate detailed information about how it conducted this the potential trade-offs and risks associated with analysis, including modeling methods, data, and dramatically expanding ZEV usage in California . For assumptions . Greater detail in these areas could help example, a substantial increase in electric vehicles 64 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET the Legislature better assess the estimated amount approaches, and (4) what other economic and of funding needed to meet the administration’s ZEV environmental effects can be attributed to ZEV goals . For example, key information include (1) future infrastructure expansion efforts . infrastructure investments anticipated from the private No Coordinated Statewide Plan for Allocating sector, (2) future developments in charging and refueling Funds. As noted above, the state funds or oversees a technology and cost, and (3) whether the target number variety of ZEV infrastructure programs . The Governor’s of charging and refueling stations is the correct amount Interagency Working Group on Zero-Emission Vehicles needed to meet the Governor’s 5 million ZEV goal . issued its most recent ZEV Action Plan in 2016 . The These assumptions could have significant effects on the plan summarizes state activities related to ZEVs, amount of state funds that would be needed to meet establishes broad goals for state activities to advance ZEV goals . ZEVs, and assigns tasks to different agencies for In addition, the administration has not provided promoting ZEV expansion . However, to our knowledge, detailed information about how the requested funding the administration does not have an overarching would affect key policy outcomes of interest, such as strategic plan for coordinating spending . Such a plan the net effect on GHG emissions and local air pollution . would describe how funding for various state programs For example, it is unclear how the additional funding would be targeted to the highest priority locations would change the estimated number of ZEVs and, and technologies taking into account other sources as a result, the overall level of GHG emissions . More of public and private funding . For example, such a complete information about the expected outcomes plan would identify where charging stations could from the administration’s ZEV initiative could help the be located to be used most often or have the most Legislature better evaluate the costs and benefits of influence on customer decisions to purchase ZEVs . The increasing funding for ZEV infrastructure relative to administration indicates that these types of decisions alternative programs for reducing GHG emissions . will be made through future interagency working group No Plan Released for Evaluating Outcomes After activities and the annual ARFVTP investment plan Program Implementation. At the time this report process . was prepared, the administration has not released Plan Redirects Funds From Other Activities. As a plan to evaluate the effects of the proposed ZEV described above, the administration’s 2018-19 proposal infrastructure expansion program after implementation prioritizes funding for ZEV infrastructure over other begins . Although the CEC currently has a process for potential uses . For example, the administration estimating the effects of ZEV infrastructure funding— allocates $70 million one-time special fund balances such as GHG reductions—before the projects are to ZEV infrastructure . These funds would otherwise be implemented, we are not aware of any current process available for alternative emission-reduction activities, or plan for evaluating the effects after the infrastructure such as low-carbon fuel production or advanced freight is installed . Such a process could help assess the value technologies . In addition, the proposal would redirect of the program, identify potential adverse effects, and determine Figure 23 what adjustments to the program should be made in order to optimize Gap Analysis Summary desired outcomes . An evaluation of Electric Charging Hydrogen Fueling the administration’s initiative could Stations Stations include such information as (1) how Administration 2025 goal 250,000 200 many additional ZEV charging and fueling stations were installed as Current number 14,000 31 Projected increase for existing programs 90,000 34 a result of the additional funding, Total projected number 104,000 65 (2) how those additional stations affected the number of ZEVs Gap to Achieve 2025 Target 146,000 135 purchased, (3) the cost-effectiveness Cost Per Station $6,000 to $110,000 $2.5 to $4.0 million of the program relative to alternative Total Cost to Fill Gap $1.2 to $1.6 billion $340 to $540 million www.lao.ca.gov 65 analysis full gutter 2018-19 BUDGET an estimated $88 million in unspent ratepayer funds potential costs and benefits of allocating the additional designated for the expiring NSHP program to ZEV funding . infrastructure projects . We note that there are other Direct Administration to Provide Coordinated options for the use of these funds . The Legislature Strategy for ZEV Infrastructure. We recommend the could extend CEC’s authority to spend the funds on Legislature adopt supplemental reporting language to the NSHP program if the state has not fully achieved direct the administration to develop a detailed report its goal