The 2019-20 Budget: Natural Resources and Environmental Protection

The 2019-20 Budget: Natural Resources and Environmental Protection GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 14, 2019 analysis full gutter 2019-20 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Overview of Governor’s Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Wildfire Prevention and Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Implementation of 2018 Legislative Package . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Expansion of Fire Response Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Climate Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Cap-and-Trade: Revenue and Fund Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Cap-and-Trade: Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Coastal Adaptation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Safe and Affordable Drinking Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Water Conservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Environmental Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 AB 617 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Exide Cleanup Efforts Continue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 DTSC Special Fund Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Resources Capital Outlay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Deferred Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Several New Capital Outlay Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 CalFire Funding for Contract Counties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Bond Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Proposition 68 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Budget Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Several Proposals Lack Typical Support Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Summary of Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 www.lao.ca.gov analysis full gutter 2019-20 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Executive Summary In this report, we assess several of the Governor’s budget proposals in the natural resources and environmental protection areas . Based on our review, we recommend various changes, as well as additional legislative oversight . 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 2019-20 proposes a total of $11 .3 billion in expenditures from various fund sources for programs administered by the Natural Resources ($6 .7 billion) and Environmental Protection ($4 .6 billion) Agencies . The budget plan for these programs is mostly similar to what was approved in 2018-19 with only a few major changes proposed . Budget Includes Significant New Fiscal and Policy Proposals Expansion of Wildfire Response Capacity . The Governor’s budget includes $97 million— mostly from the General Fund—for several proposals to enhance CalFire’s wildfire response capacity . We generally find these proposal to be reasonable given the increasingly severe wildfire seasons and, therefore, recommend the Legislature approve most of the Governor’s proposals . We also recommend an assessment of existing state and local fire response capacity in order to better inform where additional resources could best be targeted in future years . Cap-and-Trade Expenditure Plan . The Governor’s budget includes a cap-and-trade expenditure plan that (1) assumes total Greenhouse Gas Reduction Fund (GGRF) revenue of $4 .7 billion in the current and budget year and (2) proposes to spend a total of $2 .4 billion in 2019-20 . We estimate revenue will be roughly $800 million higher over the two-year period . While there is uncertainty about future revenue, we find that the Legislature likely could spend a somewhat higher amount in the budget year and still maintain a healthy fund balance . Regarding proposed expenditures, we find that there is limited information provided by the administration on (1) expected programmatic outcomes, (2) necessary adjustments for certain programs to stay within proposed allocations, and (3) key details for the workforce development programs proposed . Based on these questions, we recommend that the administration provide additional information at budget hearings to inform budget decisions . Safe and Affordable Drinking Water Program . The administration proposes to create a new program that would (1) impose charges on water customers and certain agricultural entities—with estimated annual revenues of at least $110 million when fully implemented—and (2) provide funding to address unsafe drinking water throughout the state . We find that the proposal is consistent with the state’s human right to water policy . We also identify other issues for legislative consideration, including uncertainty about revenue and cost estimates and trade-offs with the proposed provisions to limit the state’s authority to take certain enforcement actions against polluters . Deferred Maintenance . The administration proposes $67 million—mostly General Fund— to implement deferred maintenance projects at six natural resources departments . While we find that additional investments in maintaining state assets is an important budget priority, we recommend that the Legislature require departments to report on what projects they intend to implement to ensure that they will focus on high-priority activities . We further recommend www.lao.ca.gov 1 analysis full gutter 2019-20 BUDGET reporting requirements to enable oversight of (1) how departments maintain their facilities on an ongoing basis and (2) what projects are actually implemented with the funding . Certain Proposals Highlight Need for Additional Legislative Oversight Implementation of 2018 Wildfire Legislation . The Governor’s budget includes $235 million— mostly GGRF—for proposals in several departments to implement the 2018 legislative package to increase wildfire prevention and forest health activities . Because we find that the proposals are consistent with the legislation, we recommend the Legislature approve them . We also recommend the Legislature conduct ongoing oversight to ensure effective implementation of the legislative package and offer specific questions to aid in those oversight activities . Coastal Adaptation . The Governor proposes $3 .3 million in ongoing funding (GGRF) for the San Francisco Bay Conservation and Development Commission and California Coastal Commission to assist local governments in their sea-level rise adaptation efforts . We recommend the Legislature adopt these proposals because of the potential future impacts of sea level rise . We also recommend that the Legislature continue to work with state and local entities to identify the most effective ways to support local communities’ planning and response needs, including ongoing assessments of progress, how these efforts should be funded, and what additional research and data is needed . Water Conservation . The Governor proposes $8 million from the General Fund in 2019-20 (over $2 million ongoing) for the Department of Water Resources and State Water Resources Control Board to implement recent water conservation legislation . We find that the proposals are consistent with legislative intent and recommend approval . We also recommend ongoing oversight to ensure that state and local entities are meeting the deadlines established in the legislation and that overall efficiency and drought resilience outcomes are being attained . Implementation of AB 617 . Chapter 136 of 2017 (AB 617, C . Garcia) made various changes to monitor and reduce criteria and toxic air pollutants that adversly effect some communities . The Governor’s budget proposes $276 million—mostly GGRF—to continue the implementation of AB 617, including (1) $260 million for one-time funding to support local air district activities and incentive programs and (2) $16 million for state administrative activities . The proposal largely is consistent with AB 617 and past budgeted activities . However, we recommend that the Legislature reject a component of the proposal that would provide $3 .8 million to the California Air Resources Board because it lacks workload justification . In addition, we recommend that the administration report on its expectations for future funding and expansion . Exide Cleanup Activities . The Governor proposes $75 million in one-time General Fund loans—in addition to $177 million in previous loans—to fund the cleanup of residential properties contaminated by airborne lead from the Exide lead-acid battery recycling facility . This funding would support increased costs to clean up previously identified parcels, as well as clean up hundreds of additional parcels . We recommend the Legislature require the Department of Toxic Substances Control to report on the costs and time frame for completing the residential cleanup, as well as when Exide will begin to repay the state . Implementation of Proposition 68 . The Governor proposes about $1 billion in spending from Proposition 68 (2018 bond) for a number of programs in various departments . The proposals appear to be reasonable and consistent with the requirements of the bond, though the Legislature may want to adjust the funding amounts for particular programs to expedite or increase the effectiveness of program implementation based on input from stakeholders and the state departments . 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET OVERVIEW OF GOVERNOR’S BUDGET In this section, we provide an overview of the Partially offsetting these reductions, the proposed Governor’s 2019-20 budget plan for the state’s 2019-20 budget also includes some proposals for natural resources and environmental protection increased funding, for example, to implement recent departments, including a brief description of the wildfire prevention legislation . We summarize the main changes from the current year . Later in this most significant budget adjustments below . report, we provide more detailed assessments of Summary of Budget Changes many of these specific proposals . Total of $6 .7 Billion Proposed for Natural Overall Budget Plan Resources Departments . As shown in Figure 2 Mostly Similar to Current Year (see next page), the Governor’s budget plan for Total Spending of $11 .3 Billion Proposed . entities within the Natural Resources Agency California’s Natural Resources and Environmental includes a total of $6 .7 billion . Almost half of Protection Agencies oversee the activities of about this funding (including most of the General Fund 40 state departments, boards, and conservancies support) is for the California Department of Forestry whose missions are to protect and restore the and Fire Protection (CalFire) and to repay past state’s natural and environmental resources and to natural resources-related general obligation bonds . ensure public health and environmental quality . The Just over half of the total is proposed to be funded Governor’s 2019-20 budget proposes total funding from the General Fund with the remainder mostly of $11 .3 billion from all sources—the General Fund, from special funds and bond funds . Of the total as well as special, bond, and federal funds—for proposed, $5 .1 billion (76 percent) is to administer these entities . As shown in Figure 1, this reflects a state programs, and most of the remainder is net reduction of $432 million (4 percent) compared for local assistance—generally grants to local to the current-year budgeted level . (Later in this governments and nonprofits to implement projects . section, we compare to revised estimates for the Total of $4 .6 Billion Proposed for current year, which have been updated since the Environmental Protection Departments . As enactment of the budget .) While there is a net shown in Figure 3 (see page 5), the Governor’s reduction in overall spending authority, the proposed budget plan for entities within the Environmental budget is mostly consistent with what was approved Protection Agency includes a total of $4 .6 billion . in the current year and does not reflect significant Most of this supports three departments—the programmatic reductions . Instead, the overall net California Department of Resources Recycling and spending reduction largely reflects the appropriation Recovery (CalRecycle), State Water Resources of one-time funding in the current year . For example, Control Board, and California Air Resources Board . the current-year budget provided $255 million Of the total budgeted, $3 .7 billion (81 percent) is more in one-time bond funds from Proposition 68 proposed to be funded from special funds, and (2018) than is proposed for the budget year . $2 .9 billion (63 percent) is for local assistance . Spending Reductions Figure 1 Primarily Reflect Technical Proposed Spending Compared to 2018-19 Budgeted Level Changes . Compared to updated estimates of current-year (Dollars in Millions) expenditures, proposed Change 2018-19 2019-20 2019-20 spending for natural Agency Budgeted Proposed Amount Percent resources and environmental protection departments is lower Natural Resources $7,212 $6,713 -$499 -7% Environmental Protection 4,544 4,611 67 1 by $2 .9 billion (30 percent) Totals $11,756 $11,324 -$432 -4% and $1 .7 billion (27 percent), www.lao.ca.gov 3 analysis full gutter 2019-20 BUDGET respectively . These reductions include decreases for CalFire, $170 million for flood protection in spending from the General Fund, as well as projects by the Department of Water bond and special funds . However, these changes Resources, $154 million for CalRecycle to largely reflect the expiration of one-time funding conduct debris cleanup activities following provided in 2018-19, as well as technical budget recent wildfires, and $100 million to support adjustments made since the enactment of the the construction of a new California Indian 2018-19 Budget Act, rather than significant Heritage Center . (While the wildfire-related programmatic changes . costs are budgeted as one-time in 2018-19, spending for these programs in 2019-20 could • One-Time General Fund Spending be higher than budgeted based on actual in Current Year . Combined, General firefighting and debris cleanup activities Fund spending by natural resources and associated with future fires .) environmental protection departments is • Technical Adjustments to Special and estimated to decrease by $691 million Bond Fund Amounts . Under the Governor’s compared to revised current-year estimates . proposed budget, spending from bond funds This mostly reflects one-time funding provided would decrease by a total of $2 .8 billion, and in the current year, including higher estimated special fund spending would decrease by emergency firefighting costs of $245 million Figure 2 Natural Resources Budget Summary (Dollars in Millions) Change From 2018-19 2017-18 2018-19 2019-20 Actual Estimated Proposed Amount Percent Total $6,258 $9,565 $6,713 -$2,853 -30% By Department Forestry and Fire Protection $1,727 $2,200 $2,027 -$173 -8% General obligation bond debt service 968 1,022 1,145 123 12 Parks and Recreation 792 1,236 851 -384 -31 Water Resources 556 2,197 745 -1,452 -66 Fish and Wildlife 520 538 477 -60 -11 Energy Commission 426 867 402 -465 -54 Natural Resources Agency 136 371 223 -148 -40 Wildlife Conservation Board 496 196 196 — — Conservation Corps 109 155 143 -13 -8 Conservation 168 138 135 -3 -2 State Lands Commission 42 100 79 -21 -21 Other resources programsa 316 547 289 -258 -47 By Funding Source General Fund $3,127 $3,968 $3,513 -$455 -11% Special funds 1,693 2,124 1,703 -421 -20 Bond funds 1,122 3,171 1,207 -1,965 -62 Federal funds 316 302 290 -12 -4 By Purpose State operations $4,687 $5,775 $5,108 -$667 -12% Local assistance 1,044 2,874 1,248 -1,626 -57 Capital outlay 527 917 357 -560 -61 a Includes state conservancies, Coastal Commission, and other departments. 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET a total of $1 .1 billion, compared to revised sustainably manage groundwater, and improve current-year estimates . Much of this apparent air quality in communities with particularly high budget-year decrease is related to how certain concentrations of toxic air pollution . bond and special funds are accounted for in A Few Significant New Initiatives Proposed . the budget, making year-over-year comparisons The budget proposes some new programs and difficult . Specifically, bond and special funds expansions of existing programs . The Governor that were appropriated but not spent in prior proposes an increase of $97 million (mostly General years are often carried over to the current year . Fund) to expand the state’s capacity to respond The 2018-19 amounts will be adjusted in the to wildfires, including funding for additional CalFire future based on actual expenditures . firefighting crews and dedicated fire crews operated by the California Conservation Corps (CCC) . Implements Several Key Legislative (For comparison, the 2018-19 budget includes Measures . The proposed 2019-20 budget includes $1 .1 billion for baseline wildfire suppression costs .) a number of proposals for increased funding Other significant new proposals in the budget to implement recent legislative measures . This include (1) $75 million in General Fund loans to includes $226 million for various natural resources the Department of Toxic Substances Control to and environmental protection departments to continue and expand environmental cleanup efforts implement laws passed in 2018 designed to around the Exide battery facility; (2) $27 million improve forest health and reduce the risk of from the Greenhouse Gas Reduction Fund catastrophic wildfires . The budget also proposes (GGRF) for workforce development programs; and to begin or continue implementing other legislation (3) the creation of a new program to support the passed in recent years, including to increase water provision of safe drinking water mainly in small, conservation efforts by local water agencies, more disadvantaged communities . Figure 3 Environmental Protection Budget Summary (Dollars in Millions) Change From 2018-19 2017-18 2018-19 2019-20 Actual Estimated Proposed Amount Percent Totals $4,482 $6,356 $4,611 -$1,745 -27% By Department Resources Recycling and Recovery $1,626 $1,846 $1,575 -$271 -15% Water Resources Control Board 1,206 2,222 1,358 -864 -39 Air Resources Board 1,267 1,799 1,176 -623 -35 Toxic Substances Control 238 336 349 13 4 Pesticide Regulation 104 107 109 2 2 Other departmentsa 40 46 45 -1 -2 By Funding Source General Fund $162 $361 $125 -$236 -65% Special funds 3,567 4,435 3,713 -722 -16 Bond funds 515 1,191 405 -786 -66 Federal funds 238 369 369 -1 — By Purpose State operations $1,400 $1,911 $1,698 -$212 -11% Local assistance 2,928 4,445 2,913 -1,532 -34 Capital outlay 154 — — — — a Includes the Environmental Protection Agency, Office of Environmental Health Hazard Assessment, and general obligation bond debt service. www.lao.ca.gov 5 analysis full gutter 2019-20 BUDGET Summary of Significant Changes Proposed . policy changes proposed for natural resources and Figure 4 lists the most significant funding and environmental protection departments . Figure 4 Significant Proposals for 2019-20 Natural Resources Forestry and Fire Protection • $210 million to implement 2018 wildfire prevention legislation. • $97 million for enhanced fire protection. • $25 million to initiate new capital projects. • $13 million to continue previously approved capital projects. • $10 million to increase base funding for facility maintenance. Parks and Recreation • $34 million for deferred maintenance projects. • $16 million to continue previously approved capital projects. • $5 million to initiate new capital projects. Conservation Corps • $9 million to continue previously approved capital projects. Water Resources • $5 million to implement water conservation legislation. Environmental Protection Toxic Substances Control • $50 million to clean up additional sites contaminated by Exide facility. • $25 million to continue cleaning up previously identified sites contaminated by Exide facility. Water Resources Control Board • $25 million for safe and affordable drinking water programs. • $10 million for grants to clean up underground petroleum storage sites. Air Resources Board • $19 million for grants to replace trucks to improve air quality. Various Departments—Natural Resources and Environmental Protection • $995 million to continue implementing Proposition 68 (2018), including: – $170 million for clean drinking water projects. – $136 million for flood protection projects. – $112 million for groundwater management projects. – $93 million for multibenefit stormwater projects. – $74 million for water recycling projects. – $70 million to implement voluntary water agreements. WILDFIRE PREVENTION AND RESPONSE Steps Taken to Address Wildfires After trend has been particularly acute in the last couple Recent Catastrophic Fire Seasons . As shown of years, which have seen some of the worst in Figure 5, there is a trend of increasingly large individual wildfires in the state’s recorded history . and destructive wildfires in recent decades . This The 2018 fire season included several particularly 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET large and catastrophic fires, such Figure 5 as the Mendocino Complex Fire A Majority of the Largest and that was the largest in recorded Most Destructive Wildfires Occurred in Recent Years state history at 459,123 acres . The 2018 fire season also included the Camp Fire in Butte County 12 that became the most destructive 20 Largest wildfire in state history with nearly 10 19,000 structures destroyed 20 Most Destructive and 86 fatalities, including the 8 near-total destruction of the town of Paradise . 6 In recent years, the Legislature 4 has taken a number of steps in response to these increasingly 2 severe wildfire seasons, including augmenting funding for forest health, fire prevention, and wildfire 1920s 1940s 1960s 1980s 2000s response, as well as passing a package of wildfire-related legislation in 2018 . Governor’s Budget Continues are consistent with the various pieces of Recent State Efforts to Prevent and Respond legislation . We recommend the Legislature to Wildfires . The Governor’s 2019-20 budget plan approve these proposals, as well as conduct includes a total of $654 million across numerous ongoing oversight to answer key questions state departments to continue and expand recent about the near- and long-term implementation efforts related to wildfires . As shown in Figure 6 of the legislative package . (see next page), this includes $295 million to Background provide local and recovery assistance, $235 million to implement the 2018 wildfire legislative package, Recent Funding Increases for Forest Health and $124 million to enhance fire response capacity . and Fire Prevention . Until recently, CalFire’s The amount for local and recovery assistance budget has included base funding of about is proposed on a one-time basis . Most of the $100 million annually for forest health and fire remainder is proposed as ongoing augmentations prevention . Beginning in 2014-15, the state budget with some components growing in out-years . has included a series funding augmentations, In this section, we will focus primarily on the generally provided on a one-time basis, for various wildfire proposals for natural resources and forest health and fire prevention programs . Figure 7 environmental protection departments . First, we (see page 9) summarizes the major augmentations . discuss proposals to implement the 2018 wildfire In total, these augmentations have increased legislative package, and then we discuss the spending by more than $200 million annually in the proposals to enhance fire response capacity . current year and prior year above the $100 million base budget, resulting in total annual CalFire IMPLEMENTATION OF 2018 funding for forest health and fire prevention of over $300 million . Most of this funding has been from LEGISLATIVE PACKAGE GGRF . The Governor’s budget includes numerous The largest increase in forest health and fire proposals to implement the 2018 wildfire prevention funding in recent years has been to legislative package . In general, the proposals fund two grant programs—one each for forest www.lao.ca.gov 7 analysis full gutter 2019-20 BUDGET health and fire prevention activities—as well as to form a clearing often about 300 feet wide and support fuels reduction projects implemented by several miles long—to protect at-risk communities . CalFire staff . The forest health grant program funds In addition, $30 million was provided beginning projects by nonprofits and local governments that in 2018-19 to fund six dedicated prescribed fire apply multiple treatments—such as prescribed fire, crews at CalFire . Once established, these crews will pest abatement, and reforestation—to a forested develop and implement prescribed fire projects on area . The fire prevention grant program provides a year-round basis . The rationale for establishing funding to nonprofits, local governments, and local crews dedicated to year-round prescribed fire work fire safe councils primarily for the development of was that the extended and increasingly severe fire fuel breaks—involving the removal of vegetation seasons did not leave a long enough “off season” for regular CalFire crews to undertake prescribed Figure 6 Governor’s 2019-20 Wildfire-Related Budget Proposals (In Millions) Proposal General Fund Other Funds Total Local and Recovery Assistance Waive local share of debris removal costsa $155.2 — $155.2 HCD community development block grant — $108.8 108.8 Property tax backfillb 31.3 — 31.3 Subtotal, Local and Recovery Assistance ($186.5) ($108.8) ($295.3) 2018 Legislative Package—Forest Health and Fire Prevention CalFire (various bills) — $210.0 $210.0 PUC and Public Advocates Office (SB 901) — 9.1 9.1 CCC (AB 2126) $4.5 — 4.5 State Water Resources Control Board (SB 901) 2.6 1.8 4.4 Department of Fish and Wildlife (SB 901) — 3.5 3.5 Air Resources Board (SB 1260) — 3.4 3.4 Subtotal, 2018 Legislative Package ($7.1) ($227.8) ($234.9) Enhanced Fire Protection CalFire—13 additional fire engines $40.3 — $40.3 OES—fire engine prepositioning 25.0 — 25.0 CalFire/CCC—5 dedicated fire crews 13.6 — 13.6 CalFire—air tankers 13.1 — 13.1 CalFire—heavy equipment operator staffing 10.6 — 10.6 CalFire—employee wellness 4.2 $2.4 6.6 CalFire—fire detection cameras 5.2 — 5.2 CalFire—situational awareness staffing 4.5 — 4.5 CalFire—mobile equipment replacement 3.0 — 3.0 Military Department—administrative support 1.7 — 1.7 Subtotal, Enhanced Fire Protection ($121.2) ($2.4) ($123.6) State Lands Management CalFire—acquire demonstration forest lands $0.4 — $0.4 State Lands Commission—forest health inventory — $0.2 0.2 Subtotal, State Lands Management ($0.4) ($0.2) ($0.6) Totals $315.2 $339.2 $654.4 a Debris removal costs are scored in 2018-19. b Property tax backfill amount is the total for a three-year period and is scored in 2018-19. HCD = Department of Housing and Community Development; CalFire = California Department of Foresty and Fire Protection; PUC = Public Utilities Commission; CCC = California Conservation Corps; and OES = Governor’s Office of Emergency Services. 