by June 2018 . Alternatively, CPUC could direct by January 10, 2019 setting a strategy for coordinating IOUs to return the unspent money to ratepayers . spending for ZEV infrastructure across various state In the out-years, all ARFVTP funds would be devoted programs and updated annually over the life of the solely to ZEV infrastructure projects . Other existing program . This would help avoid duplication of effort and ARFVTP activities would no longer receive annual ensure funds are being applied to the highest priority funding . According to the administration, other ARFVTP locations and on the most effective technologies . activities could be eligible for GGRF in future years . Consider Whether Redirection of Funds However, without any specific ongoing allocations for Is Consistent With Legislative Priorities. We these activities, the proposal creates a greater risk that recommend the Legislature consider whether the they will not be funded in future years . Such a change administration’s proposed shifts in funding are presents trade-offs between providing more stable consistent with legislative priorities . In 2018-19, the funding for ZEV infrastructure and providing less stable administration’s proposal prioritizes ZEV infrastructure funding for other existing projects . over other possible uses for the funds, including funding for other existing ARFVTP activities, incentives LAO Recommendations for solar energy on new homes, and returning certain Direct Administration to Report Key Information. funds to IOU ratepayers . In the out-years, the proposal We recommend the Legislature direct the administration eliminates funding for all of the other current ARFVTP to report at budget hearings on (1) additional activities, including low-carbon fuel production information about how the funding would affect key and advanced freight technology . Alternatively, the policy outcomes, such as GHG emissions; (2) its Legislature could fund a different mix of activities if assessment of potential risks and costs associated it prioritizes programs differently from the Governor . with a rapid expansion of ZEVs, as well as actions The Legislature also could consider whether to use that it plans to undertake to mitigate those risks; (3) a other funds to support ZEV infrastructure expansion . more detailed justification for the amount of funding If, for example, the Legislature wanted to continue requested for ZEV infrastructure; and (4) a plan for to fund existing ARFVTP programs and expand ZEV evaluating outcomes after program implementation . infrastructure, it could provide additional support to This information would help the Legislature evaluate the ZEV infrastructure through allocations from GGRF . This, however, would reduce the amount of GGRF available for other programs . STATE WATER RESOURCES CONTROL BOARD The State Water Resources Control Board (SWRCB) the state’s system of water rights . The regional boards regulates water quality and administers water rights issue and enforce compliance with waste discharge in the state . SWRCB consists of a state board in permits, monitor water quality, and carry out water Sacramento (composed of five members representing pollution control programs in accordance with state differing areas of expertise) and nine regional boards board policies . (each composed of seven members) . The state board The Governor’s budget proposes $1 .1 billion sets the policy direction for the regional boards and ($40 million General Fund) for the SWRCB in 2018-19 . acts as an appellate body for regional board decisions . This is a reduction of $1 .5 billion, or 59 percent, from The state board is also responsible for administering 66 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET current-year estimated expenditures . The decrease is At the local level, 30 of the 58 county environmental primarily due to an almost $1 .5 billion reduction in bond health departments in California have been delegated funding from Proposition 1 (2014) . primacy—known as Local Primacy Agencies (LPAs)— by the SWRCB to regulate systems with between SAFE AND AFFORDABLE 15 and 200 connections within their jurisdiction . For investor-owned water utilities under the jurisdiction of DRINKING WATER FUND CPUC, the DDW or LPAs share water quality regulatory LAO Bottom Line. The administration proposes authority with CPUC . budget trailer legislation to implement a significant The DDW regulates approximately 7,500 water new policy that would impose new charges on water systems . About one-third of these systems have system customers and certain agricultural entities between 15 and 200 service connections . The number to implement a new financial assistance program to of smaller systems—specifically, those with 14 or fewer address unsafe drinking water . We identify three issues connections—is unknown but estimated to be in the for the Legislature to consider as it deliberates on the thousands . proposal: (1) consistency with the state’s human right Multiple Causes of Unsafe Drinking Water. to water policy, (2) uncertainty about the estimated The causes of unsafe drinking water can generally revenues that would be generated by the proposal and be separated into two categories (1) contamination the amount of funding needed to address the problem, caused by human action and (2) naturally