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Figure 7 CalFire Funding Augmentations for Forest Health and Fire Prevention (In Millions) Program/Activity 2014-15 2015-16 2016-17 2017-18 2018-19 Forest health, fire prevention, and fuels reduction 42 — 25 195 155 Prescribed fire crews — — — — 30 Urban and community forestry — — 15 20 20 Partnership with California Conservation Corps — — 0 5 5 Various othera — 5 21 16 10 Totals 42 5 61 236 220 a Includes tree mortality funding, community-based fire prevention, and state responsibility area local assistance grants. fire projects, which are an important forest health appropriations—$165 million for forest health activity . Other recent augmentations have averaged and fire prevention grants and fuels reduction roughly $40 million annually since 2016-17 . This projects and $35 million for prescribed includes funding for (1) urban and community burn activities—beginning in 2019-20 forestry grants for activities such as planting trees and continuing for a total of five years . In and creating urban forest management plans, aggregate, these amounts would be roughly (2) partnerships with CCC for fuels reduction the same as the amounts provided for these projects, and (3) various other activities including purposes in 2017-18 and 2018-19 . grants to remove dead and dying trees and • SB 901—Streamlining Permitting implement community-based fire prevention Requirements . SB 901 also includes projects . several changes to streamline the regulatory 2018 Wildfire Legislative Package Builds and approval processes related to timber on Recent Changes . The Legislature approved harvesting activities to allow private several pieces of legislation in 2018 to address landowners to remove trees and other the increasingly severe wildfire seasons . The vegetation from their property in order to legislative package builds on the recent budget reduce fuel available for forest wildfires . First, augmentations and enacts numerous policy SB 901 creates a new exemption, known as changes such as establishing new programs and the small timberland owner exemption, that regulatory processes to improve forest health allows owners of relatively small acreage and support fire prevention activities . While there forests—60 acres if near the coast or 100 were numerous bills related to wildfires (and acres elsewhere—to remove trees in order disaster response more broadly), there were five to reduce the continuity of fuels (such as bills in the package for which the administration in a densely forested area) if certain other has associated budget proposals for 2019-20 . criteria are met . Some examples of criteria to (We discuss those budget proposals later in this qualify for the exemption include limiting the analysis .) Among other changes, the bills contain harvest to certain size of trees harvested and the following major provisions: prohibiting removal of the six largest trees in each acre harvested . Second, the legislation • SB 901—Funding for Forestry and Fire expands an existing exemption, known as the Prevention Activities . Chapter 626 of 2018 forest fire prevention exemption, which has (SB 901, Dodd) includes several provisions allowed for tree removal or timber harvesting intended to reduce the risk of catastrophic without an approved timber harvest plan wildfires with a focus on forest health, in certain cases where the removal of fuels expanding the use of prescribed fires, and will help reduce the risk of severe wildfires reducing fuels . This includes a requirement and when the construction of temporary that the annual state budget include two www.lao.ca.gov 9 analysis full gutter 2019-20 BUDGET roads are not needed to conduct the project . skills needed for people to conduct prescribed SB 901 expands the potential use of this fires . Under this program, CalFire staff exemption by allowing for the construction members and private individuals or companies of temporary roads in certain cases . Third, could become certified in order to increase SB 901 requires CalFire to develop a Wildfire the workforce capable of safely conducting Resilience Program to provide technical prescribed fires . assistance to nonindustrial timberland owners • AB 2126—Forestry Corps Crews . Another to help them with the regulatory process component of the legislative package when conducting fuel reduction projects . The related to forest health is a requirement in legislation specifically requires the Wildfire Chapter 635 of 2018 (AB 2126, Eggman) Resilience Program to provide information that the CCC establish four “forestry corps” on the state permits needed to conduct fuel crews to develop and implement forest health reduction projects, best practices for wildfire projects, such as fuels reduction, tree planting, resilience, and available grant programs . and cone and seed collection . CCC is also • SB 901—Electric Utilities and Wildfire required to assist forestry corps members in Mitigation Plans . SB 901 also contains obtaining forestry degrees or certificates . provisions related to electric utilities because • AB 2518—Wood Product Manufacturing utility infrastructure is a common source Facilities . Chapter 637 of 2018 (AB 2518, of wildfire ignition . First, the legislation Aguiar-Curry) requires CalFire and the Board establishes procedures for wildfire cost of Forestry and Fire Protection (BFFP) to financing for investor owned utilities (IOUs) identify barriers to utilizing small trees and to apply for recovery of costs incurred as other woody biomass in the production of a result of catastrophic wildfires . Second, mass-timber and other innovative wood SB 901 adds additional required elements products after they are removed from forests for wildfire mitigation plans prepared by IOUs in California . AB 2518 also requires the Forest and reviewed by the California Public Utilities Management Task Force, staffed by CalFire, Commission (CPUC) in consultation with to develop recommendations for where to site CalFire . Specifically, IOUs must describe their wood product manufacturing facilities . future plans related to deenergizing portions • AB 2911—Building Standards and Surveys of the electrical distribution system, managing of High-Risk Communities . Chapter 641 of vegetation along utility corridors, inspecting 2018 (AB 2911, Friedman) requires the Office infrastructure, and other steps they will take to of the State Fire Marshall (OSFM) within modernize infrastructure and improve safety . CalFire to (1) recommend updated building • SB 1260—Prescribed Fires . Among other standards to better protect structures from things, Chapter 624 of 2018 (SB 1260, wildfire risks, (2) develop a list of low-cost Jackson) supports the use of prescribed fires retrofits that could be implemented at existing for forest health and wildfire prevention in structures to reduce the risks, and (3) provide two key ways . First, the legislation requires this list to the public through education and the California Air Resources Board (CARB) outreach efforts . AB 2911 also requires BFFP, in coordination with local air districts to in consultation with OSFM, to survey local conduct enhanced air quality and smoke governments in certain high-risk fire areas monitoring to provide air regulators with to identify existing subdivisions having only improved information when reviewing one roadway to access the subdivision . For requests for conducting prescribed fires . these communities identified, the board is Second, SB 1260 requires CalFire to develop required to make recommendations to reduce a professional “burn boss” curriculum and wildfire risks and track the extent to which certification program that would create a recommendations are implemented . consistent standard for the education and 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Governor’s Proposals burn boss curriculum . The proposal also includes $100,000 for public outreach . The Governor’s budget includes $235 million • Building Standards and Surveys of (mostly from the GGRF) and 213 positions across High-Risk Communities ($2 .3 Million) . five different natural resources and environmental The Governor’s budget includes $2 .3 million protection departments, as well as the CPUC, and six positions to evaluate wildfire risks to implement the major components of the 2018 for certain existing communities . Specific wildfire legislative package . activities would include conducting CalFire Proposals . The majority of the funding surveys of existing subdivisions, making and positions proposed—$210 million (GGRF) recommendations to local governments and 121 positions—is for CalFire, as described in on how to reduce fire risks, researching greater detail below . evacuation standards and road design, and • Forest Health and Fire Prevention Grants tracking whether recommendations are ($165 Million) . The Governor’s budget implemented by local communities . includes $165 million, as required by SB 901, • Wildfire Resilience Program Development and 19 positions for forest health grants, fire ($2 Million) . The budget proposes $2 million prevention grants, and fuel reduction projects and seven positions to establish the Wildfire conducted directly by CalFire staff . (The Resilience Program required by SB 901 . The 19 positions were established in 2018-19 on new positions would provide staff to conduct a one-time basis . This proposal provides outreach to nonindustrial timberland owners ongoing funding for these positions .) throughout the state, create and maintain • Prescribed Fire Staffing Expansion a list of permits required for fuels reduction ($35 Million) . The budget includes and forest management projects, summarize $35 million, as required by SB 901, and research on wildfire resilience, and post 78 new positions to create four additional information on state websites . prescribed fire crews, as well as provide • Identification of Barriers for Wood Product associated administrative and technical Manufacturing Facilities ($400,000) . The support . (The budget also reflects the budget includes $400,000 (one time) for a continuation of 79 positions authorized in consultant contract to assist CalFire and 2018-19 to staff the six initial crews and one BFFP in developing a report on barriers to research position, for total prescribed fire mass-timber production in California and staffing of 157 .) barriers to other innovative wood product • BFFP Regulatory Activities ($2 .6 Million) . manufacturing that uses smaller trees or The budget includes $2 .6 million and two woody biomass removed in the course of positions for the board to develop new completing fuels reduction activities . regulations needed to implement various • Utility Wildfire Mitigation Plan Reviews provisions of SB 901 . For example, ($227,000) . The budget proposes SB 901 requires new regulations for $227,000 to support one research analyst fuel breaks to protect certain types of at CalFire to assist CPUC with the review communities . This funding includes $2 million of IOU wildfire mitigation plans . CalFire and to contract for technical and legal assistance CPUC have entered into a memorandum of to develop these regulations . understanding to facilitate data sharing and • Burn Boss Certification Development allow CalFire to provide technical assistance ($2 .5 Million) . The budget proposes to CPUC . The research analyst would develop $2 .5 million and eight positions to conduct geographic information system data, generate research, provide training, and monitor maps, and conduct research and modeling to prescribed fire activity in the state . Under the evaluate the effectiveness of wildfire mitigation proposal, CalFire would contract with California plans submitted by IOUs . State University, Sacramento to develop the www.lao.ca.gov 11 analysis full gutter 2019-20 BUDGET Other Proposals . The remaining $25 million projects to ensure compliance, and develop requested is for proposals at various other state recommendations to protect water quality . departments . • Department of Fish and Wildlife (DFW) ($3 .5 Million) . The Governor’s budget • CPUC and Public Advocate’s Office includes $3 .5 million ($2 million from the ($9 .1 Million) . The budget provides Timber Regulation and Forest Restoration $6 .6 million (Public Utilities Commission Utilities Fund and $1 .5 million from the General Reimbursement Account) and 34 positions to Fund) and 15 positions for DFW to handle CPUC for ongoing workload related to SB 901, an increase in environmental review and including reviewing IOUs’ wildfire mitigation permitting workload related to SB 901 . Most plans . In addition, the budget provides of the positions would handle workload related $2 .5 million (Public Utilities Commission Public to the small timberland owner timber harvest Advocates Office Account) and 14 positions to exemption and the forest fire prevention the Public Advocate’s Office for safety-related exemption for the construction of temporary and administrative workload, such as reviewing roads for timber harvesting . The remaining wildfire mitigation plans and for reviewing positions would address workload for DFW to wildfire cost financing applications . assist CalFire in providing technical assistance • CCC ($4 .5 Million) . The budget includes through the new Wildfire Resilience Program . $4 .5 million from the General Fund and two • CARB ($3 .4 Million) . The budget provides positions for the CCC to establish four forestry CARB with $3 .4 million (GGRF) for prescribed corps crews, as required by AB 2126 . This burn smoke monitoring, forecasting, includes the creation of two new crews, the modeling, and reporting activities consistent conversion of an existing resource crew, and with the requirements of SB 1260 . This total the establishment of one crew through a local includes $2 million annually for three years for corps grant . local assistance grants to local air districts • State Water Resources Control Board to provide smoke management plan reviews, (SWRCB) ($4 .4 Million) . The budget includes provide training on the use of smoke sensors $4 .4 million ($2 .6 million from the General and monitors, and support other activities Fund and $1 .8 million from the Waste related to prescribed fires . The proposal also Discharge Permit Fund) and 22 permanent includes funding for CARB to add five new positions for SWRCB to implement positions, as well as $595,000 in one-time various provisions in SB 901, including funding to purchase 10 air quality monitors the development and implementation of a and 21 smoke sensors . streamlined statewide permit to address water quality degradation that could result from LAO Assessment increased removal of vegetation along utility corridors . The permit would provide a more Proposals Consistent With Legislation . The streamlined process for utilities to receive budget proposals to implement the 2018 legislative necessary approvals before undertaking wildfire package appear consistent with the vegetation management projects that will be requirements of the various bills in the package . required by the new comprehensive utility For example, the budget includes the two required wildfire mitigations plans . In addition, the appropriations of GGRF funds and includes budget request supports increased workload funding to support legislative requirements on state from the new small timberland owner timber agencies to implement other components of the harvest exemption and the expanded forest package, such as developing new programs and fire prevention exemption for the construction regulations . of temporary roads . Staff would be required Details and Expected Outcomes for to review exemption requests, inspect Some Proposals Are Limited . Some of the 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET budget proposals lack important details to by fire victims and insurance companies, as well as assist the Legislature in overseeing the ongoing costs paid by PG&E ratepayers . At this time, the implementation of the legislative package . For magnitude of the effects is unknown . In addition, it example, the budget proposes $165 million for is unclear what impacts, if any, PG&E’s bankruptcy forest health and fire prevention grants and related could have on the implementation of the recent CalFire projects, but the budget details do not legislative package, particularly the wildfire describe how funds would be allocated across mitigation plan required by SB 901 . Moreover, the various types of grants and programs . CalFire staff bankruptcy highlights wildfire risks and potential have indicated to us that the department likely will costs faced by other utilities in the state, as well fund some direct CalFire projects and then split as in other regions of PG&E’s service area . Given the remaining funding evenly between forest health the health of the state’s forests, there continue to and fire prevention grants . However, CalFire has be significant wildfire risks that could be ignited also indicated that these allocations are subject to by electric utility infrastructure . These risks and change . uncertainties further highlight the importance of Similarly, while the Governor’s budget includes ongoing legislative policy efforts and oversight . the $35 million for prescribed burn crews, CalFire LAO Recommendations did not submit a detailed budget document that provides important implementation details, such Approve Governor’s Budget Proposals . as (1) information about where crews would be Overall, the requests are consistent with the located in the state; (2) a time frame for the new package of legislation and appear to fund crews to be hired, trained, and implementing new reasonable first steps to implementing the package . projects; and (3) estimates of how many projects Accordingly, we recommend that the Legislature and acres are expected to be treated by the crews . approve the budget proposals to implement the The proposal for the CalFire Wildfire Resilience 2018 wildfire legislative package . Program also lacks key details, such as how many Ensure Details of Implementation Consistent nonindustrial timberland owners are estimated to With Legislative Intent . In addition, because receive technical assistance based on the proposed some of the proposals implement new programs level of funding and staffing for the program . or are continuing relatively new programs, some While it is understandable that some details of questions about the specific implementation of these new programs are still under development, the legislative package are not answered in the the limited information on some proposals could detailed budget documents provided . While this limit the Legislature’s ability to ensure the intent of may be understandable, the Legislature will want the legislative package is fully achieved and that to ensure it has answers to key questions about implementation progresses along the time line the implementation of the legislative package assumed when the package was enacted . in 2019-20 to ensure specific implementation Recent Electric Utility Bankruptcy Highlights decisions being made by the administration Risks and Uncertainties . As mentioned above, are in line with legislative intent . In particular, electric utility infrastructure is often the ignition we recommend that the Legislature require the source of wildfires . As a result, IOUs have an administration to report at spring budget hearings important role in wildfire prevention, but can face on the following questions: financial stresses associated with wildfire risks . For • Forest Health and Fire Prevention Fund example, in January 2019, Pacific Gas and Electric Allocation . How will the $165 million for forest (PG&E) filed for bankruptcy in large part as a result health and fire prevention grants and fuels of potential costs related to recent wildfires ignited reduction projects be allocated among various by the utility’s infrastructure . This bankruptcy raises programs? When will grants be awarded and various risks and costs for the state’s utilities, as projects underway? well as other entities . For example, the bankruptcy proceedings could affect future payments received www.lao.ca.gov 13 analysis full gutter 2019-20 BUDGET • Implementation of Prescribed Burn Crews . and fire prevention treatments compared to How is CalFire progressing at hiring and non-treated areas? training the prescribed burn crews approved • Allocation of Funds to Highest Priority in the 2018-19 budget? Where will crews be Areas . What criteria is CalFire using to located? How will projects be selected and allocate funding among various regions of prioritized? How is CalFire ensuring these the state? To what extent is the department crews remain dedicated to prescribed fire targeting dollars to the highest risk areas work year-round without being pulled into and/or those areas with the greatest potential assist with wildfire suppression? public safety or environmental benefits? • Wildfire Resilience Program . How many Is CalFire receiving a sufficient number of landowners are expected to receive technical grant applications from the highest priority assistance each year under the new program? geographic areas? If not, what steps is CalFire How will the effectiveness of this program be taking to proactively work with high-risk areas assessed, and what outcomes does CalFire to develop potential grant projects? expect to achieve with the staffing level • Barriers to Completing Forest Health requested? and Fire Prevention Projects . What • PG&E Bankruptcy . How might the PG&E implementation barriers or challenges are bankruptcy impact the implementation of CalFire and grant recipients experiencing with the utility’s wildfire mitigation plan? Does the completing forest health and fire prevention PG&E bankruptcy impact other aspects of projects? Does sufficient workforce capacity the administration’s implementation of the exist to undertake forest health and fire legislative package? prevention activities at the current funding levels? Do capacity concerns constrain the Conduct Ongoing Oversight . Given the number ability to expand programs in the future? of changes enacted in the legislative package, • IOU Fire Prevention Efforts . How quickly are as well as the complex and long-term challenge utilities conducting vegetation management of improving forest health and reducing wildfire projects along utility corridors? To what extent risks, it likely will take many years to evaluate are utilities implementing the portions of the outcomes of the state’s efforts . In addition, many plans requiring deenergizing of electrical of the requirements in the legislative package distribution systems and what are the impacts create new programs and regulatory requirements . and outcomes? What barriers, if any, impede So, it is unclear what specific implementation the ability of utilities to effectively implement challenges state departments, local governments, wildfire mitigation plans and the ability of state and land owners might face in their efforts to agencies to oversee the implementation of achieve the goals of the legislation . In light of these plans? this, we recommend that the Legislature conduct • Outcomes for Timber Harvest Exemptions . ongoing oversight through future budget and policy How many timber harvest exemptions are committee hearings to monitor the state’s progress . state agencies—CalFire, SWRCB, and Some key questions for future oversight include the DFW—processing? To what extent are the following: streamlined exemption processes resulting in • Measuring Outcomes . How will the state more fuels reduction? measure overall outcomes in the near term • Prescribed Burns . To what extent are and the long term? Are there ways to track additional resources for CARB resulting in the effectiveness of specific programs and more approvals for prescribed fires? How regulatory changes? How will the state are CARB and local air districts balancing monitor the change in fire risk or severity the inherent greenhouse gas (GHG) and in areas that have received forest health air quality trade-offs associated with approving prescribed burns that would have 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET near-term emissions? How has the burn the Legislature require the administration to boss certification program affected the ability conduct an assessment of existing state and of local and private entities to implement local fire response capacity in order to inform a prescribed burns? multiyear approach to increasing fire response • Collaboration Across State and Local resources . Entities . How is CalFire collaborating with Background other state and local entities to prioritize forest health and other wildfire reduction activities The state responds to wildfires in the state within key regions of the state? To what extent responsibility area by utilizing CalFire resources are regional planning efforts taking place, such (such as state and contracted fire crews, fire as in key watersheds? engines, helicopters, and air tankers), mutual aid • Balancing Funding for Prevention Activities resources (such as local fire fighters and engines), and Fire Response . How is the state and other state resources (such as equipment balancing funding for forest health and fire and staff from the California Military Department) . prevention activities to reduce the risks CalFire is currently funded to operate 343 fire associated with future wildfires with demands engines, as well as 234 fire stations, 12 air attack to increase funding for fire response resources bases, and 10 helitack bases . necessary to respond when wildfires occur? Recent Budgets Have Augmented CalFire How can the state determine where funding Response Resources . In recent years, CalFire’s can be most effective? To what extent should base budget for wildfire response has been about funding priorities change in the future as $1 billion . In response to the increasingly severe wildfire risks change or if additional very fire seasons and the general need to update severe and destructive wildfires occur? and modernize equipment over time, recent • Overall Funding and Staffing Levels . Are state budgets have increased CalFire’s wildfire funding and staffing levels sufficient to keep response resources . For example, in 2017-18 up with workload demands, such as for CalFire received $42 million to increase the processing permit exemptions or burn boss availability of 42 of its fire engines into year-round certifications? To what extent is there ongoing engines and extend the length of the season that or increased demand for forest health and fire helitack ground crews work . More recently, the prevention grants in high priority regions? 2018-19 budget provided CalFire with several significant funding augmentations bringing CalFire’s base budget for fire response is $1 .1 billion EXPANSION OF (mostly from the General Fund) in 2018-19 . These FIRE RESPONSE CAPACITY augmentations include: The concept of increasing CalFire fire • $315 million over multiple years to replace all response capacity is reasonable given 12 of CalFire’s helicopters . the increasingly severe wildfire seasons • $10 .9 million for heavy equipment mechanics experienced in the state . We recommend the and vehicle maintenance funding to address Legislature approve the Governor’s proposals, greater wear and tear from the lengthening fire with the exception of the proposal for C-130 seasons . air tankers . While the overall concept of the air • $9 .6 million to add five CCC crews dedicated tanker proposal is reasonable, CalFire has not to CalFire work, resulting in a total of seven provided the necessary budget details needed dedicated CCC crews . to fully evaluate this proposal . As such, we • $3 million in one-time funding for mobile recommend that the Legislature have CalFire equipment (such as fire engines and provide additional details at budget hearings bulldozers) replacements due to increased before taking an action on the request for new wear and tear . air tankers . In addition, we recommend that www.lao.ca.gov 15 analysis full gutter 2019-20 BUDGET Governor’s Proposals to replace CalFire’s existing fleet of aircraft, with the first air tanker scheduled to be The Governor’s budget proposes $124 million received in 2020-21 . The state will receive the for enhanced fire response capacity across multiple aircraft for free, but the department’s costs departments in 2019-20 . The largest share of this will increase over the next several years for proposed funding is $96 .9 million almost entirely from operating and maintenance costs . CalFire the General Fund for CalFire (offset by $1 .8 million estimates annual costs will rise steadily in reduced reimbursement authority for CCC) to over the next five years reaching $50 million implement several proposals as described below . in increased annual costs by 2023-24 . In Under the proposals, this funding for CalFire would addition, the proposed 2019-20 funding increase to over $120 million in subsequent years . level includes $1 .7 million for the first phase • Additional Fire Engines ($40 .3 Million) . The of three capital outlay projects to construct budget supports adding 13 new fire engines barracks to accommodate the new larger to CalFire’s fleet, as well as 131 additional flight crews needed to operate the C-130 positions to staff those engines . This would aircraft . These three projects along with bring the total size of the fleet to 356 fire a fourth barracks project expected to be engines . Under the proposal, these 13 new initiated next year are estimated to cost a total engines would be operated on a year-round of $26 million over several years . basis bringing the total number of fire engines • Employee Wellness ($6 .6 Million) . The operated on a year-round basis to 65 engines . budget proposes to expand two employee • Increased Staffing ($15 .1 Million) . The wellness programs . First, the budget would budget includes two proposals to increase expand an existing health and wellness CalFire’s fire response staffing . First, the pilot program to a statewide program . The budget includes $10 .6 million and 34 heavy health and wellness pilot program involves equipment operator positions in order have conducting voluntary wellness screenings a total of three heavy equipment operators to test for health conditions common to for each of CalFire’s 58 bulldozers to provide firefighters, such as heart disease and certain 24 hours a day, seven days a week staffing . types of cancer . Second, the budget increases Second, the budget includes $4 .5 million to staffing for CalFire’s Employee Support support 13 positions to provide situational Services program that provides mental awareness staffing—dedicated staff to provide health support to CalFire employees and real-time intelligence to decision makers family members . The proposal would allow during a wildfire . CalFire to provide more services to firefighters at the location of major fires and provide • CCC Crews Dedicated to CalFire additional education and information related to ($13 .6 Million) . The budget proposes to post-traumatic stress disorder . add five CCC crews dedicated to CalFire for fire response and prevention activities . • Fire Detection Cameras ($5 .2 Million) . The This includes converting four existing CCC administration proposes to join an existing reimbursement crews into crews dedicated network of wildfire detection cameras and full-time to CalFire work and creating one to expand the network by 100 additional new crew dedicated to CalFire work . Under cameras in locations determined by CalFire . the proposal, the total number of CCC crews Specifically, the funding will support a contract dedicated to CalFire will increase to 12 . between CalFire and ALERTWildfire—a consortium of the University of Nevada, Reno; • C-130 Air Tankers and Related Capital the University of California, San Diego; and Outlay ($13 .1 Million) . The budget includes the University of Oregon—to allow CalFire to funding and six positions to implement the access and control ALERTWildfire’s existing first year of a plan to accept seven used network of wildfire detection cameras . C-130 air tankers from the federal government 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET • Mobile Equipment Replacement components and costs of the proposal and why ($3 Million) . The budget proposes to continue each component is needed . While CalFire staff have on an ongoing basis a one-time 2018-19 been helpful and responsive in providing additional funding augmentation to CalFire’s budget for details on the proposals, questions regarding the replacement of mobile equipment, such as air tanker proposal remain outstanding . bulldozers and fire engines . Funding would be Administration Has Not Conducted used to replace additional mobile equipment Assessment to Inform Future Budget that has experienced additional wear and Decisions . In light of the state’s increasingly tear from the extended fire seasons in recent severe fire seasons and the trend of increasing years . wildfire response resources in recent budgets, we expect there will be continued pressure LAO Assessment to expand fire response funding in the future . Having more information on existing fire response Increasing Fire Response Resources Is capacity and gaps in capacity would help the Reasonable in Concept . The magnitude and Legislature in its consideration of future budget severity of recent fire seasons suggest that severe proposals to increase fire response resources . wildfires could be a worsening problem . Moreover, However, the administration has not completed ongoing impacts from the drought, bark beetle a recent assessment of state, mututal aid, and infestations, tree mortality, climate change, and federal wildfire response capacity; potential effects of decades of fire suppression activities all gaps; and where additional resources would be contribute to increased risks of severe wildfires . most beneficial . Without such an assessment Given the recent fire conditions and the likelihood it is difficult to know the extent to which the that conditions persist or even worsen, it is specific fire response augmentations proposed reasonable to increase the state’s fire response address the highest priorities, fill the most critical resources . gaps in response coverage, and take the most C-130 Air Tanker Proposal Lacks Detail . As cost-effective approach to addressing fire response discussed later in this report, the administration challenges . In addition, an assessment of response typically submits detailed budget documents capacity, gaps, and benefits could help inform that provide background, justification, and fiscal future budget decisions, as well as better allow details for each budget proposal . While the the state to develop longer-term funding plans administration submitted these budget documents for the deployment of future resources to ensure for the proposals to increase CalFire’s fire response that additional resources approved in the future resources, the documents lack certain details are used in the most beneficial and cost-effective necessary to evaluate specific components of the manner . proposals and to fully understand future costs and expected outcomes . This is particularly the case LAO Recommendations for the proposed C-130 air tankers . For example, Approve Most of the Governor’s Budget it is unclear why funding for maintenance and Proposals . We recommend that the Legislature operations contracts is needed in 2019-20 when approve the Governor’s requests for additional fire the state is not scheduled to receive the first C-130 response resources in CalFire, with the exception air tanker until 2020-21 . Similarly, it is unclear of the proposal to support additional C-130 air whether current costs related to operating and tankers . We find these proposals reasonable given maintaining CalFire’s existing air fleet (which will the recent severe fire seasons and ongoing wildfire be decommissioned) are being netted out from the risks in many areas of the state . total amount of funding being requested for the new Require CalFire to Provide Additional air tankers . Given the significant cost, especially Information on C-130 Air Tankers . As discussed in future years, to operate and maintain the C-130 above, the proposal for the C-130 air tankers lacks air tankers, it is important for the Legislature to important details, including the rationale for funding have the detail necessary to understand all of the www.lao.ca.gov 17 analysis full gutter 2019-20 BUDGET maintenance and operations contracts before the in coordination with the Governor’s Office of new air tankers are delivered . Accordingly, we Emergency Services, to provide an assessment recommend that the Legislature require CalFire to of existing state, mututal aid, and federal fire provide additional details on the air tanker proposal response capacity; gaps in capacity; and where at spring budget hearings before determining additional resources would be most beneficial . what action to take on the proposal . While the Such an assessment should evaluate state and overall concept of replacing CalFire’s air fleet with local responsibilities, and include all types of the C-130 air tankers is reasonable, we think the fire response including fire engines, air attack, Legislature will want to fully understand the costs of and other resources . The assessment should implementing this proposal before taking action on evaluate the cost-effectiveness of increasing this item . To the extent the department is unable to CalFire resources compared to increasing other provide sufficient justification for some components resources, appropriate funding sources, goals of this proposal, we would recommend the for fire response, and expected outcomes and Legislature reject those components of the benefits from addressing gaps in capacity . In proposal in 2019-20 . Doing so would not impede addition, the assessment should identify potential the department’s ability to accept the C-130s in capital outlay needs, such as adding fire stations future years or to begin the related capital projects or helitack bases . Lastly, the assessment should proposed . prioritize identified gaps in coverage or identified Require an Assessment to Inform Future demands for additional resources . We recommend Budget Decisions . In order to guide potential that the Legislature require CalFire to submit this increases in fire response resources in future assessment by April 1, 2020 in order to inform years, we recommend that the Legislature adopt potential future budget decisions related to supplemental reporting language to require CalFire, increasing fire response capacity . CLIMATE CHANGE CAP-AND-TRADE: couple hundred million dollars, for example— and still maintain a healthy fund balance . We REVENUE AND FUND CONDITION recommend the Legislature ensure multiyear The Governor’s budget (1) assumes discretionary spending commitments do not cap-and-trade revenue of $2 .6 billion exceed $900 million annually—the maximum in 2018-19 and $2 .1 billion in 2019-20; amount that could be supported by future (2) proposes to spend a total of $2 .4 billion revenue if recent trends in allowance prices in 2019-20, including roughly $1 .1 billion in continue . We also recommend the Legislature discretionary expenditures; and (3) leaves less modify the proposed budget bill language to than $100 million in the GGRF at the end of ensure the Legislature’s highest priorities are 2019-20 . We estimate revenue will be roughly funded if revenue falls below projections . $800 million higher over the two-year period In this section of the report, we assess the and, as a result, about $450 million would administration’s cap-and-trade revenue estimates remain unspent at the end of 2019-20 . There and the overall condition of the GGRF based continues to be uncertainty about future on total estimated expenditures in 2018-19 and revenue, making it appropriate to remain proposed expenditures in 2019-20 . In the following cautious when determining the overall amount section, we provide a more detailed description of of spending . However, under our revenue the Governor’s proposed cap-and-trade spending estimates, the Legislature could spend a plan and our assessment of those specific somewhat higher amount in the budget year—a proposals . 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Background allowances offered by the state were purchased . Several factors likely contributed to this decrease in Cap-and-Trade Part of State’s Strategy for allowance purchases, including (1) an oversupply of Reducing GHGs . The Global Warming Solutions allowances in the market because emissions were Act of 2006 (Chapter 488 [AB 32, Núñez/Pavley]) well below program caps and (2) legal uncertainty established the goal of limiting GHG emissions about the future of the program . The Legislature statewide to 1990 levels by 2020 . Subsequently, subsequently passed Chapter 135 of 2017 Chapter 249 of 2016 (SB 32, Pavley) established (AB 398, E . Garcia), which effectively eliminated an additional GHG target of reducing emissions legal uncertainty about the future of the program by at least 40 percent below 1990 levels by 2030 . by extending CARB’s authority to continue One policy the state uses to achieve these goals cap-and-trade through 2030 . Since then, quarterly is cap-and-trade . The cap-and-trade regulation— auction revenue has consistently exceeded administered by CARB—places a “cap” on $600 million—reaching about $800 million in the aggregate GHG emissions from large emitters, such most recent auctions . as large industrial facilities, electricity generators Current Law Allocates Over 60 Percent of and importers, and transportation fuel suppliers . Annual Revenue to Certain Programs . Over the Capped sources of emissions are responsible last several years, the Legislature has committed for roughly 80 percent of the state’s GHGs . To to ongoing or multiyear funding for a variety of implement the program, CARB issues a limited programs, including: number of allowances, and each allowance is essentially a permit to emit one ton of carbon • “Off-the-Top” Allocations to Backfill Certain dioxide equivalent . Entities can also “trade” (buy Revenue Losses . AB 398 and subsequent and sell on the open market) the allowances legislation allocates GGRF to backfill in order to obtain enough to cover their total state revenue losses from (1) expanding emissions . (For more details on how cap-and-trade a manufacturing sales tax exemption and works, see our February 2017 report The 2017-18 (2) suspending a fire prevention fee that Budget: Cap-and-Trade .) was previously imposed on landowners in Auction Revenue Has Been Volatile in Past, State Responsibility Areas (SRA fee) . Under but Stable Since Program Extension . About half current law, both of these backfill allocations of the allowances are allocated for free to utilities and certain Figure 8 industries, and most of the remaining allowances are sold by Auction Revenue Has Been Volatile in the Past, the state at quarterly auctions . But Stable in Recent Years The allowances offered at (In Millions) quarterly auctions are sold for a $900 minimum price—set at $15 .62 in 800 2019—which increases annually at 700 5 percent plus inflation . Revenue from the auctions is deposited in 600 the GGRF . 500 Figure 8 shows quarterly 400 state auction revenue since 300 2015 . Quarterly revenue has 200 been relatively consistent, 100 except in 2016 and early 2017 when auction revenue dropped 2015 2016 2017 2018 substantially in a few auctions . This was because very few www.lao.ca.gov 19 analysis full gutter 2019-20 BUDGET are subtracted—or taken off the top—from allocates a total of about $2 .4 billion GGRF annual auction revenue before calculating the in 2019-20 for various programs—including continuous appropriations discussed below . off-the-top backfills, continuous appropriations, These allocations are roughly $100 million and discretionary spending . (We discuss the details annually . of the expenditure plan in more detail below .) This • Continuous Appropriations . Several spending comes from anticipated 2019-20 revenue, programs are automatically allocated plus some unspent funds that carryover from 60 percent of the remaining annual revenue . 2018-19 . Under the Governor’s proposal and State law continuously appropriates annual revenue assumptions, about $80 million would revenue (minus the backfills taken off the remain unallocated at end of 2019-20 . top) as follows: (1) 25 percent for the state’s Budget Includes About $500 Million in high-speed rail project, (2) 20 percent Multiyear Discretionary Spending . Of the for affordable housing and sustainable $1 .1 billion in proposed discretionary spending in communities grants (with at least half of this 2019-20, almost $500 million consists of multiyear amount for affordable housing), (3) 10 percent discretionary spending commitments made in past for intercity rail capital projects, and years—such as the Clean Vehicle Rebate Project (4) 5 percent for low carbon transit operations . (CVRP) ($200 million), forest health ($165 million), prescribed fire and fuel reduction ($35 million), The remaining revenues—sometimes referred to and administrative costs ($60 million) . Most of the as “discretionary”—are allocated through the annual remaining discretionary allocations would be on a budget process, and funds generally support one-time basis . activities intended to facilitate GHG reductions . Budget Bill Language Provides DOF Authority Historically, some of these expenditures have been to Reduce Certain Allocations . Similar to last allocated on a one-time basis, while other programs year’s budget, the administration proposes have been allocated funding on a multiyear basis . budget bill language (BBL) that (1) restricts certain Proposal discretionary programs from committing more than 75 percent of their allocations before the fourth Budget Assumes $2 .1 Billion of Revenue in 2019-20 . Figure 9 summarizes the Governor’s proposed Figure 9 framework for GGRF revenue and Summary of GGRF Fund Condition expenditures . The budget assumes Under Different Auction Revenue Estimates cap-and-trade auction revenue of (In Millions) about $2 .6 billion in 2018-19 and $2 .1 billion in 2019-20 . According Governor’s LAO’s Estimates Estimates to the Department of Finance (DOF), the 2018-19 amount 2018-19 2019-20 2018-19 2019-20 continues the revenue assumption Beginning Balance $620 $272 $620 $518 used when the budget was Revenue $2,675 $2,200 $3,200 $2,500 adopted last year . The 2019-20 Auction revenue 2,575 2,100 3,100 2,400 amount is based on an assumption Investment income 100 100 100 100 that all allowances offered by Expenditures and Transfers $3,023 $2,390 $3,302 $2,569 the state will sell at the minimum “Off-the-top” backfillsa 71 130 71 130 auction price . Continuous appropriations 1,502 1,182 1,781 1,361 $2 .4 Billion Expenditure Discretionary expendituresa 1,450 1,078 1,450 1,078 Plan Spends Most of Available End Balance $272 $82 $518 $448 Funds . Based on Governor’s a Assumes Governor’s 2019-20 spending proposals are adopted. revenue estimates, the budget GGRF = Greenhouse Gas Reduction Fund. 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET auction of 2019-20 and (2) gives DOF authority future years (also known as “banking”), then some to reduce these discretionary allocations after the of the allowances offered in the near term might fourth auction if auction revenues are not sufficient . not be purchased . On the other hand, if businesses In addition, DOF must notify the Joint Legislative anticipate that prices will rise substantially in the Budget Committee (JLBC) of these changes within future, this could increase demand for allowances 30 days . This BBL is meant to ensure the fund and increase near-term prices . This could increase remains solvent if revenue is lower than estimated . revenue substantially . The allocations that DOF could reduce include air Revenue Likely Could Support Somewhat pollution reduction (AB 617) incentives, heavy-duty Higher Spending, but Reasons to Be Cautious . and freight equipment programs, transportation As shown in Figure 9, we estimate the Governor’s equity projects, Transformative Climate spending plan would leave about $450 million Communities Program, waste diversion grants in the fund at the end of 2019-20 . Given the and loans, and agricultural equipment upgrades . revenue uncertainty discussed above, we think Other discretionary programs would continue to be the Legislature should be cautious when adopting funded at budgeted levels under this scenario . a GGRF spending plan . However, based on our revenue projections, the Legislature could allocate LAO Assessment some additional funds in 2019-20, while still leaving Revenue Likely Somewhat Higher Than a healthy fund balance . For example, under our Budget Assumes . . . We estimate auction revenue revenue assumptions, the Legislature could allocate will be about $3 .1 billion in 2018-19 and $2 .4 billion an additional $200 million while also leaving in 2019-20—or about $800 million higher over the about $250 million in the fund for future years . two-year period . Our estimates assume that almost This fund balance would be about 25 percent of all allowances sell at the minimum auction price— annual discretionary revenue . As a percentage of consistent with recent market trends . Although annual revenue, the fund balance is higher than the administration indicates that it makes a similar many other state funds, which is prudent given assumption in 2019-20, our estimates are about the revenue uncertainty . As we discuss below, the $300 million higher in that year . The difference is Legislature will also want to consider the amount of primarily because we estimate that about 16 million revenue that will be available in future years when more allowances will be offered during the budget adopting its spending plan, particularly multiyear year based on updated estimates of available funding proposals . allowances . Future Discretionary Revenue Might Not . . . But Revenue Uncertainty Continues . Exceed $900 Million Annually . If nearly all There are a wide variety of factors that contribute allowances continue to sell at the floor price, to revenue uncertainty . Revenue is primarily driven revenue over the next few years will be roughly by demand for allowances and market prices . $2 .4 billion annually . After allocating funds for the The overall demand for allowances and prices will off-the-top backfills and continuous appropriations, depend on economic conditions, technological about $900 million annually would be left for advancements, future regulatory actions, and discretionary programs . As discussed above, the market expectations about these various factors . Governor’s budget includes about $500 million in All of these factors are highly uncertain and, as a multiyear discretionary spending . result, revenue could be higher or lower than our Details of BBL Important, Particularly if projections . For example, revenue could be lower Legislature Allocates More Money . If 2019-20 if companies do not purchase all of the allowances auction revenues are not sufficient to cover budget offered at auctions . There will be more allowances allocations, the Governor’s proposed BBL would available than companies need in order to comply give DOF authority to reduce allocations for certain with the regulation in the next few years . As a programs, while maintaining budgeted funding result, if a sufficient number of businesses do not levels for other programs . This effectively prioritizes want to purchase and hold onto allowances for funding for certain programs over other programs www.lao.ca.gov 21 analysis full gutter 2019-20 BUDGET if revenue is lower than expected . In concept, the comes in lower than projected and that ensures budget language is a reasonable way to ensure the funding goes to its highest priority programs fund remains solvent . Such a strategy is particularly under such a scenario . The Governor’s proposal important if the Legislature allocates substantially is a reasonable starting point for such a strategy . more money than the Governor is proposing . However, the Legislature could modify the However, the Legislature will want to adopt language proposed BBL in a way that maintains budgeted that ensures that funding for its highest priority funding levels for a different mix of programs that programs are prioritized if revenue comes in lower are more consistent with its priorities . than projected . (Later in this report, we discuss In order to determine how best to modify the some of the cap-and-trade spending priorities that proposed BBL, we recommend that the Legislature the Legislature has identified in statute .) direct DOF to report in budget hearings on what Some of the specific details of how DOF will criteria it will use to determine when revenue is implement the BBL are unclear at the time of this insufficient and how it plans to reduce allocations to report . For example, the BBL does not specify various programs under that scenario . Based on this (1) what criteria DOF will use to determine whether information, the Legislature could consider providing there is insufficient revenue to cover the proposed more specific direction to DOF . For example, for allocations or (2) how it would reduce funding for programs that would not maintain their budgeted the remaining programs that are not guaranteed to funding levels, the Legislature could direct DOF to maintain their budgeted funding level . make proportional reductions . Another option would be for the Legislature to use funding “buckets” LAO Recommendation that designate which programs receive allocations Ensure Multiyear Discretionary Expenditures first, and which programs receive allocations only if Do Not Exceed $900 Million . If cap-and-trade sufficient revenue is collected . allowance prices remain near the minimum over the next few years, annual auction revenue would CAP-AND-TRADE: EXPENDITURES not support annual discretionary spending above The Governor’s budget proposes a $900 million . As a result, we recommend the $2 .4 billion expenditure plan, including Legislature ensure its multiyear GGRF spending over $1 billion in discretionary spending . commitments do not exceed about $900 million We recommend the Legislature direct the annually . The Governor’s budget includes about administration to report on the following $500 million in multiyear discretionary GGRF information at budget hearings: (1) expected spending commitments—substantially less than outcomes that will be achieved with the $900 million . However, although some of the proposed funding; (2) any programmatic discretionary programs are technically budgeted on adjustments to existing programs that might be a one-year basis, in some cases, these programs needed in order to stay within their proposed have received consecutive years of funding and allocations; (3) additional information on the the program activities are expected to continue proposal to expand workforce apprenticeship into the future . For example, as we discuss later in programs, including key outcomes of the this report, roughly $300 million annually has been apprenticeship programs and how it will ensure allocated to AB 617 activities in prior years and participants are connected to career jobs; and many of the activities are expected to continue . (4) additional information about the new worker This adds a long-term cost pressure on the fund transition pilot, including how the California that is not reflected in the $500 million multiyear Workforce Development Board (CWDB) plans allocations in the Governor’s budget . to expand the program in the first several years Modify BBL to Ensure Legislative Priorities and whether $5 million is the correct funding Are Funded if Revenue Is Lower Than Expected . level during this initial ramp-up . Based on this We recommend the Legislature adopt BBL that ensures the GGRF remains solvent even if revenue 22 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET information, we recommend the Legislature • $130 million for the off-the-top revenue allocate funds based on its highest priorities . backfills for the AB 398 manufacturing sales tax exemption and SRA fee suspension . Background • $1 .2 billion for continuously appropriated Legislative Direction on GGRF Spending . programs . Various statutes enacted over the last several years • $486 million for discretionary programs direct the use of cap-and-trade auction revenue . where the Legislature previously indicated a For example: commitment to providing a certain amount of funding—either in statute or in the budget . • Auction revenues must be used to further the purposes of AB 32 and facilitate GHG The remaining $593 million would go to other emission reductions . discretionary programs—many of which received • At least 35 percent must be spent on projects funding on a one-time basis in 2018-19 . In a few that benefits disadvantaged communities instances, the budget includes funding to expand and/or low-income households . The California existing GGRF programs or provide funding for Environmental Protection Agency identifies programs that did not previously receive GGRF . disadvantaged communities based on various These include: (1) $27 million for a new workforce factors related to environmental quality and development program, (2) $18 million to expand socio-economic characteristics . the Healthy Soils Program, and (3) $13 million to • Roughly 60 percent of annual revenue implement various wildfire prevention bills passed is continuously appropriated to certain in 2018 . We describe the workforce development programs . and Healthy Soils proposals below . (We discuss the wildfire prevention bills earlier in this report .) • AB 398 and subsequent legislation allocated funds to backfill revenue losses Proposes $27 Million for New Workforce from expanding a manufacturing sales tax Training Programs . The plan provides $27 million exemption and suspending the SRA fee . in 2019-20—and similar amounts annually for the following four years—to CWDB to expand • AB 398 also expressed the Legislature’s two existing pre-apprenticeship projects and to intent that GGRF be used for a variety of start a new worker transition initiative . Consistent priorities, including reducing toxic and criteria with statewide workforce training policy, these air pollutants, low carbon transportation pre-apprenticeship slots would be prioritized alternatives, sustainable agriculture, for disadvantaged job seekers . Disadvantaged healthy forests, reducing short-lived climate workers are individuals with barriers to pollutants, climate adaptation, and clean employment, including low-skill, low-wage workers, energy research . the long-term unemployed, and members of single-parent households . Specifically, the plan Proposal would fund the following programs: $2 .4 Billion Spending Plan Largely Continues • High Road Construction Careers (HRCC) . Funding for Existing Programs . As shown in Provides $10 million annually for five years Figure 10 (see next page), the Governor’s budget to add a total of 3,000 pre-apprenticeship proposes a $2 .4 billion 2019-20 cap-and-trade slots within the existing HRCC project . The spending plan . The overall amount is about HRCC project funds pre-apprenticeship $650 million less than 2018-19, largely because slots that prepare disadvantaged workers for estimated revenue is $475 million lower (discussed apprenticeship programs in construction and above) . The large majority of funding would go the building trades . Apprenticeships are paid to programs that the Legislature committed to on-the-job training programs that are intended funding . This includes: to lead to careers in the building trades . www.lao.ca.gov 23 analysis full gutter 2019-20 BUDGET Figure 10 Cap-and-Trade Expenditure Plan (In Millions) Program Department 2018-19 2019-20 Off-the-Top Allocations $71 $130 SRA fee backfill CalFire/Conservation Corps 31 87 Manufacturing sales tax exemption backfill Not applicable 41 44 Continuous Appropriations $1,502 $1,182 High-speed rail High-Speed Rail Authority 626 492 Affordable housing and sustainable communities Strategic Growth Council 501 394 Transit and intercity rail capital Transportation Agency 250 197 Transit operations Caltrans 125 98 Existing Discretionary Spending Commitments $465 $486 Clean Vehicle Rebate Project Air Resources Board 200 200 Forest health and fire prevention (SB 901) CalFire 160 165 Various state administrative costs Various 49 60 Prescribed fire and fuel reduction (SB 901) CalFire 30 35 AB 617 air district implementation costs Air Resources Board 20 20 Energy Corps Conservation Corps 6 6 Other Discretionary Spending $989 $593 AB 617 incentive programs Air Resources Board 245 200 Heavy-duty vehicle and off-road equipment programs Air Resources Board 180 132 Low-income light-duty vehicles and school buses Air Resources Board 75 50 Transformative Climate Communities Strategic Growth Council 40 40 Workforce development Workforce Development Board — 27 Agricultural diesel engine replacements Air Resources Board 112 25 Methane reductions from dairies Food and Agriculture 99 25 Waste diversion CalRecycle 25 25 Healthy Soils Food and Agriculture 5 18 Wildfire prevention package implementation costs CalFire and Air Resources Board — 13 AB 617 technical assistance grants Air Resources Board 10 10 Climate and energy research Strategic Growth Council 18 10 Low-income weatherization Community Services and Development 10 10 AB 617 state implementation costs Air Resources Board 4 4 Coastal adaptation Various 5 3 Incentives for food processors Energy Commission 64 — Local fire response Office of Emergency Services 25 — Regional forest restoration projects Natural Resources Agency 20 — Urban greening Natural Resources Agency 20 — Low-carbon fuel production Energy Commission 13 — Urban forestry CalFire 5 — Wetland restoration Fish and Wildlife 5 — Agricultural renewable energy Energy Commission 4 — Woodstove replacements Air Resources Board 3 — Technical assistance for disadvantaged communities Strategic Growth Council 2 — Totals $3,027 $2,390 SRA = state responsibility area; CalRecycle = California Department of Resources Recycling and Recovery; and CalFire = California Department of Forestry and Fire Protection. 