occurring and (3) consistency with the polluter pays principle . contaminants . In some areas, there are both human caused and natural contaminants in the drinking water . Background Three of the most commonly detected pollutants Federal, State, and Local Entities Regulate in contaminated water are arsenic, perchlorate, and Drinking Water. The federal Safe and Affordable nitrates . While arsenic is naturally occurring, perchlorate Drinking Water Act (SDWA) was enacted in 1974 to contamination is generally a result of military and protect public health by regulating drinking water . industrial uses . High concentrations of nitrate in California has enacted its own safe drinking water groundwater are primarily caused by human activities, act to implement the federal law and establish state including fertilizer application (synthetic and manure), standards . The U .S . EPA enforces the federal SDWA animal operations, industrial sources (wastewater at the national level . However, most states, including treatment and food processing facilities), and septic California, have been granted “primacy” by the U .S . systems . Agricultural fertilizers and animal wastes EPA, giving them authority to implement and enforce applied to cropland are by far the largest regional the federal SDWA at the state level . sources of nitrate in groundwater, although other Maximum contaminant levels (MCLs) are sources can be important in certain areas . health-based drinking water standards that public water Unsafe Drinking Water a Statewide Problem. systems are required to meet . MCLs take into account SWRCB has identified a total of 331 water systems that the health risk, detectability, treatability, and costs it or LPAs regulate that are in violation of water quality of treatment associated with a pollutant . Agencies standards . These water systems serve an estimated responsible for regulating water quality enforce these 500,000 people throughout the state . The number standards . of water systems with 14 or fewer connections that The SWRCB’s Division of Drinking Water (DDW) are currently in violation of water quality standards is regulates public water systems that provide water for unknown, but estimated to be in the thousands by human consumption and have 15 or more service SWRCB . Of the 331 systems identified by SWRCB, 68 connections, or regularly serve at least 25 individuals have violations associated with nitrates (and in some daily at least 60 days out of the year . (A “service cases, additional contaminants) . In some of these water connection” is usually the point of access between a systems, unsafe contamination levels persist over time water system’s service pipe and a user’s piping .) The because the local agency cannot generate sufficient state does not regulate water systems with less than revenue from its customer base to implement, operate, 15 connections; county health officers oversee them . or maintain the improvements necessary to address www.lao.ca.gov 67 analysis full gutter 2018-19 BUDGET the problem . The challenge in these systems is often a various bond measures for capital investments, and product of a combination of factors, including the high some operations and maintenance costs aimed costs of the investments required, low income of the at providing safe drinking water . For example, customers, and the small number of customers across Proposition 1 (2014) authorized $520 million for grants whom the costs would need to be spread . and loans for projects that improve water quality, Safe and Affordable Drinking Water a Human including to help provide clean, safe, and reliable Right. In response to concerns about the prevalence drinking water to all Californians . Some of this funding of unsafe drinking water in California, Chapter 524 of supports the DWSRF . 2012 (AB 685, Eng) was enacted . This law declares the Governor’s Proposal state’s policy that every human being has the right to safe, clean, affordable, and accessible water adequate The administration proposes to establish a new for human consumption, cooking, and sanitary program—the Safe and Affordable Drinking Water purposes . Under Chapter 524, state agencies are Fund (SADWF)—to be administered by SWRCB and required to consider this policy when revising, adopting, designed to increase access to safe drinking water for or establishing policies, regulations, and grant criteria . Californians . Specifically, the program would provide Chapter 524 clarifies that it does not expand the state’s certain local water agencies—particularly ones in obligations to provide water or require the state to fund disadvantaged communities—with grants, loans, water infrastructure . contracts, or services to help support their operations SWRCB Administers Programs to Provide and maintenance costs . This funding would be Safe Drinking Water. The SWRCB administers supported by new charges proposed by the Governor the Drinking Water State Revolving Fund (DWSRF), on water system ratepayers and certain agricultural which provides continuously appropriated funding for entities . For 2018-19, the administration requests a low- and zero-interest loans, debt refinancing, principal one-time loan of $4 .7 million from the Underground forgiveness, and grants to public water systems Storage Tank Cleanup Fund to begin implementation