24 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET • High Road Training Partnership (HRTP) . Scoping Plan—in which CARB identifies the mix Provides $10 million annually for five years to of policies that will be used to achieve the state’s expand the training partnership by adding a GHG reduction goals—established a goal to reduce total of 2,000 pre-apprenticeship slots . The GHG emissions from natural and working lands by HRTP is a pre-apprenticeship demonstration at least 15 million metric tons of carbon dioxide project for nonconstruction industries that equivalent by 2030 . Subsequently, CARB worked have been affected by the state’s efforts to with other state agencies to release a draft Natural reduce GHGs . The administration indicates and Working Lands Climate Change Implementation that these industries include healthcare, Plan in January 2019 . The plan includes a variety manufacturing, public transit, water, and of conservation and management goals intended utilities . One example of an HRTP project to increase the amount of carbon sequestered is an apprenticeship that trains bus service in plants and soil, such as increasing the use of technicians (who clean buses and do agricultural management practices that increase light maintenance) to become electric bus soil carbon on at least 42,000 acres each year . mechanics . These management practices include (1) applying • Worker Transition Fund Initiative Pilot . compost, (2) cover cropping, (3) no-till farming, and The plan would also provide $5 million (4) mulching . For context, there are about 25 million annually for five years to pilot a new worker acres of agricultural land in California . transition initiative and begin a “Workgroup The budget proposes $18 million on a on the Future of Work .” Through the one-time basis for the Healthy Soils Program . Worker Transition Fund, the state would This is $13 million more than what was provided provide income support, retraining, and, in 2018-19 . The Healthy Soils Program funds in some cases, relocation assistance to incentives and demonstration projects for workers in industries—such as oil, gas, and agricultural management practices that have nuclear power—that have been affected by potential to increase carbon sequestration and technology and the state’s efforts to reduce productivity . So far, most of this funding has gone GHGs . It is our understanding that the pilot to encourage compost application and cover phase would commence in one or two regions cropping . Based on the average costs of incentives after the completion of a labor market study provided in past years, the administration estimates and community assessment . Additionally, the that about $18 million would be needed to Workgroup on the Future of Work would be encourage these alternative management practices tasked with assessing how GHG reduction on about 42,000 acres . policies impact the labor market and making LAO Assessment recommendations to address how automation, artificial intelligence, and other technological Basic Information About Expected Projects changes affect the state’s labor markets . and Outcomes Still Lacking . As shown in Figure 11 (see next page), the administration has Healthy Soils Program Expansion Consistent provided limited quantitative information about With Natural and Working Lands Plan . what outcomes it expects to accomplish with Chapter 545 of 2016 (SB 1386, Wolk) identified the the proposed funding amounts . In the figure, we protection and management of natural and working focus on the new discretionary spending proposals lands as an important strategy in meeting the that are not discussed elsewhere in this report state’s GHG reduction goals . Natural and working (including AB 617 and wildfire-related proposals) . lands include forests, wetlands, parks, agricultural The amount of information varies by program . lands, and rangelands . Chapter 545 also directed Some departments have provided estimates of state agencies to consider carbon sequestration the number of projects that would be funded and when establishing regulations and financial estimated outcomes—such as GHG reductions— assistance to promote protection and management from those projects . The administration has of natural and working lands . In addition, the 2017 www.lao.ca.gov 25 analysis full gutter 2019-20 BUDGET not provided quantitative information for other most effectively . By not having this information programs . before programs are implemented, it also limits In some cases, departments provided an the Legislature’s ability to hold departments explanation for why they were unable to provide accountable when evaluating the performance of this information . For example, CARB indicated these programs after they are implemented . that the number of projects, and associated Program Adjustments Will Likely Be Needed emission reductions, from its heavy-duty and freight Under Proposed Funding Amounts . Some programs depend on future CARB decisions about departments will likely have to adjust the current how it will allocate the funds between different structure of their programs to stay within their subprograms (vouchers, demonstrations, and proposed budget allocations . For example, pilots) . Also, CARB indicates that it does not have the budget proposes $132 million for CARB’s complete information about how past funding heavy-duty vehicle and freight programs, which allocated to local air districts has been used, is $48 million less than what was provided in making it difficult to produce estimates for future the current year . CARB’s current heavy-duty spending . In other cases, departments did not incentive programs include vouchers for provide an explanation for why it could not provide commercially available vehicles, as well as pilot information on expected outcomes . and demonstration programs for technologies The lack of information about expected that are still being developed and tested . Under outcomes limits the Legislature’s ability to evaluate the proposed lower levels of funding, CARB will the merits of each program, making it more difficult likely have to reprioritize funding among incentives, to ensure funds are allocated in a way that is pilots, and demonstrations . consistent with its priorities and achieves its goals Figure 11 Selected New 2019-20 Spending Proposals— Number of Projects and Outcomes Program Expected Projects and/or Outcomes AB 617 incentives Not available. Heavy-duty vehicle and off-road equipment programs Not available. Low-income light-duty vehicles and school buses Not available. Transformative Climate Communities Community-proposed projects that reduce an estimated 40,000 tons of CO2e. Workforce development Add a total of 5,000 pre-apprenticeship slots in construction or other jobs in climate-impacted industries over a five-year period. Agricultural diesel engine replacements Not available. Methane reductions from dairies 5 to 7 dairy digester projects to reduce an estimated total of 100,000 to 140,000 tons of carbon dioxide equivalent per year; 6 to 11 alternative manure management projects that reduce an estimated total of 15,000 to 27,500 tons of CO2e per year. Waste diversion Not available. Healthy Soils 18,750 to 22,500 acres of agricultural land managed to sequester carbon to reduce an estimated 38,000 to 47,000 tons of CO2e per year. Climate and energy research Not available. Low-income weatherization Not available. CO2e = carbon dioxide equivalent. 26 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Also, the budget includes $200 million to CARB such as the number of trainees enrolled, trained, for the CVRP, which provides rebates for battery and hired into careers . In addition, it is currently electric, plug-in hybrid, and hydrogen fuel cell unclear (1) how much funding might be needed to vehicles . This amount is consistent with last year’s ensure there is an adequately trained workforce budget agreement to provide $200 million annually in light of changes caused by the state’s climate to CVRP . However, CARB projects that $210 million policies and (2) whether there is adequate capacity to $280 million would be needed to meet demand within communities to expand the apprenticeship for CVRP vehicle rebates in 2019-20 . As a result, programs in the budget year consistent with the CARB might have to adjust the structure of the amount being proposed . The apprenticeship program in order to remain within the proposed programs are administered by local partnerships— funding amount . For example, it might have to typically community-based organizations—and reduce the amount of rebates or change the it might be a challenge to build the capacity individuals or vehicles that are eligible for rebates . to substantially expand the number of those For both heavy-duty incentives and CVRP, CARB partnerships in the budget year . plans to use a public process over the next several Five-Year Funding for Worker Transition Pilot months to determine how to prioritize these Could Be Premature . The CWDB is developing incentive funds and make necessary programmatic its plan for the worker transition initiative pilot . changes . Based on our understanding of the pilot, funding Apprenticeship Programs Focus on Access would initially be used to identify potential sites and to Careers Rather Than Reductions in GHG partner organizations, after which a labor market Emissions . The Governor’s proposal to expand study would be prepared for each site . The pilot workforce training programs would expand the project would begin in selected sites after the number of pre-apprenticeship slots intended to completion of the study component . As such, it lead to new careers in construction . It would also may be several years before the pilot begins . It is expand the number of nonconstruction training also unclear whether $5 million is the right level at programs that teach existing staff new skills that which to fund the pilot, since the sites have not could be used to meet to the state’s efforts to yet been identified and the study has not been reduce GHGs . Due to this focus, and unlike most completed . Given that the pilot may not begin for programs that are funded in the expenditure plan, one or more years, funding the pilot with $5 million the workforce proposals would not likely have the annually for five years could be premature . effect of reducing GHG emissions directly . That LAO Recommendations said, the proposal’s focus on access to career jobs for disadvantaged workers is generally consistent Direct Administration to Provide Additional with other legislative direction regarding workforce Information on Spending Proposals . development and climate policy . For example, We recommend the Legislature direct the AB 398 requires CWDB to report to the Legislature administration to report on the following information on the need for increased education, job training, at spring budget hearings: and workforce development resources to help transition to economic and labor-market changes • Expected Outcomes . We recommend the related to statewide GHG goals . According to Legislature direct the administration to report CWDB, this report is expected to be finalized soon on key metrics and outcomes it expects to and the budget proposal is consistent with the achieve with new proposed discretionary findings of the report . spending . This information could help the Legislature evaluate the merits of these Some additional information about the existing proposals and, in the future, hold departments pre-apprenticeship programs could be helpful accountable by comparing the projected for the Legislature as it evaluates the merits of outcomes to the actual outcomes achieved . this proposal . For example, it is unclear what We recognize that it may be difficult for some key outcomes the programs have achieved, www.lao.ca.gov 27 analysis full gutter 2019-20 BUDGET departments to accurately predict some of plans to move forward with the pilot and the key outcomes at this point . However, in whether it will be able to expend the $5 million our view, even basic information—such as annually, especially in the first several years . the expected number of different projects If the Legislature wishes to move forward funded—could provide the Legislature with with the pilot project, it may want to consider helpful information as it weighs its different funding a lower amount for planning efforts GGRF spending priorities . If the administration for the pilot over the next one or two years is unable to provide such information for so that it can maintain closer oversight . Once certain programs, the Legislature could presented with the results of the labor market consider adjusting allocations to those study and the community assessments, the programs downward accordingly . Legislature could determine the right level of • Necessary Funding Adjustments . We funding to begin the pilot . We also encourage recommend the Legislature direct the the Legislature to seek additional details about administration to report on key adjustments to how the pilot fits within the CWDB’s vision existing programs it is considering in 2019-20 . for the state’s workforce goals as efforts to For example, how will CARB prioritize funding reduce GHGs continue, and the overall state between heavy-duty vehicle vouchers, pilots, needs . Finally, we would suggest that the and demonstrations? How will CARB adjust Legislature require the CWDB to provide an the CVRP program to ensure spending does update annually on the planning, progress, not exceed the proposed budget? Based and results of the pilot at budget hearings in on this information, the Legislature could future years . consider providing more specific direction Allocate Funds According to Legislative on these program changes to ensure they Priorities . When allocating funds among different are consistent with legislative priorities, programs, we recommend the Legislature first or adjusting funding amounts provided to consider its highest priorities . These priorities could different programs . include such things as GHG reductions, improved • Expanding Apprenticeship Programs . We local air quality, forest health and fire prevention, recommend that the Legislature require the and climate adaptation . Once the Legislature has CWDB to report at budget hearings on the key identified it priorities, it can then attempt to allocate outcomes of the HRCC and HRTP programs the funds to the programs that achieve those goals to date . Key outcomes include the number most effectively . of trainees enrolled, trained, and hired into For example, to the extent the Legislature careers . The Legislature may also wish to ask considers GHG emission reductions the highest the CWDB about the challenges it expects priority use of the funds, the Legislature will want to face in regard to local capacity to expand to allocate funding to programs that achieve the these programs . Additionally, the Legislature greatest GHG reductions . As we have discussed should ask the CWDB how it plans to ensure in previous reports, determining which programs that (1) apprenticeship and pre-apprenticeship achieve the greatest amount of net GHG reductions participants represent disadvantaged is challenging for a variety of reasons . For example, communities, (2) participants are connected many of the spending programs interact with to career jobs in construction and other fields other regulatory programs in ways that make it following training, and (3) regular updates complicated to evaluate the net GHG effects of any regarding the outcomes of these efforts are one program . However, even with this uncertainty, provided to the Legislature . the Legislature might want to consider focusing on • Worker Transition Pilot . Given the preliminary spending strategies that are generally more likely nature of the worker transition fund initiative, to reduce emissions in a cost-effective way . This we recommend that the Legislature seek includes focusing on reductions from sources of additional information about how the CWDB emissions that are not subject to the cap-and-trade 28 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET regulation and targeting other “market failures” the coast, as they increase the risk of flooding and that are not addressed by carbon pricing, such as inundation of buildings, infrastructure, wetlands, expanding research and development activities . and groundwater basins . Climate change is also In addition, since California represents only projected to contribute to more frequent and about 1 percent of global GHG emissions, some of extreme storms, which will bring tides further the most significant impacts California programs ashore and exacerbate flood risk . A SLR report will have on global GHGs could depend on the by the scientific organization Climate Central in degree to which state programs influence the 2014 estimated that a five-foot increase in water adoption of policies and programs in other parts of levels along California’s coast due to SLR, storms, the country and world . As a result, the Legislature and tides would affect roughly 500,000 people, might want to evaluate each program, in part, 645,000 acres, 210,000 homes, and $105 billion of based on its assessment of its potential effects on property value . Rising seas will also erode coastal actions elsewhere . For example, state programs cliffs, dunes, and beaches—affecting shorefront that effectively serve as policy demonstrations houses, businesses, infrastructure, and recreation . for other jurisdictions and programs that promote The state’s Safeguarding California Plan cites that advancements in GHG-reducing technologies that for every foot of SLR, 50 to 100 feet of beach width can be used in other jurisdictions are likely to have could be lost . a more substantial effect on GHG emissions Multiple State Departments Charged With Helping Protect Coastal Resources . While COASTAL ADAPTATION responsibility to prepare for and respond to the impacts of SLR lies primarily with the affected local Because the proposed funding would communities, a number of state departments are assist local governments in their sea-level rise engaged in these activities as well . The primary (SLR) adaptation efforts, we recommend the state departments working on coastal issues and Legislature adopt the Governor’s proposals to their major SLR-related roles are: provide $1 .8 million to the San Francisco Bay • California Coastal Commission . Regulates Conservation and Development Commission the use of land and water in the coastal zone, (BCDC) and $1 .5 million to the California excluding the San Francisco Bay Area . (The Coastal Commission in ongoing funding from coastal zone generally extends 1,000 yards the GGRF . We also recommend continuing work inland from the mean high tide line .) Reviews to identify the most effective ways for the state and approves Local Coastal Programs (LCPs, to help local communities adapt to the impacts discussed below) . Maintains permitting of rising seas . authority over proposed projects in areas in Background the coastal zone with no approved LCP and for state-managed lands such as state parks . California’s Coast Faces Threat of Rising • BCDC . Reviews and issues regulatory permits Seas and Tides . Climate scientists have developed for projects that would fill or extract materials a consensus that one of the effects of a warming from the San Francisco Bay, and works to planet is that global sea levels will rise . The degree preserve public access along the Bay’s shore . of SLR, however, is still uncertain, and depends Leads the Bay Area’s ongoing multiagency in part upon whether global GHG emissions regional effort to address the impacts of and temperatures continue to increase . Recent SLR on shoreline communities and assets, estimates project that compared to 2000, sea levels including multiple adaptation planning efforts . along the California coast south of Mendocino will rise between 1 .5 inches and 1 foot by 2030, • Ocean Protection Council . Coordinates the activities of ocean-related state departments . between 5 inches and 2 feet by 2050, and between Allocates grants for SLR and climate 1 .4 feet and 5 .5 feet by 2100 . These changes will adaptation projects and research . Conducts impact both human and natural resources along www.lao.ca.gov 29 analysis full gutter 2019-20 BUDGET and distributes data and information to help companion reports), the California State Hazard local jurisdictions and state departments plan Mitigation Plan, and Paying It Forward: The Path for SLR, including developing the guidance Toward Climate-Safe Infrastructure in California . document discussed below . State Law Encourages Coastal Communities • State Coastal Conservancy . Allocates grants to Develop LCPs . Enacted in 1976, the California for and undertakes projects to preserve, Coastal Act encourages the 76 cities and counties protect, and restore the resources of the along the coast to develop plans—known as California coast and the San Francisco LCPs—to guide development in the coastal Bay Area . Provides grants for planning and zone . The LCPs specify the appropriate location, projects through its Climate Ready Program type, and scale of new or changed uses of land explicitly to increase the resilience of coastal and water, as well as measures to implement communities and ecosystems to climate land use policies (such as zoning ordinances) . change impacts such as SLR . The Coastal Commission reviews and approves • State Lands Commission . Stewards (“certifies”) these plans to ensure they protect sovereign state lands, including those located coastal resources in ways that are consistent with between the ordinary high water mark of tidal the goals and policies of the Coastal Act . Local waters and the boundary between state and governments have incentives to complete certified federal waters three miles offshore . Monitors LCPs, as they can then handle development sovereign state lands the Legislature has decisions themselves (although stakeholders can delegated to local municipalities to manage in appeal such decisions to the Coastal Commission) . trust for the people of California . (These “trust In contrast, any project undertaken in the coastal grants” stipulate how cities and counties can zone in communities without certified LCPs must use these waterfront and submerged lands, attain a permit from the Coastal Commission . As such as for piers, ports, harbors, airports, of June 2018, nearly 90 percent of the applicable or recreation .) Oversees assessments that geographic area was covered by a certified LCP . grant trustees are required to conduct for Most of these LCPs, however, were developed how they plan to adapt to SLR, pursuant to around 30 years ago—long before the need to Chapter 592 of 2013 (AB 691, Muratsuchi) . account for the potential effects of climate change and SLR . As such, some coastal communities are State Has Been Engaged in SLR Planning beginning to work on updating their LCPs, including and Data Collection . The state has published by conducting SLR vulnerability assessments, a number of comprehensive and helpful reports undertaking adaptation planning, and updating their in recent years concerning SLR projections and land use policies . steps the state and local governments might take State Has Provided Some GGRF for Coastal to respond . Among these is the State of California Planning and Adaptation . In both 2017-18 and Sea-Level Rise Guidance Document, which was 2018-19, the state provided GGRF to three state initially adopted in 2010 and most recently updated departments for coastal adaptation activities— in 2018 . This document—developed by the Ocean Coastal Conservancy, Coastal Commission, Protection Council in coordination with other and BCDC . As shown in Figure 12, a total of partner agencies—provides (1) a synthesis of the $6 million was provided in 2017-18 and $5 million best available science on SLR projections and in 2018-19 . In each year, the funds were provided rates for California, (2) a stepwise approach for on a one-time basis, and were not included in state agencies and local governments to evaluate the Governor’s original proposals but rather were those projections and related hazard information added by the Legislature through the course of in their decision-making, and (3) preferred coastal budget negotiations . The funded programs and adaptation approaches . Other SLR-related plans activities at each department have the primary and reports the state has released in recent years goal of assisting coastal communities in assessing include several iterations of the Safeguarding their SLR vulnerability, planning for rising tides, and California Plan (each of which consists of multiple implementing adaptation projects . 