of for infrastructure improvements to correct system the new program . Below, we provide additional details deficiencies and improve drinking water quality . Eligible about key aspects of the administration’s proposal . projects include the planning, design, and construction Provides Disadvantaged Communities With of drinking water projects such as water treatment Funding for Maintenance and Operations. Under systems, distribution systems, and consolidation with the administration’s proposal, SWRCB would prioritize another water system that has safe drinking water . The the use of funds to assist disadvantaged communities program is funded by annual capitalization grants from and low-income households served by a water system the U .S . EPA and a federally required 20 percent state with less than 14 connections . Funding would be match (usually from bond funds) . The federal and state prioritized to support operations and maintenance funds are then used to provide financial assistance for costs, as well as capital costs associated with water eligible projects . In 2016-17, SWRCB estimates the system consolidation and service extensions . Allowable DWSRF disbursed about $330 million and provided uses would include providing replacement water technical assistance to water systems . on a short-term basis, as well as the development, SWRCB also administers temporary programs implementation, maintenance, and operation of more to provide safe and affordable drinking water . For permanent solutions (such as treatment systems) . example, SWRCB administers the Clean Drinking Imposes Various Charges. In total, the Water Program for Disadvantaged Households, which administration estimates that the various proposed provided one-time funding of $8 million General Fund charges would generate roughly $150 million annually in 2017-18 to disadvantaged households and small when fully implemented . The charges on agricultural water systems to ensure they have adequate access to entities would be required to be targeted to water clean drinking water and adequate sanitation . Eligible systems affected by nitrate contamination . Specifically, projects include capital costs for replacement and the administration proposes budget trailer legislation to repair of existing domestic wells . The board has also implement the following charges: administered funds approved by the voters through 68 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET • Charge on Water System Customers The administration has not estimated the total cost ($130 to $140 Million). Beginning July 2019, associated with bringing drinking water systems that the administration proposes imposing monthly are currently unable to meet water quality standards charges on most water system customers into compliance on an ongoing basis . However, ranging from $0 .95 to $10 based on the size a private consulting firm recently did a statewide of the customer’s water meter . According to a drinking water needs assessment for advocates and recent CPUC report, the average water bill across stakeholders to determine this amount . According 113 California public water systems was $78 in to the assessment, $140 million would be required the summer and $60 in the winter . SWRCB annually to improve conditions at all drinking water estimates that these charges will generate systems and domestic wells with substandard water between $130 million and $140 million annually quality . In our discussions with SWRCB staff, they when fully implemented . Customers would be indicated that the methodology used to generate the exempted from this charge if they (1) belong to a estimate appeared reasonable, but any estimate in this water system with fewer than 200 connections or area is highly uncertain, particularly due to the lack of (2) self-certify that their household income is equal data on smaller water systems and domestic wells . The to or less than 200 percent of the federal poverty assessment estimated the costs to address systems level (The 2018 federal poverty level is $25,100 with nitrate problems would be around $30 million for a family of four .) Beginning July 2021, SWRCB annually, and the costs to address all other systems could reduce these charges . Local water systems would be $110 million annually . would be authorized to retain some of the revenue Shields Certain Agricultural Entities From to cover costs associated with the collection of Regulatory Actions. In accordance with current law, the charges . SWRCB and regional water boards set objectives for • Mill Fee ($14 Million). The administration the amount of nitrate contamination in the groundwater . proposes a mill fee of six “mills” (equal to Agricultural entities that contribute to levels of nitrate six-tenths of a cent) per dollar on the sale of all contamination that exceed these objectives are fertilizer . This would be in addition to the current subject to enforcement actions that can include mill fee of three mills . According to the California cleanup and abatement orders and cease and desist Department of Food and Agriculture (CDFA), this orders . However, under the Governor’s proposal, if charge is estimated to generate $14 million per an agricultural operation meets certain requirements, year when fully implemented . such as implementing the best practicable treatment • Charges on Milk Producers ($5 Million). The control, and pays the charges required by this proposal, administration proposes to impose charges the operation would not be subject to these types of on milk producers beginning January 2021 . In regulatory actions . total, these charges are estimated to generate Requires SWRCB to Administer SADWF. $5 million per year when fully implemented . The proposal includes a number of administrative For context, cash receipts for milk and cream requirements, particularly for SWRCB . In a process production in California were $6 .1 billion in 2016 . that requires a public hearing and opportunities for • Charge on Confined Animal Facilities (Amount stakeholder participation, SWRCB would adopt a Not Estimated). Finally, the administration fund implementation plan and policy handbook with proposes to impose a charge on confined priorities and guidelines for expenditures from SADWF . animal facilities—excluding dairies—such as In addition, SWRCB staff would be required to annually egg-production facilities . The charges are capped develop and present to the board an assessment of the at $1,000 per facility per year . At the time this total annual funding needed to assist water systems analysis was prepared, the administration did not in the state to secure the delivery of safe drinking have revenue estimates available for the confined water . By January 1, 2020, SWRCB—in consultation animal facilities charge . with local health officers—would also have to make available a map of aquifers that are at high risk of containing contaminants that are used or likely to be www.lao.ca.gov 69 analysis full gutter 2018-19 BUDGET used as a source of drinking water for certain smaller issues for the Legislature to consider as it deliberates water systems and domestic wells . This would include this proposal . identification of water systems potentially in need of Proposal Is Consistent With Human Right to assistance to address water contamination issues . Water Policy. The Governor’s proposal is consistent Under the Governor’s proposal, SWRCB may with the state’s statutory policy that every human expend up to 5 percent of revenues from SADWF for being has the right to safe, clean, affordable, and costs associated with its administration . In addition, accessible water adequate for human consumption . CDFA may retain up to 4 percent of the monies The proposal would make safe and affordable drinking collected from the charges on agricultural entities for its water more widely available throughout the state largely costs associated with implementation and enforcement, by providing funding for operations and maintenance such as to establish a charge collection program and activities for water treatment systems . While the perform outreach to affected agricultural entities . This administration has not conducted its own estimate of amount would decrease to 2 percent beginning July the number of people this proposal would help, based 2021 . on the information available, it would appear that this 2018-19 Budget Proposals. As previously funding could address a large share of the problem . mentioned, the Governor’s budget proposes a In particular, the proposal would prioritize additional $4 .7 million loan from the Underground Storage funding to disadvantaged communities and low-income Tank Cleanup Fund in 2018-19 to fund the initial households served by water systems with less than implementation of SADWF . These funds would mainly 14 connections . support 30 new positions at SWRCB and CDFA as Uncertain to the Extent Proposed Revenues follows: Will Fully Address Problems. As described above, a private consulting firm estimated the total annual cost • SWRCB ($3.3 Million). The budget proposes to address contaminated drinking water at $140 million $3 .3 million on a one-time basis primarily to ($30 million for nitrate treatment and $110 million for support 23 positions at SWRCB to (1) develop other contaminants) . However, this estimate is highly and adopt a fund implementation plan, uncertain given the lack of data about the number of (2) process charges that would be deposited into smaller water systems and domestic wells that fail to SADWF, (3) map areas at high risk for drinking provide safe drinking water . It is possible that actual water contamination and process drinking water costs could be significantly higher or lower . We note data provided by local agencies, (4) develop an that under the proposal, SWRCB would be required assessment of the total amount of annual funding to prepare an annual needs assessment, which could needed to assist water systems in the state to provide the Legislature with greater certainty in the provide safe drinking water, and (5) perform future . accounting and other administrative tasks . The There is also uncertainty about the amount of administration indicates it will submit a request revenue that will be generated under this proposal, next year for permanent resources to administer particularly from the agricultural entities . The budget the SADWF . trailer legislation allows SWRCB to adjust ratepayer • CDFA ($1.4 Million). The budget proposes charges downward if the funding provided exceeds $1 .4 million in 2018-19 ($1 .1 million ongoing) future demand for the funds . However, if the demand to support seven positions