30 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Figure 12 Greenhouse Gas Reduction Funds for Coastal Adaptation Activities (In Millions) 2019-20 2017-18 2018-19 Proposed Coastal Conservancy—Climate Ready Program $4.0 $3.0 — Coastal Commission—completing and updating LCPs 1.5 1.5 $1.5 Bay Conservation and Development Commission—regional adaptation planning 0.5 0.5 1.8 Totals $6.0 $5.0 $3.3 LCP = Local Coastal Program. Coastal Adaptation Activities Also Funded prior years—$1 .8 million for BCDC and $1 .5 million From Other State Sources . The recent GGRF for the Coastal Commission . Additionally, the appropriations supplemented other funding at proposal would establish four new positions for these three departments for similar activities . For BCDC . The proposed GGRF would be used as example, over the past five years the Coastal follows: Commission has awarded $6 million in grants for • BCDC ($1 .8 Million) . This increase from vulnerability assessments and LCP updates, funded previous GGRF funding levels of $500,000 is through appropriations from the General Fund proposed to grow BCDC’s capacity to support and bonds . Similarly, between 2013 and 2015 the the region’s SLR planning efforts . The agency Coastal Conservancy awarded $7 .3 million in grants would use the funding for 4 new positions through its Climate Ready Program using state and 12 existing positions in part to help bonds and special funds . Additionally, many of the develop the Bay Area’s first Regional Shoreline other programs and activities at these departments Adaptation Plan . Additional activities would are related to SLR adaption . For example, the include increased outreach to disadvantaged Coastal Conservancy’s governing board adopted a communities, enhanced technical support comprehensive climate change policy and amended to cities and counties that are undertaking its project selection criteria to require that all adaptation projects, and increased capacity to Coastal Conservancy projects must be designed implement BCDC’s regulatory role in reviewing with climate change in mind—even those funded by and permitting projects and ensuring that they other Coastal Conservancy grants and programs adequately incorporate SLR adaptation . apart from its Climate Ready Program . The state • Coastal Commission ($1 .5 Million) . The has also provided funding for the Ocean Protection Coastal Commission would use funds Council to conduct SLR preparation activities consistently with the previous GGRF including research and data dissemination . For appropriations of the same amount . example, in 2018-19 the Legislature appropriated Specifically, it would use $750,000 to provide $10 million from Proposition 68 for the Ocean grants to local jurisdictions to help update Protection Council to dedicate to projects that their LCPs, including by conducting SLR assist coastal communities, including grants for vulnerability assessments and updating their local SLR adaptation projects . land use policies . Based on prior years, this Governor’s Proposals likely would fund about five grants per year . The other $750,000 would fund Coastal Proposes Two Ongoing Appropriations Commission staff to provide technical From GGRF for Coastal Adaptation Planning . assistance, document review, and support for As shown in Figure 12, the Governor’s budget those efforts . proposes ongoing funding for two of the departments that received GGRF appropriations in www.lao.ca.gov 31 analysis full gutter 2019-20 BUDGET Does Not Propose GGRF for Coastal take action to adapt to SLR in order to minimize Conservancy . In contrast to the current and prior costly and traumatic damage for state residents years, the Governor’s budget would not provide and their property . Additionally, serious public GGRF for the Coastal Conservancy in 2019-20 . health and safety impacts could occur if proper According to the administration, this is because steps are not taken to prepare for how SLR will the Coastal Conservancy has other available affect certain coastal infrastructure . This includes funding—primarily from Propositions 1 (2014) and threats to drinking water (from impacts to coastal 84 (2006)—for purposes consistent with the groundwater aquifers and water treatment Climate Ready Program . The administration states plants), sewage treatment, local transportation that significant overlap exists between the Climate infrastructure, and essential facilities such as Ready Program’s objectives and other bond-funded hospitals and schools . The state also owns and programs the Coastal Conservancy is undertaking, is directly responsible for maintaining certain such that additional GGRF is not essential . coastal highways that face significant risk from SLR . Moreover, the economy and tax base—both LAO Assessment local and statewide—would be negatively affected Governor’s Proposals Meet Important Needs . by significant damage to certain key coastal While the magnitude and timing of SLR still are infrastructure and other assets, such as ports, unknown, scientists are confident that some level airports, railway lines, beaches and parks used for of rise is certain . To moderate the severity of the recreation, as well as high-technology companies impacts these changes will bring, California’s located along the San Francisco Bay . The state also coastal communities need to begin planning now is charged with overseeing natural resources on for how they will respond over the coming decades . behalf of the public trust, and thus is responsible As such, we find the Governor’s proposals to be for protecting public access to the coast and the worthwhile . The proposed funding would allow health of coastal wetlands, wildlife, and habitats . BCDC and the Coastal Commission to assist local Because of this broad statewide interest, we governments in their adaptation efforts . While most believe GGRF, general obligation bonds, and of the SLR adaptation actions must be undertaken General Fund all would be reasonable funding by local jurisdictions, the state can help by sources for coastal adaptation activities . facilitating regional collaboration and coordination Additional State Assistance to Local (as with the BCDC funding) and by providing Communities Likely Will Be Needed in Future funds to encourage communities to assess their Years . Local governments along the coast face vulnerability and plan their responses (as with costly challenges and difficult decisions for how the Coastal Commission funding) . Additionally, they will respond to the impacts of SLR . They will these allocations are consistent with the uses and need to grapple with which existing properties, priorities for which the Legislature has directed infrastructure, and natural resources to try to funds in previous years . protect from the rising tides (and how they might State Has Vested Interest in Preparing do so), which to modify or move, and which may Coastal Assets for SLR . We do not have concerns be unavoidably affected . As described earlier, with the Governor’s choice of GGRF to fund the state departments are making efforts to assist proposed activities because climate adaptation coastal communities in these efforts by providing is one of the priorities for GGRF expenditures research, data and guidance, as well as grants for listed in statute . While the funds are supporting planning and projects . Given the magnitude of the efforts that benefit individual communities, these challenges SLR will bring in the coming decades, activities also have statewide value . Although most however, coastal communities likely will look to of the development along the coast is owned by the state for more help in future years—including either private entities or local governments—not additional fiscal resources, policy guidance, and the state—the state has a strong rationale for statutory changes . helping ensure that local jurisdictions plan and 32 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET LAO Recommendations made at the local level in which the state should become involved to protect public Adopt Governor’s Proposals . Because the safety and statewide interests? proposed funding would assist local governments • Adaptation Progress . What is the status in their SLR adaptation efforts, we recommend and pace of local governments’ progress the Legislature adopt the Governor’s proposals in preparing for SLR? Are there certain to provide $1 .8 million to BCDC and $1 .5 million high-risk regions that are not making sufficient to the Coastal Commission in ongoing GGRF . progress? Are there steps the state should The state has a vested interest in ensuring local take to help facilitate, expedite, or compel jurisdictions are prepared to protect coastal additional progress? resources from rising seas . Facilitating regional • Funding . What are the most effective uses collaboration and providing funds for local of state funding to address SLR? What fund adaptation planning are appropriate supporting sources are available and appropriate for roles for state departments to play . state-level SLR efforts? Are there additional Explore Additional Ways to Assist Local tools that the state or local governments Communities in Adapting to Rising Sea Levels . could use to generate additional funding for While the Governor’s proposals represent helpful these efforts, and does the Legislature need and justifiable activities for state departments to to take steps to authorize such tools? undertake, additional steps likely will be needed • Research and Data . Is there additional to help support local communities’ significant information the state should collect and planning and response needs in the coming years provide to assist local governments in as threats from SLR become more pressing . We their SLR planning? How are scientific recommend the Legislature continue to work with understandings and projections of SLR state departments, local governments, and coastal evolving, and how should this change the residents to identify the most effective ways for the guidance the state is providing to local state to help adapt to the impacts of rising seas . governments? These could—and likely will—include additional data collection and research, policy changes, and • State Assets . What steps should the state funding appropriations . For example, the state take to protect assets for which the state may want to provide more funding for and/or enact has primary responsibility—such as highways additional requirements around local adaptation and state-owned buildings—from the effects planning—whether through the LCP process or of SLR? Does the state have a long-term some other approach . The recent state-produced adaptation plan—including time lines, cost reports mentioned earlier contain data and estimates, and identified funding—for these recommendations that can help guide state and assets? Has a state entity been identified to local actions in the coming years . Additionally, the help coordinate and oversee these actions? Legislature can continue to convene experts—as • Current LCP Process . Why are certain it has with several policy and select committee jurisdictions opting not to update their LCPs, hearings in recent years—to help solicit input as to (or, in some cases, not to have an LCP the progress of local adaptation planning and how certified in the first place)? Do particular the state can most effectively contribute to SLR barriers exist within the LCP process that the preparation efforts . Some of the key questions for Legislature can help address? Are there ways the Legislature to explore in the coming months the state should modify the LCP process to and years could include: better regulate planning, development, and decision-making in the coastal zone? • State vs . Local Role . Which activities are appropriate for the state to undertake, and which should be local responsibilities? Are there decisions that have traditionally been www.lao.ca.gov 33 analysis full gutter 2019-20 BUDGET WATER SAFE AND AFFORDABLE (generally those with four or more service connections—usually the point of access between DRINKING WATER a water system’s service pipe and a user’s piping) . The administration proposes budget trailer In addition, there are an unknown number of legislation to implement a significant new individual wells and water systems serving four policy that would impose new charges on water or fewer connections . Of that total, there were system customers and certain agricultural 459 larger water systems (referred to as “public entities to implement a new financial assistance water systems” and generally with 15 or more program to address unsafe drinking water . service connections) that were out of compliance We identify various issues for the Legislature because they incurred at least one water quality to consider as it deliberates on the proposal, violation in 2017 . These affected systems served including (1) consistency with the state’s human almost 600,000 Californians . Two of the most right to water policy, (2) uncertainty about the commonly detected pollutants in contaminated estimated revenues that would be generated water are arsenic and nitrates . In 2017, State and the amount of funding needed to address Water Resources Control Board (SWRCB) found the problem, (3) comparing the beneficiaries of 133 public water systems out of compliance for the program with those who would pay the new arsenic standards and 114 public water systems charges, and (4) trade-offs associated with the out of compliance for nitrate standards . High proposal’s safe harbor provisions . concentrations of nitrate in groundwater are primarily caused by human activities including Background fertilizer application (synthetic and manure), animal operations such as dairies, industrial sources Safe and Affordable Drinking Water (SADW) a (wastewater treatment and food processing Human Right . In response to concerns about the facilities), and septic systems . Agricultural prevalence of unsafe drinking water in California, fertilizers and animal wastes applied to croplands the Legislature passed Chapter 524 of 2012 are by far the largest regional sources of nitrate (AB 685, Eng) . This law declares the state’s policy in groundwater, although other sources can be that every human being has the right to safe, important in certain areas . clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary SWRCB Administers Programs to Provide purposes . Under Chapter 524, state agencies Safe Drinking Water . The SWRCB administers are required to consider this policy when revising, the Drinking Water State Revolving Fund (DWSRF), adopting, or establishing policies, regulations, and which provides continuously appropriated funding grant criteria . Chapter 524 clarifies that it does not for low- and zero-interest loans, debt refinancing, expand the state’s obligations to provide water or and principal forgiveness to public water systems require the state to fund water infrastructure . for infrastructure improvements to correct system deficiencies and improve drinking water quality . Multiple Causes of Unsafe Drinking Water . Eligible projects include the planning, design, and The causes of unsafe drinking water can generally construction of drinking water projects such as be separated into two categories: (1) contamination water treatment systems, distribution systems, and caused by human action and (2) naturally occurring consolidation with another water system that has contaminants . In some areas, there are both human safe drinking water . In order to receive funding, caused and natural contaminants in the drinking water systems generally must demonstrate the water . ability to generate sufficient revenue to perform There are about 9,000 water systems in operations and maintenance (O&M) on new capital California regulated by the state and counties infrastructure, as well as repay any loans . The 34 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET program is funded by annual capitalization grants The board has also administers funds approved from the U .S . Environmental Protection Agency by the voters through various bond measures and a federally required 20 percent state match for capital investments, as well as some O&M (usually from bond funds) . The federal and state costs aimed at providing safe drinking water . For funds are then used to provide financial assistance example, Proposition 68 authorized $250 million for for eligible projects . In 2017-18, SWRCB estimates safe drinking water . Some of this funding supports the DWSRF disbursed about $301 million in new the DWSRF . DWSRF financing for 26 planning and construction Lack of O&M Funding an Obstacle for Some projects to address drinking water issues . Systems . Some water systems—often those in SWRCB also administers other temporary disadvantaged communities—are unable to access programs to improve access to safe and affordable the funding for capital improvements available drinking water . For example, SWRCB administers: through DWSRF because they cannot demonstrate the ability to generate sufficient revenue to perform • Drinking Water for Schools . Recent budgets O&M on new capital infrastructure . The challenge in provided $10 million General Fund in 2016-17 these systems is often a product of a combination and another $6 .8 million in 2018-19 for grants of factors, including the high costs of the to local education agencies to improve access investments required, low income of the customers, to, and the quality of, drinking water in public and the small number of customers across whom schools . Schools serving small disadvantaged the costs would need to be spread . communities are the highest priority for this Legislature Considered Safe and Affordable program . Drinking Water Proposal in 2018 . In 2018, the • Household Drinking Water Well Governor proposed to establish the Safe and Replacement Program . The 2017-18 state Affordable Drinking Water Fund (SADWF) and budget provided $8 million in one-time temporarily fund it with a $4 .7 million loan from the General Fund support for grants to assist Underground Storage Tank Cleanup Fund . Under individual households and small water the proposal, charges would have been imposed on systems with less than 15 connections water system rate payers and various agricultural to replace failed drinking water wells for entities that would have been administered by disadvantaged households . These funds are SWRCB and the California Department of Food administered by two nonprofit organizations . and Agriculture (CDFA), respectively . The proceeds • Household Drinking Water and Wastewater from the charges were to be deposited in SADWF Needs . The 2018-19 budget includes where they were to be prioritized to fund O&M $10 million from the General Fund on a costs, as well as capital costs associated with one-time basis for relief grants to households water system consolidation and service extensions . to fund well replacement, septic system Although the Legislature did not approve the replacement, permanent connections to public Governor’s proposal, under Chapter 449 of 2018 systems, treatment and cleanup of abandoned (SB 862, Committee on Budget and Fiscal Review), wells and septic tanks, certain water treatment the Legislature signaled its interest in continuing systems, and debt relief for households who to work on this issue by providing SWRCB with have financed well replacement as a result of $3 million to develop a refined estimate of the the drought emergency . total cost associated with bringing drinking water • Lead at Licensed Day Care Centers . The systems that are currently unable to meet water budget provides $5 million in one-time quality standards into compliance . Based on our General Fund support in 2018-19 for grants conversations with SWRCB, it has begun this to test drinking water for lead at licensed analysis and anticipates that it will take two years child care centers and to remediate lead in to complete the estimate . plumbing and drinking water fixtures . www.lao.ca.gov 35 analysis full gutter 2019-20 BUDGET Governor’s Proposal Local water systems would be authorized to retain 4 percent of the revenue to cover In the 2019-20 budget plan, the administration costs associated with the collection of the proposes to establish the SADW program to charges until July 2022 when the amount the increase access to safe drinking water for water systems could retain would decline to Californians . Similar to last year’s proposal, 2 percent . the program would provide certain local water • Fertilizer Mill Fee ($14 Million to agencies—particularly ones in disadvantaged $17 Million) . The administration proposes a communities—with grants, loans, contracts, or mill fee of six “mills” (equal to six-tenths of a services to help support their O&M costs . This cent) per dollar on the sale of fertilizer . This funding would be supported by new charges would be in addition to the current mill fee of proposed by the Governor on water system three mills . This fee would go into effect upon ratepayers, fertilizer sales, and certain agricultural enactment of the budget trailer legislation . entities . For 2019-20, the administration requests According to CDFA, this charge is estimated $4 .9 million General Fund in one-time funding for to generate $14 million to $17 million per year state administration costs at the SWRCB and CDFA when fully implemented . to begin implementation of the program . Below, we • Charges on Milk Producers ($5 Million) . The provide additional details about key aspects of the administration proposes to impose charges administration’s proposal . on milk producers beginning January 2022 . In Imposes Various Charges . In total, the total these charges are estimated to generate administration estimates that the various proposed $5 million per year when fully implemented . charges would generate roughly $110 million to We note that the dairy industry in California $140 million annually when fully implemented . generated $6 .6 billion in cash receipts in Charges on fertilizer and agricultural entities would 2017 . sunset 15 years after they go into effect . Specifically • Charge on Confined Animal Facilities the administration proposes budget trailer legislation (Amount Not Estimated) . Beginning January to implement the following charges: 2022, the administration proposes to impose • Charge on Water System Customers a charge on confined animal facilities— ($100 Million to $110 Million) . Beginning July excluding dairies—such as poultry and other 2020, the administration proposes imposing livestock operations . A workgroup would be monthly charges on most water system convened by the administration to establish customers ranging from $0 .95 to $10 per a charge commensurate with the risk to month based on the size of the customers’ groundwater confined animal facilities create water meter . According to a recent report by by discharging nitrates . The charges are a private consulting firm, the average monthly capped at $1,000 per facility . residential water bill across the state typically Requires SWRCB to Administer New SADW falls between $40 to $80 . SWRCB estimates Program . The proposal includes a number of these charges would generate between administrative requirements, particularly for $100 million and $110 million annually when SWRCB . The board is required to adopt a fund fully implemented . Beginning July 2022, implementation plan and policy handbook with SWRCB could reduce the amount consumers priorities and guidelines for expenditures from are charged . Customers would be exempted the SADWF . In addition, SWRCB staff would be from the charges if (1) they self-certify required to annually develop and present to the that their household income is equal to board an assessment of the total annual funding or less than 200 percent of the federal needed to assist water systems in the state to poverty level ($25,100 for a family of four secure the delivery of safe drinking water . By in 2019) or (2) receive service from a water January 2021, SWRCB—in consultation with local system with fewer than 200 connections . 