at CDFA to collect exceeds funding in the future, any increase in charges charges from agricultural entities . would require approval by the Legislature . Might Not Fully Implement the Polluter Pays Issues for Legislative Consideration Principle. The “polluter pays” principle is the concept The Legislature faces a policy decision about that those entities that cause an environmental harm whether to increase charges on different products and should be responsible for the costs associated with consumers in order to implement a new program to cleaning up that contamination and addressing the address unsafe drinking water . Below, we raise some harm done . The vast majority of nitrate contamination is caused by agricultural activities . As such, the 70 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET administration’s proposal to have agricultural As described above, the assessment performed by entities pay charges to address the effects of that the private consulting firm estimated annual total contamination appears consistent with the polluter costs of $30 million to address drinking water systems pays principle . However, in at least two ways, the exceeding the nitrate MCL . However, CDFA estimates proposal might not be entirely consistent with the the charges on dairies and fertilizer combined would principle . First, it is worth noting that some of the total about $19 million per year when fully implemented . current nitrate contaminants in groundwater are not (At the time this analysis was prepared, the from current agricultural operations . Instead, some of administration had not completed a revenue estimate these nitrates are legacy contamination that could be for the charge on confined animals .) Consequently, the from as much as decades ago . Therefore, it might not proposal could result in nitrate-related contamination be entirely consistent with the polluter pays principle in drinking water being addressed from revenues to have current operators pay for contamination generated by the charge on water system customers caused by previous operators . Second, based on the rather than from agricultural entities . To the extent that information available, it appears that the funds raised by occurs, it would be inconsistent with the polluter pays charges on agricultural entities might not be sufficient principal . to address the costs related to nitrate contamination . www.lao.ca.gov 71 analysis full gutter 2018-19 BUDGET SUMMARY OF RECOMMENDATIONS Issue Governor’s Proposal LAO Recommendation Crosscutting Issues Cap-and-trade $2.8 billion cap-and-trade expenditure plan, Ensure budget allocations and related statutory direction expenditure plan including (1) $1.5 billion for continuous aligns with Legislature’s highest priorities. Direct appropriations and other existing spending administration to provide certain information, such as commitments and (2) $1.3 billion in discretionary estimated outcomes from past funding and proposed spending. funding. Consider alternative strategies to ensure fund solvency as more information about auction revenue becomes available over the next few months. Resources bond (SB 5) $1 billion—including $989 million for 17 natural Approve proposals, but (1) adopt budget bill language resources and environmental protection specifying flood projects and (2) replace $14 million departments—from natural resources-related bond proposed for specific DFW programs with an equivalent (Proposition 68) on the June 2018 statewide ballot. amount from existing Proposition 1 authority. Also, require administration to report at budget hearings on long-term spending plan, and consider alternative funding plan for high-priority projects should voters reject the bond measure. Ventura Training $8.8 million in 2018-19 ($6.3 million ongoing) for three Reject proposal because program is unlikely to be the most Program departments—and capital outlay out-year costs of cost-effective approach to reduce recidivism or increase $18 million—from the General Fund to convert the parolee employment, requested resources have not been existing Ventura conservation camp for inmates to a fully justified, and other options exist for CCC training. new firefighter training center for parolees. California Conservation Corps (CCC) Expansion of $10 million from the General Fund in 2018-19 to Wait for more information before approving funding for new residential centers begin a major expansion of the CCC residential residential centers and require CCC to provide reporting on center program by building four new residential corpsmember outcomes. centers. Total cost of projects estimated at $185 million. Corpsmember $1.1 million in 2018-19 ($1.8 million ongoing) from the Modify the Governor’s proposal to provide three-year funding, counseling General Fund and Collins-Dugan Reimbursement rather than ongoing funding, for transition services for Account to improve corpsmember access to corpsmembers and require CCC to prepare a report that mental health and drug dependency counseling will better inform the need for such services on an ongoing and to enhance transition services. basis. Approve proposed funding to improve access to mental health and drug and alcohol dependency counseling. Department of Fish and Wildlife (DFW) Structural deficit and $51 million ongoing augmentation from tire recycling Adopt funding package that addresses the $20 million shortfall program expansion fees, Motor Vehicle Account (MVA), and General and expands activities that reflect legislative priorities. Fund. Of this total, $20 million is to address Reject use of tire fees, approve level of MVA for which DFW existing funding shortfall and $31 million is to can justify workload nexus, and rely on General Fund and expand existing activities. fees for remainder of package. Require administration to report on its DFW budgetary analysis by October 1, 2018. Department of Parks and Recreation Structural deficit and $79 million in increased fuel tax revenues to Adopt a spending package that reflects legislative priorities. program expansion (1) address the State Parks and Recreation Fund structural deficit and build a reserve, (2) increase service levels at state parks, and (3) continue certain activities begun in the current year. (Continued) 72 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2018-19 BUDGET Issue Governor’s Proposal LAO Recommendation Regional infrastructure $7.5 million from the General Fund on a one-time Reject proposal should voters approve Proposition 68, which projects basis for two local parks projects. would provide local jurisdictions with additional resources for park projects. Department of Forestry and Fire Protection (CalFire) Helicopter fleet $98 million from the General Fund for CalFire to Withhold action on the funding pending the provision of replacement purchase four helicopters to continue its fleet information on the ancillary costs associated with fleet replacement. replacement and possible alternatives. Department of Water Resources Central Valley Flood $1.4 million from the General Fund for two years to Adopt proposal and supplemental reporting language Protection Board support ten existing CVFPB positions. requiring CVFPB to provide an update by February 1, 2019 (CVFPB) on its efforts to generate new revenues. State Lands Commission Abandoned oil and gas $58 million in 2018-19 and an additional $51 million Adopt proposal and adopt supplemental reporting language wells over the subsequent two years from the General requiring the commission to provide a status update on Fund to plug and secure two offshore oil and gas funding and activities by January 10, 2019. sites. Department of Conservation (DOC) Well Statewide $15 million in 2018-19 and an additional $9.4 million Approve only the request for $15 million in 2018-19, thereby Tracking and over the subsequent three years from the Oil, Gas, ensuring that the Legislature has additional oversight Reporting and Geothermal Administrative Fund (OGGAF) opportunities in coming years. (WellSTAR) for development, implementation, and ongoing maintenance and operations of the WellSTAR database system. Regulatory field $4.3 million from OGGAF and 21 permanent Approve funding for three years rather than on an ongoing inspections positions to increase inspection and enforcement basis as proposed. Require DOC to report on the extent activities on oil and gas fields. to which it is performing certain regulatory activities. This approach would require the administration to provide additional information in the future to identify the number of positions justified on a permanent basis. California Energy Commission Zero-emission vehicle $900 million expenditure plan over eight years, Direct administration to provide (1) a more detailed (ZEV) infrastructure including $235 million in 2018-19, from various justification for the amount of funding requested, (2) more special funds to support installation of ZEV information about how the funding would affect key policy charging and refueling infrastructure. outcomes, (3) its assessment of potential risks and costs associated with the expansion of ZEVs, and (4) a plan for evaluating outcomes after program implementation. Direct administration to develop a strategy for coordinating spending across state programs. Adopt spending plan that is consistent with legislative priorities. State Water Resources Control Board (SWRCB) Safe and Affordable $4.7 million ($3.3 million for SWRCB and $1.4 million Consider three issues when deliberating the proposal: Drinking Water Fund for the California Department of Food and (1) consistency with human right to water policy, Agriculture) to fund the initial implementation of a (2) uncertainty about the estimated revenues that would new financial assistance program to provide clean be generated by the proposal and the amount of funding drinking water. needed to address the problem, and (3) consistency with the polluter pays principle. www.lao.ca.gov 73 analysis full gutter 2018-19 BUDGET Contact Information Brian Brown Managing Principal Analyst, 319-8325 Brian.Brown@lao.ca.gov Resources and Environment Ashley Ames Parks and Forestry and Fire 319-8352 Ashley.Ames@lao.ca.gov Ross Brown Cap-and-Trade 319-8345 Ross.Brown@lao.ca.gov Rachel Ehlers Water, Fish and Wildlife, and State Lands 319-8330 Rachel.Ehlers@lao.ca.gov Shawn Martin Water and Conservation 319-8362 Shawn.Martin@lao.ca.gov Ryan Millendez Energy 319-8338 Ryan.Millendez@lao.ca.gov LAO PUBLICATIONS This report was reviewed by Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that 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. 74 LEGISLATIVE ANALYST’S OFFICE