36 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET health officers—would also have to make available or has deposited waste where it is likely to cause a map of aquifers that are at high risk of containing pollution . Under the cleanup and abatement contaminants that are used or likely to be used as order, the discharger typically must clean up a source of drinking water for certain smaller water the waste and reimburse SWRCB and regional systems and domestic wells . This would include boards for oversight costs . Under the Governor’s identification of water systems potentially in need of proposal, if an agricultural operation meets certain assistance to address water contamination issues . requirements—such as implementing the best Under the Governor’s proposal, beginning practicable treatment control or other requirements July 2022, SWRCB may expend up to 5 percent of their applicable permits and waivers—and of revenues collected by water systems and pays the charges required by this proposal, the deposited into the SADWF for costs associated operation generally would not be subject to with its administration . Based on current estimates, certain enforcement actions, such as cleanup and this could be up to about $5 million annually . In abatement orders . These are sometimes referred to addition, CDFA may retain up to 4 percent of the as “safe harbor” provisions . monies collected from the charges on agricultural 2019-20 Budget Proposals . For 2019-20, the entities for its costs associated with implementation administration requests a total of $24 .9 million in and enforcement, such as to establish a charge one-time General Fund support as follows: collection program and perform outreach to • SWRCB ($3 .4 Million) . The budget affected agricultural entities . This amount would proposes $3 .4 million in one-time funding decrease to 2 percent beginning July 2022 . for 23 positions for SWRCB to (1) map Provides Disadvantaged Communities With high-risk aquifers and process water quality Funding for O&M . Under the administration’s data from small water systems, (2) develop proposal, SWRCB would prioritize the use of an assessment of the total annual funding funds to assist disadvantaged communities and needed to assist water systems in the state low-income households served by a water system to deliver safe drinking water, (3) develop an with less than 14 connections . Funding would implementation plan that includes funding be prioritized to support O&M costs, as well priorities and guidelines, and (4) process fees as capital costs associated with water system that will be deposited into a new fund and consolidation and service extensions . Allowable perform accounting work . uses would include providing replacement water • CDFA ($1 .4 Million) . The budget proposes on a short-term basis, as well as the development, $1 .4 million in one-time funding for seven implementation, maintenance, and operation of positions for CDFA to (1) establish a new more permanent solutions (such as water treatment registration and fee collection system for systems) . The charges on agricultural entities would dairies, farms, and ranches and (2) administer be targeted towards nitrate mitigation activities . the fertilizing materials mill assessments Shields Certain Agricultural Entities From augmentation . Regulatory Actions . In accordance with • Grants and Contracts ($10 Million) . The current law, SWRCB and regional water boards budget proposes $10 million for grants issue various permits and waivers that regulate and contracts to provide administrative, agricultural practices that contribute to water technical, operational, or managerial services contamination, such as nitrate contamination of to water systems—mainly in disadvantaged groundwater . Agricultural entities that contribute communities—to support compliance with to water quality contamination are subject to current drinking water standards . At the time enforcement actions that can include cleanup and this analysis was prepared, the Legislature abatement orders . For example, SWRCB can issue was considering a bill—AB 72 (Committee cleanup and abatement orders when a discharger on Budget)—to provide this augmentation in has caused waste—such as pesticides, chemicals, 2018-19 . or nitrates—to be discharged into bodies of water www.lao.ca.gov 37 analysis full gutter 2019-20 BUDGET • Water Emergencies ($10 Million) . The $110 million for other contaminants) . However, this budget proposes $10 million to fund the estimate is highly uncertain given the lack of data, emergency provision of safe drinking water especially regarding the number of smaller water where it is not available . At the time this systems and domestic wells that fail to provide safe analysis was prepared, the Legislature was drinking water . It is possible that actual costs could considering a bill—AB 72—to provide this be significantly higher or lower . augmentation in 2018-19 . There is also uncertainty about the amount of revenue that will be generated under this Issues for Legislative Consideration proposal, particularly from the agricultural entities . The budget trailer legislation allows SWRCB to The Legislature faces a policy decision about adjust ratepayer charges downward if the funding whether to increase charges on different products, provided exceeds future demand for the funds (as livestock operations, and drinking water consumers identified in the annual funding needs assessment in order to implement a new program . The new the SWRCB would be required to prepare) . If program funded by these charges would address the demand exceeds funding in the future, any a critical gap in the state’s existing safe drinking increase in charges would require approval by the water program structure by providing funding for Legislature . O&M, as well as technical assistance to small Most Charged Payers Would Not Be water systems . Below, we raise some issues for Beneficiaries of Program . . .The main the Legislature to consider as it deliberates this beneficiaries of this new program would be people proposal . in disadvantaged communities and those served Proposal Is Consistent With Human Right by smaller water systems . These water customers to Water Policy . The Governor’s proposal is should get access to clean drinking water at lower consistent with the state’s statutory policy that cost to them than would otherwise be available to every human being has the right to safe, clean, them without this program . The largest share of affordable, and accessible water adequate for program costs, however, would be paid by water human consumption . The proposal would make system ratepayers across the state (with certain safe and affordable drinking water more widely exceptions for low-income persons and customers available throughout the state largely by providing of systems with less than 200 connections) . The funding for O&M activities for water treatment majority of these ratepayers are served by systems systems . Based on the information available, the that already provide safe affordable drinking water . estimated $110 million to $140 million in additional Therefore, ratepayers of these water systems are funding could move the state significantly forward unlikely to benefit from the new program . towards its goal of providing safe affordable . . . Or Be at Fault for the Contamination drinking water to all of its citizens, particularly those Being Mitigated . The vast majority of nitrate in disadvantaged communities . contamination is caused by agricultural activities Uncertain Extent to Which Proposed such as fertilizer applications and animal Revenues Will Fully Address Problems . The operations, such as dairies . The administration’s administration has not completed an estimate of proposal to have agricultural entities pay charges to the total cost associated with bringing drinking address the effects of nitrate contamination creates water systems that are currently unable to meet a link between the agricultural operations that are water quality standards into compliance on an the main source of the nitrate contamination and ongoing basis . As noted above, the SWRCB study the entities that would pay charges to mitigate funded under Chapter 449 is not expected to be it . However, it is worth noting that some of the completed until the fall of 2020 . However, a private current nitrate contaminants in groundwater are consulting firm estimated the total annual cost to not from current agricultural operations . Instead, address contaminated drinking water at roughly some of these nitrates are legacy contamination $140 million ($30 million for nitrate treatment and that could be from as much as decades ago . 38 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET In addition, the CDFA estimates the charges on On the one hand, the proposal is structured to dairies, fertilizer, and confined animal operations better ensure that significant funding is available combined would total about $19 million per for water quality mitigation throughout the state year when fully implemented . (At the time this rather than to limited areas in the state . This is analysis was prepared, the administration had not because the state’s current enforcement approach completed a revenue estimate for the charge on generally relies on targeting individual or groups confined animals .) Consequently, if the costs to of polluters in a limited geographic area, and mitigate nitrate-related contamination in drinking these enforcement actions can be administratively water exceeds the revenues generated by charges difficult to complete . For example, the state rarely on agricultural entities, then nitrate-related issues a cleanup and abatement order for nitrate contamination in drinking water could be addressed contamination (though it has reached settlements from revenues generated by the charge on water in two regions) . On the other hand, under the system customers rather than from agricultural proposal, the state would relinquish its authority entities . to take certain enforcement actions—such as Alternative Sources of Funding Are Limited . cleanup and abatement orders—against polluters if Generally, we find that alternative funding sources they are otherwise complying with their applicable to pay for the Governor’s SADW proposal are permits and waivers . This would limit the SWRCB’s limited . The SADW program will require a steady authority, and the Legislature will want to ensure ongoing funding stream to meet the state’s that it is okay with this trade-off before approving commitment to provide long-term support for O&M the proposal . for water systems . General Fund is an alternative funding source for the program . However, SADW WATER CONSERVATION would have to compete with other programs for Because we find them to be well aligned funding from a limited amount of General Fund . To with the responsibilities assigned by recent the extent that there are any reductions in General water conservation legislation, we recommend Fund support for the program, it could result in adopting the Governor’s budget proposals to potentially serious threats to public health if the provide $5 .1 million for the Department of Water water systems benefiting from the program fall out Resources (DWR) and $2 .7 million for SWRCB of compliance with drinking water standards due in 2019-20 from the General Fund, and more to neglect . In contrast, the Governor’s proposal than $2 million ongoing in future years . We would provide a dedicated revenue source for the recommend the Legislature conduct ongoing program . oversight to ensure the deadlines established In addition, we find that bond funding would in the legislation are being met, and that overall not be appropriate for this program because efficiency and drought resilience outcomes are bonds provide a one-time fund source and should being attained . not be relied on as an ongoing fund source . Moreover, general obligation bonds are repaid Background from the General Fund with interest and, therefore, would cause this approach to be somewhat more Recent Multiyear Drought Increased State’s expensive than direct appropriations from the Focus on Water Conservation . California General Fund . We also note that we have not experienced extreme drought conditions identified any existing special funds that would be between 2012 and 2016—the driest consecutive appropriate to support this program and would four-year stretch since statewide precipitation have sufficient available funds . record-keeping began in 1896 . These conditions had various effects across the state, including Safe Harbor Provisions Would Affect contributing to domestic wells going dry and loss Enforcement Authority . The proposal’s safe harbor of drinking water in certain communities . The provisions involve some policy trade-offs compared state undertook numerous activities in response to the state’s current enforcement approach . www.lao.ca.gov 39 analysis full gutter 2019-20 BUDGET to these exceptionally dry conditions, including Steinberg)—established a goal of reducing requiring that beginning in June 2015, urban statewide urban water use by 20 percent between water agencies had to reduce their water usage 2009 and 2020 . However, the recent drought by 25 percent compared to their usage in 2013 . spurred increased efforts to improve both the The SWRCB implemented these requirements efficiency of statewide water use and local through emergency regulations in an attempt to resilience to future droughts . Consequently, in conserve water in case the drought continued and 2018 the Legislature enacted legislation intended water became even scarcer . The restrictions were to surpass those targets and better position local modified in June 2016 and then ended in 2017 water agencies to withstand future dry periods . when statewide water conditions improved . The nearby box summarizes the major components 2018 Legislation Enacted Framework for contained in the companion bills establishing New Water Conservation Requirements . these new requirements, Chapters 14 (SB 606, Previous legislation—Chapter 4 of 2009 (SB7X 7, Hertzberg) and 15 (AB 1668, Friedman) of 2018 . Major Components of 2018 Water Conservation Legislation Major components of Chapters 14 (SB 606, Hertzberg) and 15 (AB 1668, Friedman) of 2018 include (1) improving urban water use efficiency, (2) improving agricultural water use efficiency, and (3) strengthening drought resilience . Improve Urban Water Use Efficiency • Requires Development of New Efficiency Standards for Urban Water Agencies . Requires the State Water Resources Control Board (SWRCB), in consultation with the Department of Water Resources (DWR), to develop new standards that define efficient water use for different categories, including for (1) indoor residential water use; (2) outdoor residential water use; (3) outdoor irrigation of landscape areas with dedicated irrigation meters in connection with commercial, industrial, and institutional (CII) use; and (4) water system losses, such as leaks . The standards will be designed to take into account unique local conditions—such as climate—so that they can be applied in different regions . Requires each urban retail water supplier to calculate and report its local objective for its water use in these categories based on those standards . The water use objective established by each local agency will be calculated based on the aggregate of these categories and its full service area, not individual categories or households . Allows agencies that have water recycling facilities to increase their water use objectives by a share of their developed potable reuse water . • Requires Agencies to Achieve Local Efficiency Objectives Over Time . Requires each urban water supplier to compare its actual water use with its established objective and to annually report its progress towards meeting that objective . Establishes state technical assistance and enforcement processes for agencies that fail to meet reporting requirements or to make progress towards meeting their water use objectives . Requires local agencies to meet their objectives by 2027 . • Requires Development of New Performance Measures for CII Water Users . Requires SWRCB, in consultation with DWR, to develop new standards governing CII water management . For CII customers of larger size or volume of water use, such performance measures could include requirements to install dedicated irrigation meters for outdoor use, conduct water audits, or develop water management plans . 40 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET As described, these statutes include a requirement AB 1668 designated numerous responsibilities that urban water agencies develop and meet new to the state as well, particularly for initial water use efficiency objectives based on their local implementation . Specifically, DWR and SWRCB conditions . Additionally, while previous law required must undertake a number of tasks to develop the both urban and agricultural water supply agencies new urban water use efficiency standards upon to conduct and submit water management plans which local efficiency objectives will be based, every five years, the new legislation adds new as well as provide data, tools, and templates to components to those planning activities . help local agencies comply with the legislation . Legislation Assigned Significant Figure 13 (see next page) summarizes the major Implementation Responsibilities to Two State activities assigned to the two departments in the Agencies . While local water agencies ultimately coming years . are responsible for meeting their new water use objectives and planning requirements, SB 606 and Improve Agricultural Water Use Efficiency • Establishes New Agricultural Water Use Planning Requirements . Expands existing water management planning requirements for large agricultural water suppliers to include: (1) an annual water budget that quantifies the amount of water that is applied in the supplier’s service area, as well as the amount that is discharged; (2) water management objectives including increasing efficiency, and actions to meet those objectives; (3) quantification of current water use efficiency; and (4) a drought plan that would identify strategies for how to adapt during periods of limited water supply . • Requires Agencies to Comply With New Planning Requirements . Requires large agricultural water suppliers to adopt and submit complete water management plans every five years . Authorizes DWR to contract with an outside entity to complete the plan at the supplier’s expense if a supplier fails to meet this requirement . Allows the state to assess fines if the supplier does not make the necessary data available for that entity to prepare the report . Strengthen Drought Resilience • Establishes New Urban Drought Contingency Planning Requirements . Expands existing water management planning requirements for urban water suppliers to include (1) a Water Shortage Contingency Plan that describes the response actions that would be taken in six levels of water shortage conditions, (2) a Drought Risk Assessment that evaluates water supply reliability and vulnerability for five consecutive years of drought (rather than three consecutive years, as previously required), and (3) an annual assessment of local water supply and demand . • Seeks Improvements for Small Rural Communities . Requires DWR to develop recommendations and guidance for how best to address the drought planning needs of small water systems and rural communities . www.lao.ca.gov 41 analysis full gutter 2019-20 BUDGET Figure 13 Water Conservation Legislation Tasks DWR and SWRCB With Numerous Responsibilities Deadlines for Tasks Pursuant to SB 606 and AB 1668a 2020 DWR • Identify small water communities at risk of water shortage vulnerability and make recommendations to address their drought planning needs. • Update urban and agricultural water management plan tools, guidelines, and templates. • Make recommendations on potential water loss reporting requirements for urban wholesale water suppliers. SWRCB • Adopt water loss standards for urban retail water suppliers. 2021 DWR • Make recommendations on: (1) indoor residential use standards; (2) outdoor residential use standards; (3) use standards for commercial, industrial, and institutional (CII) outdoor landscape areas with dedicated irrigation meters; (4) adjustment factors for unique water uses and local conditions; and (5) guidelines and methodologies for calculating urban water use objectives. • Make recommendations on CII performance measures. • Provide data to local agencies on residential irrigable landscape area and on unique water uses and local conditions. 2022 DWR • Submit status update reports on urban and agricultural water management plans to Legislature. SWRCB • Identify potential effects of long-term water use efficiency standards on local wastewater management, parks, and urban trees. • Adopt (1) outdoor residential use standards, (2) use standards for CII outdoor landscape areas with dedicated irrigation meters, (3) adjustment factors for unique water uses and local conditions, and (4) guidelines and methodologies for calculating urban water use objectives. • Adopt standards for CII performance measures. a Chapters 14 (SB 606, Hertzberg) and 15 (AB 1668, Friedman) of 2018. DWR = Department of Water Resources and SWRCB = State Water Resources Control Board. Governor’s Proposals standards; and provide support to SWRCB in developing new regulations . The department Proposes $7 .8 Million General Fund in plans to contract with other entities to 2019-20 to Begin Implementing Legislation . The undertake most of these activities, although Governor’s budget includes funding for both DWR a portion of the funding ($379,000) would and SWRCB to begin implementing SB 606 and support three existing positions to oversee AB 1668 . and support this work . • DWR ($5 .1 Million) . Funding proposed for • SWRCB ($2 .7 Million) . The budget provides DWR is to conduct 14 detailed studies and $2 million on a one-time basis for SWRCB investigations; provide parcel-level landscape to study and report—consistent with the area data to urban water suppliers; develop California Environmental Quality Act (CEQA)— standards, guidelines, and methodologies; on the potential environmental impacts of research and report to the Legislature on the water conservation regulations the board potential changes to indoor water efficiency must adopt . The remainder of the requested 42 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET funding ($717,000) is proposed on an ongoing DWR’s development of the SB7X 7 water efficiency basis for four new positions who will help standards in 2009 and SWRCB’s previous CEQA the board meet its assigned responsibilities, analyses of projects with similar scope and including evaluating the recommendations complexity . Given the large number of technical contained in DWR’s reports and subsequently studies DWR must undertake within a relatively adopting new standards and regulations . short time frame, we believe the department’s plan to contract with outside entities to conduct most of Proposes Over $2 Million General Fund this work makes sense . Annually in Future Years for Ongoing Activities . The Governor’s budget also proposes funding LAO Recommendations for implementation of SB 606 and AB 1668 in Adopt Governor’s Budget Proposals . Effective future years, as shown in Figure 14 . Most of this implementation of SB 606 and AB 1668 will help funding is for ongoing activities at both DWR and local agencies around the state use water more SWRCB . For example, DWR will have to provide efficiently and better prepare for future droughts . technical assistance to urban suppliers that fail to We recommend adopting the Governor’s budget meet their water use objectives, as well as review proposals for DWR and SWRCB in 2019-20 and the the new water management planning reports coming years, as we find them to be well aligned submitted by urban and agricultural agencies to with the responsibilities assigned by the legislation . ensure their completeness . The budget proposes ongoing funding for three additional existing Conduct Continued Oversight to Monitor positions at DWR beginning in 2020-21 (for a Implementation and Ensure Legislative total of six) . Ongoing responsibilities for SWRCB Goals Are Met . While we believe adopting the Governor’s budget proposals will help DWR include undertaking enforcement actions for urban and SWRCB implement the water conservation water suppliers that fail to comply with reporting legislation, funding is not the only factor required to requirements or meet their water use objectives . successfully achieve the goals contained in SB 606 LAO Assessment and AB 1668 . The Legislature will want to conduct ongoing oversight to ensure that the deadlines Governor’s Proposals Consistent With established in the legislation are being met, and Water Conservation Legislation . To meet the that overall efficiency and drought resilience requirements established by SB 606 and AB 1668, outcomes are being attained . The legislation DWR and SWRCB must successfully undertake a included several reporting and status update significant number of activities in a relatively short requirements, but the Legislature may also want to period of time . Based on our review, the Governor’s hold oversight hearings to monitor implementation funding proposal seems appropriately aligned and solicit input from stakeholders over the coming with the activities required by the legislation . Both years . Some of the key oversight issues and departments based their planned approach and questions to monitor include: cost estimates on previous experiences, including Figure 14 Proposed Funding to Implement Water Conservation Legislation General Fund (In Millions) 2023-24 and 2019-20 2020-21 2021-22 2022-23 Thereafter Department of Water Resources $5.1 $2.1 $2.0 $1.7 $1.5 State Water Resources Control Board 2.7 0.7 0.7 0.7 0.7 Totals $7.8 $2.8 $2.7 $2.4 $2.2 www.lao.ca.gov 43 analysis full gutter 2019-20 BUDGET • Implementation Progress . Are DWR • Local-Level Capacity . What feedback and SWRCB meeting required deadlines? are local agencies providing about their Has the data necessary to proceed with experiences complying with the new implementation been collected and provided requirements? Do they have the requisite as anticipated? Are the findings of the studies technical, managerial, and financial resources conducted by DWR and the subsequent to meet their new obligations? Are there regulations developed by SWRCB consistent additional steps the state should take to with the Legislature’s intentions? Once facilitate their success in achieving the goals SWRCB has established efficiency standards, established by SB 606 and AB 1668? are local agencies making progress towards • Lessons Learned . Have some urban or meeting their local water use objectives? agricultural agencies identified particularly • Implementation Barriers . Are departments effective strategies towards improving efficient or local agencies encountering notable water use, and can these be propagated challenges in meeting the requirements elsewhere? Has implementation of SB 606 contained in SB 606 and AB 1668? Did the and AB 1668 revealed strategies, incentives, CEQA analysis raise any unforeseen issues? or consequences that the Legislature Is any additional action by the Legislature should consider adopting through additional needed to clarify its policy intent or to address legislation? barriers? • Long-Term Outcomes . How will statewide • State-Level Capacity . As implementation water use change upon full implementation proceeds, do DWR and SWRCB continue to of SB 606 and AB 1668? How will cumulative have the appropriate level of staff and funding water use compare to the 20 percent to meet their responsibilities? Do notably reduction goal established by SB7X 7? more- or fewer-than-anticipated numbers of When the next drought occurs, can local water suppliers require state-level intervention communities sustain prolonged water such as technical assistance and/or shortages without major health and safety enforcement actions? impacts? How well do agricultural entities withstand sustained dry periods? ENVIRONMENTAL QUALITY AB 617 IMPLEMENTATION expand the program to additional communities . Based on the information provided by CARB on The Governor’s budget proposes $276 million potential program expansion, the Legislature to continue implementation of Chapter 136 of might want to consider options to ensure 2017 (AB 617, C . Garcia) . We recommend it has an opportunity to evaluate program that the Legislature (1) reject the Governor’s effectiveness and the costs of expanding before proposal to provide $3 .8 million to the California CARB selects additional communities . Air Resources Board (CARB) for administrative costs because it lacks adequate workload Background justification, (2) direct the administration to Air Quality Regulation Divided Between develop a long-term funding plan for first year CARB and Regional Air Districts . In California, communities to help facilitate more effective CARB and 35 regional air pollution control and program implementation, and (3) direct CARB air quality management districts (air districts) to report at budget hearings on its plan to share responsibility for the regulation of air quality . 44 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Historically, regulatory efforts have largely focused by July 1, 2020 . Each year thereafter, CARB on reducing “criteria” pollutants that affect regional must select additional communities to deploy air quality, such as nitrogen oxides that contribute monitoring systems, as it deems appropriate, to smog . Regional air districts generally manage the and the regional air districts must deploy regulation of stationary sources of pollution (such systems in those communities within one year . as factories) and prepare regional implementation • Community Emission Reduction Plans . plans to achieve compliance with federal and state AB 617 also required CARB to develop, air quality standards . CARB is responsible primarily by October 1, 2018, a statewide strategy for the regulation of mobile sources of pollution to reduce toxic and criteria emissions in (such as cars and trucks) and for the review of communities with high pollution, and to regional air district programs and plans . (Regional update the strategy every five years . As air districts also administer some mobile source part of the statewide strategy, CARB is also incentive programs .) Over the last few decades, required to select communities with high the state has also developed various programs cumulative exposure to air pollutants that will intended to reduce local toxic air pollution— develop emission reduction programs (also such as diesel particulate matter and hexavalent known as first year communities) . Within chromium—and global pollution that contributes to one year of selecting the communities, air climate change, such as carbon dioxide . districts—in consultation with local community AB 617 Established New Program Focusing groups and other stakeholders—must develop on Heavily Polluted Communities . Passed in community emission reduction plans for 2017, AB 617 made a variety of changes that are each selected community and submit them intended to help monitor and reduce criteria and to CARB for review . The plans must include toxic air pollutants that have adverse effects on emission reduction targets, specific reduction heavily polluted communities . Importantly, these measures, a schedule for implementation, changes focus on pollution at the community and an enforcement plan . CARB must select level, rather focusing primarily on global or additional communities for emission reduction regional effects . Community-level effects include plans annually thereafter, as it deems the cumulative pollution from regional criteria appropriate . pollutants, as well local toxic air pollutants . The • Other AB 617 Changes . AB 617 made changes are implemented by both CARB and air a variety of other changes to air quality districts, in consultation with community groups monitoring and regulation, including and other state agencies . The major requirements requirements that (1) CARB establish a and implementation time frames include: uniform statewide system of reporting annual emissions of criteria pollutants from stationary • Community Air Monitoring Systems . sources, (2) CARB establish a clearinghouse AB 617 required CARB, by October 1, 2018, that identifies best available technologies for to (1) develop a statewide plan for monitoring pollution control, and (3) air districts adopt community air pollution and (2) select the expedited schedules for requiring industrial highest priority locations to deploy monitoring facilities that are subject to the state’s systems, based on their exposure to toxic cap-and-trade regulation to install updated and criteria pollutants . The purpose of the pollution control technologies if they have statewide monitoring plan is to provide not done so since 2007 . It also required guidance to air districts that will be deploying CARB to provide grants to community-based the monitoring systems in the selected organizations for technical assistance and communities . Once the initial communities to support community participation in the (also known as “first year” communities) AB 617 process . are selected, air districts must deploy the monitoring systems in those communities www.lao.ca.gov 45 analysis full gutter 2019-20 BUDGET AB 617 Implementation Update monitoring plan, (2) analyzing new emissions data, (3) selecting communities for Prior Budgets Provided Limited-Term monitoring and emission reduction programs, Funding for AB 617 Implementation . As shown (4) providing guidance and reviewing emission in Figure 15, the budget (including the proposed reduction plans, and (5) developing a 2019-20 budget, as described below) has statewide uniform emission reporting system . included roughly $300 million annually—typically • Community Technical Assistance Grants . GGRF on a limited-term basis—to support The Legislature allocated funding to CARB AB 617 implementation . Specifically, for the to help community-based organizations following programs and costs: participate in the AB 617 process and • Air District Incentive Programs . Most build their capacity to identify, evaluate, funding has gone to air districts for incentive and reduce exposure to air emissions in programs to replace older diesel equipment their neighborhoods . CARB has allocated with newer, less polluting equipment . $10 million to 28 different community groups Generally, the money has been allocated and Native American Tribes for such things through existing programs for mobile emission as community outreach, hiring consultants sources, such as the Carl Moyer Program . In and/or technical experts, logistical support for adopting the 2018-19 budget, the Legislature meetings, supporting community-operated air provided authority for air districts to provide monitoring, and community-based research incentives for emission reductions from projects . stationary sources . Chapter 714 of 2018 Effects of Air District Incentive Funding (AB 2453, E . Garcia) also allowed air districts Still Being Evaluated . The 2017-18 budget to use these funds for projects to improve allocated incentive funding to the air districts air quality at schools, including for air filter as follows: 43 percent ($107 .5 million) to South upgrades and vegetation buffers . Coast, 32 percent ($80 million) to the San Joaquin • Air District Administrative Costs . Air Valley, 20 percent ($50 million) to the Bay Area, district activities include (1) purchasing and 5 percent ($12 .5 million) to the rest of the air and maintaining monitoring equipment; districts . CARB required that at least 70 percent (2) analyzing new emissions data; of funds allocated to each air district go to (3) coordinating, preparing, and implementing disadvantaged communities . The 2018-19 budget emission reduction plans; and (4) developing did not specify how the funding would be split new regulations for stationary sources . between air districts . Air districts and CARB are still • CARB Administrative Costs . CARB finalizing how this funding will be allocated . implementation activities include Air districts recently provided initial data to CARB (1) developing and updating the statewide on how they have spent their 2017-18 incentive Figure 15 Summary of AB 617 Implementation Funding (In Millions) Activity 2017-18 2018-19 2019-20 (Proposed) Fund Source Air district incentive programs $250 $245 $200 GGRF Air district administrative costs 27 50 50 GGRF and APCF CARB administrative costs 12 15 16 GGRF Community technical assistance grants 5 10 10 GGRF Totals $294 $320 $276 GGRF = Greenhouse Gas Reduction Fund; APCF = Air Pollution Control Fund; and CARB = California Air Resources Board. 46 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET funds, and CARB staff is still reviewing the data . CARB Selected First Year Communities in (Districts have two years to encumber these funds .) September 2018 . In September 2018, CARB As a result, detailed information about the types of adopted its Community Air Protection Blueprint equipment being replaced or estimated emission (the blueprint) . In the blueprint, CARB selected ten reductions is unavailable at this time . However, first year communities for air monitoring and/or CARB staff indicates that the mix of incentive emission reduction plans . These communities are programs supported by the air districts generally is shown in Figure 16 . Communities were selected as follows: based on such things as exposure to air pollution, poverty levels, high prevalence of sensitive • South Coast . Divided roughly equally among populations (children, for example), and selecting on-road trucks, construction equipment, a mix of communities with varying sources of air agricultural equipment, and marine and other pollution and regional diversity . These first year projects . communities were selected from a longer list of • San Joaquin . Agricultural equipment is the over 100 communities nominated by air districts largest category, followed by locomotives, and community groups, including 16 communities then trucks and school buses . that were specifically recommended by air districts . • Bay Area . Primary focus is on projects at For communities that were selected for only air Port of Oakland, including cargo handling, monitoring, CARB plans to collect more pollution heavy-duty vehicles, marine vessels, and information prior to requiring emission reduction locomotives . plans for those communities in future years . Blueprint Also Established Requirements for CARB plans to propose guidelines for the Monitoring and Emission Reduction Programs . 2018-19 allocation in the coming months, including The blueprint also included CARB’s statewide new guidance on which stationary source projects plan for monitoring community air pollution and could qualify for incentive funding . Figure 16 First Year Communities Selected for AB 617 Programs Air Emission Community Air District Monitoring Program Reduction Program 9 Richmond Bay Area 9 West Oakland Bay Area 9 9 Calexico, El Centro, Heber Imperial 9 South Sacramento/Florin Sacramento 9 Barrio Logan, West National City, Logan Heights, Sherman Heights San Diego 9 9 Shafter San Joaquin Valley 9 9 South Central Fresno San Joaquin Valley 9 9 East Los Angeles, Boyle Heights South Coast 9 9 Muscoy, San Bernardino South Coast 9 9 Wilmington, West Long Beach, Carson South Coast www.lao.ca.gov 47 analysis full gutter 2019-20 BUDGET statewide strategy for emission reductions in Governor’s 2019-20 budget proposes $276 million heavily impacted communities, as required by funding for AB 617 implementation . The vast AB 617 . The blueprint established requirements for majority of the funding—$260 million—is proposed air districts developing community air monitoring on a one-time basis . This limited-term funding systems . For example, air district monitoring plans includes (1) $200 million on a one-time basis for that are submitted to CARB must describe (1) the incentive programs administered by air districts; reason for conducting community air monitoring (2) $50 million—$30 million from the Air Pollution and establish specific roles and responsibilities; Control Fund and $20 million from GGRF—to (2) how monitoring will be conducted, such as support air district implementation activities, which methods and equipment, monitoring areas, and continues a two-year funding proposal approved quality control procedures; and (3) how data will be in the 2018-19 budget; and (3) $10 million on a analyzed and used in a way that supports future one-time basis for community technical assistance action . grants . The statewide strategy for emission reductions Proposes to Extend CARB Limited-Term identifies a list of new CARB actions, as well Funding and Add New Positions . The as guidance for air districts . Proposed CARB only spending that would extend beyond actions to reduce emissions include freight-related 2019-20 is $16 million from GGRF to support regulatory changes, additional heavy-duty in-use CARB administrative costs and 72 positions . This engine testing, and additional incentive funding amount includes base funding of $12 million for for state programs . CARB’s requirements for 50 positions that were approved on an ongoing community emission reduction plans developed by basis in 2017-18 . In addition, the Governor air districts include (1) establishing a community proposes $3 .8 million to extend funding for steering committee to help develop the plan; 22 CARB positions that were also approved in (2) establishing emission reduction targets, 2017-18, but on a two-year limited-term basis . with specific goals to reduce exposure at The Governor’s proposal would extend funding for sensitive locations; (3) defining clear actions and these 22 positions for an additional three years . implementation strategies over the next five years, Four positions would work on the Technology including regulatory strategies, audits, enforcement Clearinghouse and 18 positions would work on strategies, incentives, and land use strategies; and selecting communities for future action . The (4) identifying annual metrics that will be used to proposal would also provide $405,000 to add three track progress . new permanent human resources positions . Air Districts in Early Stages of Implementing LAO Assessment Monitoring and Emission Reduction Efforts . Air districts must begin implementing the monitoring Funding to Extend 22 CARB Positions Lacks systems for first year communities by July 1, 2019, Adequate Justification . At the time of this report, and they are required to adopt emission reduction CARB had not provided adequate information plans by September 2019 (one year after first to justify the proposed $3 .8 million to extend year communities were selected by CARB) . Air funding for the above 22 positions . As discussed districts are currently in the process of developing later in this report, the proposal was originally the emission reduction plans and air monitoring submitted as part of a group of “technical” changes systems, including establishing community steering for California Environmental Protection Agency committees, convening and staffing steering departments, with no description of the proposed committee meetings, and conducting various activities or workload justification . Subsequently, outreach activities . after we requested information, CARB submitted a description of the type of AB 617 activities it will Governor’s Budget be conducting, plus workload information for the Proposes $276 Million, Mostly on a three new positions . However, for the 22 existing Limited-Term Basis . As shown in Figure 15, the positions the information provided does not include 48 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET a quantification of the amount of workload that the uncertainty in ongoing state funding makes it positions would complete, such as the estimated difficult for air districts to determine how many number of staff hours needed to complete different ongoing staff they can hire for various regulatory AB 617 activities . As a result, it is unclear how and monitoring activities . In addition, the lack of many positions will be needed to perform the work . certainty around how much incentive funding will be In 2017-18, the Legislature originally approved available in future years could make it difficult for air 22 of the 72 positions on a limited-term basis districts and communities to determine the mix of because AB 617 was a new program and there actions—such as incentives, regulations, and land was significant uncertainty about ongoing use changes—that might be needed to meet their workload . It was unclear how CARB’s staffing emissions targets . These cost uncertainties also needs would change as program activities make it difficult for the Legislature to know how transitioned from initial regulatory development to much in state resources will need to be devoted program implementation, much of which is done on an ongoing basis to effectively implement these by local air districts . For example, CARB has now programs . developed a statewide strategy and guidance for CARB Authority to Expand Program Raises air monitoring systems and emission reduction Budget and Oversight Considerations . The plans, but the implementation of monitoring and authority AB 617 gives to CARB to expand to emission reduction activities largely will be done by other communities without requiring additional air districts and local communities . The information legislative action raises important oversight and provided by the administration so far does not budget considerations . First, an expansion into adequately explain why the 22 positions are still more communities would create additional costs, needed as CARB’s AB 617 responsibilities and including air district implementation costs, CARB workload evolve . administrative costs, and likely incentive programs No Long-Term Funding Plan for Certain spending . Under current law, CARB could expand Ongoing Activities in First Year Communities . to additional communities before the Legislature The Governor’s budget does not include an has an opportunity to evaluate the costs, identify a ongoing funding plan for incentives, air district potential source of funding, and weigh the merits of implementation, or technical assistance grants to an expansion against other state funding priorities . the first year communities selected by CARB . Many Second, CARB could expand the program to of these activities are likely to be ongoing, and we other communities without clear direction from the do not anticipate that air districts will be able to Legislature about the scope and structure of any fund many of the activities from local revenues . expanded programs based on its assessment of Consequently, it is unclear how state costs for the effectiveness of programs that have already this program might change in future years . For been implemented . example, for the ten first year communities selected LAO Recommendations by CARB, local air districts will have ongoing costs related to air monitoring and implementing emission Reject CARB Proposal to Extend reduction plans, but the implementation details Limited-Term Funding for 22 Positions . We of these activities and associated costs are still do not have concerns with the vast majority under development by the air districts . In addition, of the administration’s proposed funding to incentive funding is a key component of CARB’s continue implementation of AB 617 . However, statewide emission reduction strategy and likely will we recommend the Legislature reject the be a key part of air districts’ community emission proposed $3 .7 million to extend CARB funding reduction plans . Finally, there is no sunset date for 22 positions . At the time of this report, there on the AB 617 requirement that CARB provide is inadequate workload justification to support technical assistance grants to communities . the requested funding . If the administration The lack of an ongoing funding plan can create provides additional workload information in the implementation challenges . For example, the coming months, we will review the information www.lao.ca.gov 49 analysis full gutter 2019-20 BUDGET and update the Legislature accordingly . We note communities, (2) what criteria it will be using to that even under our recommendation to reject determine how many communities it will add, these positions, CARB would still retain funding for (3) how it will evaluate potential costs of such an 50 positions approved in the 2017-18 budget on an expansion, and (4) the process it envisions for ongoing basis, plus three new positions . seeking legislative input and funding when making Direct Administration to Develop Long-Term these decisions . While AB 617 clearly envisions Funding Plan for First Year Communities . potential program expansion into additional We recommend the Legislature direct the communities after the first year, the additional administration to develop a long-term funding information provided by the administration plan for AB 617 implementation in first year might help the Legislature determine whether communities . Specifically, we recommend the any additional actions are necessary to ensure Legislature adopt supplemental report language it has adequate oversight over the decision to requiring the administration to include a long-term expand . For example, the Legislature might want funding plan in the Governor’s proposed budget to consider making CARB’s authority to expand for 2020-21 . The plan should include estimated to additional communities dependent on future multiyear funding for local air district administrative legislative direction and budget allocations . This activities that cannot be covered by local revenue would give the Legislature a clear opportunity to sources, incentive programs, and community evaluate the merits of existing programs and the technical assistance grants . The plan should also costs of expanding before CARB selects additional identify a long-term funding source . Potential communities . options include GGRF, General Fund, and revenue from new charges on polluters . EXIDE CLEANUP EFFORTS A long-term plan would help provide greater CONTINUE funding certainty to air districts and community groups which, in turn, could improve program The Legislature has already provided a implementation . For example, with additional $176 .6 million one-time General Fund loan funding certainty, air districts might be better able to fund the cleanup of residential properties to determine how many ongoing staff they can hire . contaminated by airborne lead from the In addition, community groups and air districts Exide lead-acid battery recycling facility . The could develop community emission reduction plans Governor proposes $74 .5 million in additional with a better understanding of how much ongoing one-time General Fund loans to pay for cleanup funding will be available for technical assistance activities . We recommend the Legislature and incentives to help achieve the reductions . require the Department of Toxic Substances It would also inform the Legislature’s long-term Control (DTSC) to report at budget hearings on budget planning . For example, the Legislature the time frame for completing the residential could have a better understanding of the amount cleanup, the total estimated cost of the cleanup, of GGRF going towards AB 617 in future years and when Exide will begin to repay the state for when determining how much funding might remain the costs of the cleanup . available for new multiyear spending proposals . Background (We discuss multiyear GGRF funding commitments earlier in this report .) Lead Contamination Is a Serious Public Direct CARB to Report at Budget Hearings Health Risk . Lead exposure can be toxic to on its Plan to Expand Program . We recommend humans and animals and cause negative health the Legislature direct CARB to report at budget effects . For example, when children are exposed to hearings on how it intends to approach future lead it can cause slowed growth, hearing problems, expansions of this program to additional anemia, lower IQs, and other health and learning communities . Specifically, CARB should report problems . Exposure to lead can come from a on (1) how it will assess the success of first year variety of sources including emissions from some 50 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET types of industrial facilities and past use of lead pay an additional $1 .5 million by March 2019 and paint in homes . When lead is released into the air $2 million by March 2020 . from industrial sources, such as lead smelters, it In March 2015, DTSC informed Exide that may travel long distances before settling to the its hazardous waste permit application would ground where it is usually embedded in the soil . be denied, and Exide permanently closed the Lead is especially dangerous to children because facility . The facility had been operating under a their growing bodies absorb more lead than adults, temporary permit for more than two decades . and their brains and nervous systems are more DTSC’s enforcement order requires Exide to sensitive to the damaging effects of lead . Babies submit a Residential Corrective Measures Study and young children can also be more likely to be in May 2019 . This study must identify all off-site exposed to lead because they often put their hands residential contamination, evaluate alternatives and other objects into their mouths that could to remediate it, and recommend a remedy . (Exide have been exposed to lead . A pregnant woman’s is also required to submit reports to identify and exposure to lead is of particular concern because it remediate all on-site contamination at the Exide can result in exposure to her developing baby . facility and in the industrialized areas surrounding Exide Technologies Facility Closed in it .) DTSC will review the validity of this study and 2015 When DTSC Denied Its Permit . Exide has the authority to dispute Exide’s methodology Technologies Inc . (Exide), headquartered in and findings . DTSC will select a corrective action Georgia, is a worldwide producer, distributor, and remedy after it approves the Residential Corrective recycler of lead-acid batteries . In 2000, Exide Measures Study . Exide will be required to start purchased a facility—first opened in 1922—in an making payments to fund costs (in addition to industrialized area in the City of Vernon, a few miles the $14 million Exide has already been required southeast of downtown Los Angeles, and operated to pay) of an approved corrective action remedy, the facility until its closure in 2015 . The facility’s which could occur over ten annual payments . Exide operations included recycling scrap materials from has challenged DTSC’s requirement that Exide lead-acid batteries . complete the Residential Corrective Measures In November of 2014, DTSC announced Study . At this time, it is unclear when these issues an enforcement order against Exide’s Vernon will be resolved . Funds from the Trust Fund must facility because of the emission of airborne lead be used for implementing the final residential contamination, as well as on-site contamination . corrective action remedy selected . The order required, among other things, that the Legislature Has Provided Funds for Exide company sample the soil for lead contamination Cleanup . In order to expedite the cleanup of and undertake the cleanup of contaminated contamination in the residential neighborhoods properties in an initial assessment area in nearby surrounding Exide to address the public health residential neighborhoods . The enforcement order threat posed, the Legislature has provided the also required the company to place $9 million in following funding for cleanup and enforcement the Exide Residential Off-Site Corrective Action activities: Trust Fund (Trust Fund) for cleanup of contaminated • Exide Enforcement Order ($1 .7 Million) . In residential properties in the areas identified as 2015-16, the Legislature provided $734,000 having the highest likelihood of being impacted (Hazardous Waste Control Account) annually by airborne lead emissions coming from the Exide for two years, and in 2018-19, the Legislature facility . Exide subsequently made this deposit provided an additional $1 million from the in 2014 to satisfy its initial residential cleanup Lead-Acid Battery Cleanup Fund (LABCF) obligations . DTSC later required Exide to place an annually for two years to continue overseeing additional $5 million into the Trust Fund beginning the Exide enforcement order . in November 2018 . Exide made the first payment of • Emergency Funding ($7 Million) . In 2015-16, $1 .5 million in November of 2018 and is required to the Legislature provided $7 million (special www.lao.ca.gov 51 analysis full gutter 2019-20 BUDGET funds) in emergency funding to (1) sample for cleanup based on properties sampled prior to up to 1,500 residential properties around the release of the cleanup plan, and DTSC has entered Exide facility, (2) develop a comprehensive into contracts to conduct the cleanup activities . cleanup plan, and (3) begin cleanup of the At that time, soil samples had been collected and 50 highest-priority properties based on the analyzed for more than 8,200 parcels out of an extent of lead contamination and the potential estimated total of 10,173 in the PIA . DTSC had for exposure . indicated that it might identify additional properties • General Fund Loan to Toxic Substances for cleanup if funding permits . Control Account (TSCA) ($176 .6 Million) . Legislature Established LABCF . Chapter 666 of Chapter 10 of 2016 (AB 118, Santiago) and 2016 (AB 2153, C . Garcia) created new fees on Chapter 9 of 2016 (SB 93, de León) provided lead-acid battery manufacturers and purchasers, a one-time $176 .6 million General Fund loan with the resulting revenue deposited into the to the TSCA for Exide-related cleanup of LABCF . The fund may be used (among other residential properties . DTSC has committed all purposes) for repayment of the $177 million loan of the $176 .6 million to cleanup activities and made from the General Fund for activities related to anticipates fully expending it by June 2021 . the Exide cleanup . Payments of $16 .7 million from • Third-Party Quality Assurance Contractor LABCF to the General Fund are budgeted for this ($1 .4 Million) . In 2017-18, the Legislature purpose in 2018-19 . provided $1 .4 million annually for three years Governor’s Proposal from a loan from LABCF to the Hazardous Waste Control Account for a third-party quality The Governor’s budget proposes to provide an contractor to monitor Exide cleanup activities . additional $74 .5 million in one-time General Fund • Parkways Cleanup Funding ($6 .5 Million) . In loans for cleanup activities associated with the 2018-19, the Legislature provided $6 .5 million Exide facility . (Combined with the $176 .6 million ($5 million General Fund and $1 .5 million one-time General Fund loan already approved California Environmental License Plate Fund) by the Legislature, this would bring the total on a one-time basis to sample soil and clean of one-time General Fund loans for the Exide up parkways in the communities around cleanup to $251 million .) The 2019-20 proposal Exide . includes two components—(1) $24 .5 million for increased costs to complete the cleanup of up Cleanup Activities Are Underway . As of to 2,500 parcels that have been prioritized under February 2019, lead removal has been completed DTSC’s cleanup plan and (2) $50 million to cleanup at roughly 600 parcels . This includes 330 parcels an additional 700 properties not previously included that have been cleaned up based on initial work in the cleanup plan . (The budget also includes plans and orders . For example, DTSC ordered another $16 .7 million loan repayment from LABCF Exide to clean up 186 properties in the initial to the General Fund .) assessment areas between August 2014 and Higher Cleanup Costs for Previously November 2015 . Identified Parcels ($24 .5 Million) . In 2016, DTSC In addition, cleanup activities have been estimated average per-parcel cleanup costs of completed at an additional 275 parcels consistent $50,000 . However, according to the administration with DTSC’s July 2017 cleanup plan and final a few factors have caused the per-parcel environmental impact report for the cleanup of cleanup cost estimate to increase to $60,000 to lead-impacted soil in neighborhoods around $80,000 per parcel . These factors include: the Exide recycling facility . In total, the cleanup plan calls for removing lead contamination from • Prevailing Wages and Bonding approximately 2,500 properties within 1 .7 miles Requirements . Initial estimates did not of the former battery recycling facility—known as assume prevailing wages and underestimated the preliminary investigation area (PIA)—over a the costs of bonding requirements for two-year period . Properties were initially prioritized contractors . 52 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET • Change in Anticipated Contract Type . DTSC lead contamination, and obtaining permission initially anticipated procuring a fixed maximum from property owners to sample other parcels . price contract for the cleanup work . Under Therefore, it is uncertain how many parcels will this arrangement contractors would have ultimately need to be cleaned up and what the total agreed to clean up a specified number of cleanup cost may be . parcels for an agreed upon amount . However, There is also uncertainty about when Exide will contractors would not agree to this type of begin to pay for cleanup costs in addition to the contract due to the unknown extent of the $14 million it was already required to deposit into contamination and the unknown amount of the Trust Fund . The administration has expressed soil requiring clean up . its intent to recover all the cleanup costs the state • Sample Storage . Due to potential cost incurs from Exide in keeping with the polluter pays recovery litigation with Exide and other principle that the responsible party should bear responsible parties, DTSC must comply with the costs of the cleanup . However, as discussed evidence preservation requirements by, among above, Exide is contesting DTSC’s requirement to other things, storing and retaining all soil complete the study . Moreover, according to the samples collected . department, moneys deposited into the Trust Fund cannot be used to reimburse DTSC for costs it Cleanup of Additional Parcels ($50 Million) . has incurred in implementing the interim residential The Governor’s budget plan proposes $50 million cleanup work . According to DTSC, it is working to cleanup approximately 700 parcels (in addition to with the Attorney General’s Office to ensure the 2,500 prioritized in the cleanup plan) with high that all necessary steps are taken to hold Exide lead contamination levels by June 2021 . responsible . Consequently, it is unclear how much of the cleanup costs the company ultimately will LAO Assessment pay and when they will be received by the state . State Has an Interest in Accelerating Exide Cleanup . Due to the public health risks from lead LAO Recommendation contamination, the state has a clear and immediate Approve Additional General Fund Loans to interest in cleaning up the residential parcels Continue Cleanup Efforts . We recommend the contaminated with lead by the Exide facility . As Legislature approve the Governor’s proposals to described earlier in this analysis, Exide may take provide a total of $74 .5 million in one-time General up to ten years or more to pay for the cleanup Fund loans to TSCA for the cleanup of residential after DTSC’s approval of the Residential Corrective parcels contaminated by the Exide facility . Due Measures Study and implementation of a cleanup to the serious public health threat posed by plan . If the state waited for this process to unfold, lead contamination in the soil, we believe the residents within the PIA would potentially be state should move forward with the cleanup as exposed to unhealthy levels of lead contamination expeditiously as possible . for up to a decade or more compared to the Require DTSC to Report at Budget Hearings accelerated approach adopted by the state . on Estimated Cleanup Cost and Time Line . Uncertainty Remains About Total Cost of the The Legislature would benefit from additional Cleanup and When Loans Will Be Repaid . DTSC information to assess anticipated time lines and has not provided an estimate of the total cost for costs for cleanup activities . This information would the Exide cleanup, or the time frame for completing allow the Legislature to assess what additional the cleanup . Under the Governor’s proposal, DTSC costs the state is likely to incur for the Exide would be provided an additional $74 .5 million cleanup beyond what is requested in 2019-20, in one-time loans to complete the cleanup of and also when Exide will begin to bear the costs 3,200 parcels out of about 10,173 parcels in of the cleanup . We recommend the Legislature the PIA . However, DTSC is still in the process require DTSC to respond at budget hearings to the of sampling some of the parcels in the PIA for following questions: www.lao.ca.gov 53 analysis full gutter 2019-20 BUDGET • When does DTSC anticipate it will complete cleanup of hazardous waste sites . This includes the the sampling of the 10,173 parcels within the investigation, cleanup, and ongoing maintenance PIA and the cleanup of parcels contaminated of state-orphan and federal Superfund sites . TSCA by lead? also is a major source of funding ($13 .4 million, • How much does DTSC estimate it will cost or 87 percent) for the Safe Consumer Products to complete the sampling and cleanup of all Program, which encourages manufacturers to of the parcels that require cleanup within the reduce human and environmental exposure to toxic PIA? Should the Legislature expect to see chemicals by promoting the adoption of “green additional requests for one-time General Fund chemistry” practices . (Green chemistry focuses on loans in future budgets? designing products and processes that minimize the use and generation of hazardous substances • When does DTSC estimate Exide will begin such as certain chemicals .) Major sources of to repay the state for the cleanup costs it has revenue for TSCA include (1) fees on organizations incurred and how are these payments likely to that use, generate, or store hazardous waste; be scheduled over time? (2) fines and penalties; and (3) moneys received • What authority does DTSC have to ensure from responsible parties who are required to pay for Exide will ultimately bear the costs of the cleanup at a hazardous waste site . cleanup? The 2019-20 budget proposes $66 million for DTSC from HWCA, which was created to provide DTSC SPECIAL FUND CONDITIONS funding for DTSC and other agencies (such as the Attorney General) to administer the rules and According to DTSC, the TSCA and the regulations for the disposal of hazardous wastes . Hazardous Waste Control Account (HWCA) have HWCA is a major source of funding ($65 million or faced structural imbalances in recent years . 76 percent) for the Hazardous Waste Management DTSC needs to complete its reconciliation of program, which regulates the generation, both accounts for fiscal years 2015-16 through storage, transportation, treatment, and disposal 2017-18, and the Department of Finance (DOF) of hazardous waste to minimize risks to public needs to certify the reconciliation in order to health and the environment . The program oversees accurately assess the condition of these funds permitting and compliance at facilities that manage in the current year and the budget year . Once and transport hazardous waste . The program also this process is completed, we will analyze supports and oversees local agencies that perform their condition and report our findings to the regulatory functions related to hazardous waste . Legislature . Major sources of revenue for HWCA include fees Bulk of DTSC’s Funding Comes From Two or charges paid by operators of hazardous waste Special Funds . The Governor’s budget plan disposal, storage, and treatment sites . proposes $363 million ($41 million from the General DTSC Has Stated That TSCA and HWCA Fund) for DTSC in 2019-20 . Almost two-thirds of Face Structural Imbalances . DTSC has stated this funding—$234 million—comes from two special that in recent years the growth in expenditures funds—TSCA and HWCA . The budget includes from TSCA and HWCA has outpaced growth in $168 million in expenditure authority from TSCA, revenues, transfers, and other adjustments (such which was created to provide funding for responses as for investment income), creating structural to releases of hazardous substances, such as imbalances in each fund . The magnitude of the airborne lead, and cleanup of hazardous waste structural imbalances is unclear, however, because sites, such as abandoned mines, that pose a threat the administration has not completed its budget to public health or the environment . For example, reconciliation for the past few years, as discussed TSCA is a major source of funding ($43 million, in more detail below . To the extent there has been a or 30 percent) for DTSC’s Site Mitigation and structural imbalance in each fund, this would result Restoration (SMR) program . The SMR program in drawing down the funds’ reserves . To mitigate implements federal and state laws regarding the 54 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET this, recent budgets have used other funding are taken to reduce costs or increase revenues mechanisms (such as fund transfers from the to the fund, DTSC’s ability to effectively regulate penalty accounts of other funds) in order to ensure the transportation, treatment, and disposal of the funds’ solvency . hazardous waste could be compromised . DTSC has stated that over the next few years, DTSC Is in the Process of Reconciling the structural imbalances could affect its ability HWCA and TSCA . At the time this analysis was to fund key program functions . For example, prepared, DTSC is still in the process of finalizing the state’s share of cost for the remediation and its accounting of the revenues and expenditures operations and maintenance costs at federal for HWCA and TSCA over the prior three years . Superfund sites is projected to increase over This corrected accounting is important because the next few years because more projects are having an accurate year-end balance is necessary scheduled to be undertaken and the state will in order to accurately assess the funds’ condition have to fund more O&M costs for projects . To and determine what resources are available for the extent that TSCA is structurally imbalanced, the 2019-20 budget . Once this reconciliation is DTSC may not be able to meet its obligations completed through 2017-18, and DOF has certified to pay these costs without redirecting funding it, we will assess the condition of TSCA and HWCA from other sources . Similarly, to the extent that and report our findings to the Legislature . HWCA is structurally imbalanced and no actions RESOURCES CAPITAL OUTLAY DEFERRED MAINTENANCE we refer to this as deferred maintenance . Since 2015-16, the annual state budgets have included The administration proposes $67 million— a combined total of $1 .3 billion—mostly from the mostly from the General Fund—to implement General Fund—to address backlogs of deferred deferred maintenance projects at six natural maintenance at state facilities—such as prisons, resources departments . Prior to approving parks, and universities—as well as a few local this funding, we recommend the Legislature facilities, such as community colleges . Of this require all of the departments to report on what total, $318 million has been allocated to natural projects they intend to implement—if they have resources departments, including $200 million not done so already—to ensure that they will to the Department of Water Resources for flood focus on high-priority maintenance activities . protection infrastructure, $80 million for state We further recommend adoption of reporting parks, and $15 million for facilities operated by the requirements that will better enable legislative Department of Fish and Wildlife (DFW) . oversight of (1) how departments maintain Proposition 68 Allocated Bond Funding for their facilities on an ongoing basis and (2) what Deferred Maintenance . State voters approved deferred maintenance projects are actually Proposition 68 in June 2018 . Among other implemented with the proposed funding . allocations, this bond measure provides a total of $100 million—$50 million for state parks and Background $50 million for DFW—for deferred maintenance Recent Budgets Have Provided Funding for projects at facilities owned by these two Deferred Maintenance Projects . Facilities require departments . routine maintenance, repairs, and replacement of Governor’s Proposal parts to keep them in acceptable condition and to preserve and extend their useful lives . When Budget Provides $67 Million for Deferred such maintenance is delayed or does not occur, Maintenance at Six Departments . The www.lao.ca.gov 55 analysis full gutter 2019-20 BUDGET Governor’s 2019-20 budget plan proposes build its infrastructure assets, which play critical $67 million—$45 million from the General Fund and roles in the state’s economy and the provision of $21 .6 million from Proposition 68—for deferred services to Californians . Moreover, when repairs to maintenance projects at six natural resources key building and infrastructure components are put departments . As shown in Figure 17, most of this off, facilities can eventually require more expensive funding would be for projects at the Department investments, such as emergency repairs (when of Parks and Recreation (Parks) . The budget also systems break down), capital improvements (such includes provisional language allowing up to three as major rehabilitation), or replacement . Thus, while years—until June 30, 2022—for departments to deferring regular maintenance lowers costs in the expend or encumber these funds . short run, it often results in substantial costs in Funding Represents Relatively Small Share the long run . For example, failure to implement a of Identified Deferred Maintenance Projects . relatively inexpensive maintenance project to patch Based on the most recent information available, a leaking roof can result in structural damage, the six departments proposed to receive deferred mold, and roof replacement projects costing maintenance funding in 2019-20 have lists of hundreds of thousands of dollars or more . deferred maintenance projects worth $1 .4 billion, A Few Departments Have Not Identified How including $1 .2 billion in state parks . Therefore, They Would Prioritize Funding . At the time of the proposals would allow these departments to this analysis, each of the six natural resources implement projects representing 5 percent of the departments proposed to receive deferred departments’ estimated backlogs . This share, maintenance funding in 2019-20 had provided our however, varies by department with the California office with a list of deferred maintenance projects . Conservation Corps (CCC) being able to address Three of these departments—DFW, CalFire, and just over half of its estimated need, while state CCC—have provided information specifying which parks and the California Department of Forestry of these projects they would prioritize for the limited and Fire Protection (CalFire) would each be able to funding provided . (CCC’s prioritization is somewhat address about 4 percent of their estimated need . limited because it prioritizes projects at each of its facilities, but does not show how it would prioritize LAO Assessment projects across the whole department .) For the Properly Maintaining State Facilities Is other departments, however, the absence of a Important Practice . The deferred maintenance prioritized list of projects makes it impossible for funding proposed in 2019-20 reflects the the Legislature to determine whether the proposed continuation of an important commitment by the funding would go to the projects that it thinks are state to tackle its deferred maintenance backlog . most important . We note that some departments The state has invested many billions of dollars to have provided our office with explanations of how they intend to prioritize projects if they receive the proposed funding . Figure 17 For example, Parks has said that 2019-20 Deferred Maintenance Funding Proposed for it intends to score each project Natural Resources Departments based on five criteria—such as (In Millions) whether it would address a health or safety need, increase park Department Amount Fund Source revenues, and meet regulatory Parks and Recreation $45.6 General Fund and Proposition 68 requirements . Fish and Wildlife 10.0 Proposition 68 The lack of clear prioritization Forestry and Fire Protection 6.0 General Fund Exposition Park 3.0 General Fund by some departments makes Conservation Corps 1.0 General Fund evaluation of their budget Tahoe Conservancy 1.0 General Fund proposals difficult for a couple of Total $66.6 reasons, especially for Parks . First, 56 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET the Parks list of deferred maintenance backlog is of deferred maintenance backlogs is fully prevented particularly long—over 200 pages—and there is in the future, they demonstrate a commitment to no reasonable way for the Legislature to evaluate better maintain facilities on an ongoing basis . that list, especially given the limited level of detail The other departments—DFW, Exposition Park, provided on each project . Second, in a few cases and Tahoe Conservancy—have not proposed the lists include projects that that could be needed, additional resources for maintenance, nor have but are not typically considered maintenance . For they developed plans on how they will more example, the Parks list includes studies, plans, effectively maintain facilities with existing resources . Americans with Disabilities Act improvements, and Therefore, it is unclear how these departments will habitat restoration projects . However, because ensure better maintenance of their facilities on an the projects often are not prioritized, it is not ongoing basis and address the underlying causes possible to tell whether departments intend to use of their deferred maintenance backlogs to ensure their funding for those types of activities . Third, that the problems do not get worse . some of the lists include large, multimillion dollar Administration Does Not Propose Way to projects that might deserve greater scrutiny as Track Outcomes of Spending Plan . Under the would typically be done for a major capital outlay Governor’s proposal, departments would have project . For example, the list for Parks includes authority to change projects without legislative over 200 projects estimated to cost at least notification . We find that it is reasonable for $1 million each, including two projects estimated departments to have some flexibility to change to cost over $20 million each . Yet, without knowing projects after the approval of the budget . Urgent how the department would prioritize projects, maintenance needs may emerge after the the Legislature cannot know which of these large completion of the budget process, which may projects deserves particular attention . necessitate a reevaluation of which projects to Several Departments Have Not Initiated pursue . However, the administration’s proposals Efforts to Reduce Future Deferred Maintenance . do not include any future reporting requirements . Providing one-time funding for deferred Without a reporting mechanism, the Legislature maintenance is only a short-term response to the lacks access to the information on which projects underlying problem—the failure to consistently are ultimately undertaken . This information maintain state assets on an ongoing basis . It would be important for the Legislature to assess is important that departments have adequate what departments accomplished with deferred resources and plans for how they will maintain the maintenance funds and ensure that they complete state assets under their jurisdiction on an ongoing projects that are consistent with legislative basis . To this end, it is worth noting that three of directives . the six natural resources departments proposed to receive deferred maintenance funding have LAO Recommendations budget proposals in the current or budget years to Ensure Departments Prioritize Most Important increase their capacity to maintain facilities on an Projects . We recommend that the Legislature ongoing basis . Specifically, the 2018-19 Budget use its budget hearings this spring to gather Act included $8 .5 million to add 103 facilities and more information from individual departments . maintenance positions for Parks . The current-year First, we recommend that the Legislature require budget also included about $1 million for CCC that all six natural resources departments report to add seven additional facilities staff—mostly at budget hearings on the approach they are maintenance mechanics . CalFire’s proposed taking to prioritize projects . This would enable the budget for 2019-20 includes $9 million and 22 new Legislature to ensure that it is comfortable that the positions (growing to $27 million and 63 positions department’s approach would result in the selection in out-years) to support its facilities maintenance of projects that are consistent with legislative program . While it is unclear whether these staffing priorities . increases will ensure that the further accumulation www.lao.ca.gov 57 analysis full gutter 2019-20 BUDGET Second, we recommend that the Legislature department that is receiving deferred maintenance require that all of the departments report at budget funding in 2019-20 identify how their deferred hearings with lists of the specific projects they plan maintenance backlog has changed since 2019 . We to undertake, if they have not done so already . further recommend that the SRL require that, to the These lists are important for the Legislature to have extent that its backlog has grown in the intervening in order to assess whether the specific proposed years, the department identify (1) the reasons for projects are consistent with its priorities—such as the increase and (2) specific steps it plans to take projects that prevent future costs or address fire, to improve its maintenance practices on an ongoing life, or safety risks . If the lists include projects that basis . This is because, if a department experienced it deems to be of lower priority, we recommend that a large increase in its backlog, it might suggest the Legislature direct the department to reprioritize that its actual routine maintenance activities are projects or adjust the funding levels proposed for insufficient to keep up with its annual needs and departments accordingly . If departments fail to that it should improve its maintenance program provide lists of proposed projects or are unable to to prevent the further accumulation of deferred justify their proposed projects to the Legislature’s maintenance . In such cases, it will be important satisfaction, we recommend that the Legislature for the Legislature to understand this so it can reject the administration’s proposed funding for direct departments to take actions to improve those specific departments . We note that it should their maintenance programs . Adoption of the generally not be difficult for departments to provide following language would be consistent with this lists of proposed projects since DOF issued a recommendation: budget letter in July 2018 directing departments to Item xxxx-xxx-xxxx . No later than January 1, provide prioritized lists of projects by September 2023, [insert department name] shall submit to 2018 in preparation for the 2019-20 budget the fiscal committees of the Legislature and the process . (DOF also provided departments with Legislative Analyst’s Office a report identifying similar direction in previous years .) the total size of its deferred maintenance Ensure Departments Have Plan to Reduce backlog as of the 2018-19 fiscal year and Accumulation of Deferred Maintenance . For September 2022 . To the extent that the total departments without plans or proposals to address size of the deferred maintenance backlog has ongoing deferred maintenance (DFW, Exposition increased over that period, the department’s Park, and Tahoe Conservancy), we recommend report shall also identify the reasons for the that the Legislature seek additional information increase in the size of the backlog and the at budget hearings on how each department specific steps the department plans to take plans to address the accumulation of deferred to improve its maintenance practices on an maintenance on an ongoing basis . For example, ongoing basis . this could include information on the level of Require Future Reporting of Projects resources that the department currently devotes to Completed . In our budget report, The 2019-20 maintenance, as well as an estimate of the ongoing Budget: Deferred Maintenance, we recommend level of maintenance funding that would be needed that the Legislature adopt additional SRL requiring to prevent the future accumulation of deferred DOF to report, no later than January 1, 2023, maintenance . This would provide the Legislature on which deferred maintenance projects all with additional information on the status of the departments undertook with 2019-20 funds . department’s ongoing efforts to maintain their This would provide greater transparency and facilities . accountability of the funds by ensuring that the Additionally, we recommend that the Legislature Legislature has information on what projects were adopt Supplemental Report Language (SRL) ultimately implemented and that the funds were requiring that, no later than January 1, 2023, each spent consistent with any legislative directive given . 58 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET SEVERAL NEW levels will result in significant fluctuations in funding from year to year, which could make CAPITAL OUTLAY PROJECTS planning difficult for contract counties . In The Governor’s budget includes $29 .6 million addition, the proposed formula is not tied to to begin 11 new capital outlay projects for actual capital outlay needs . If providing contract departments within the California Natural county capital outlay funding is a legislative Resources Agency (CNRA) . As shown in Figure 18, priority, we recommend setting a consistent these proposals include nine projects to expand, level of ongoing funding rather than utilizing the replace, or relocate CalFire facilities and two formula proposed by the Governor . improvement projects in state parks . The total Background costs for completion of the proposed projects is estimated to be $336 million . All of this funding CalFire contracts with six counties (Kern, Los would come from the General Fund, with the Angeles, Marin, Orange, Santa Barbara, and exception of the Colusa-Sacramento River State Ventura) to fulfill its responsibilities related to Recreation Area boat launching improvement wildfires on state responsibility areas (SRAs) within project that would be funded from the Harbors and each county . These six counties are known as the Watercraft Revolving Fund . “contract counties .” The annual budget includes General Fund resources—about $79 million in CALFIRE FUNDING FOR 2018-19—to support contract counties’ wildfire CONTRACT COUNTIES operations . Prior to 2012-13, CalFire also provided funding to the contract counties for The concept of the Governor’s proposal to capital outlay . This capital outlay funding was provide some funding for capital outlay for determined by a formula based on a percentage— contract counties is reasonable . However, the about 19 percent—of annual state expenditures specific formula proposed to determine funding on CalFire capital outlay projects . Capital outlay Figure 18 Summary of New Natural Resources Capital Outlay Projects (In Millions) 2019-20 2019-20 Total Project Project Phase Funding Cost CalFire Humboldt-Del Norte Unit Headquarters: relocation A $1.9 $61.4 Butte Fire Center: replacement P 2.7 59.7 Growlersburg Conservation Camp: replacement P 3.1 59.3 Hollister Air Attack Base/Bear Valley Helitack Base: relocation A 12.2 53.6 Hemet-Ryan Air Attack Base: replacement P 1.9 37.5 Elsinore Fire Station: relocation A 1.8 14.7 Ramona Air Attack Base: new barracks P,W 0.9 5.8 Paso Robles Air Attack Base: new barracks P 0.3 3.9 Fresno Air Attack Base: new barracks P,W 0.6 3.8 Subtotals ($25.2) ($299.7) Parks Fort Ross SHP: visitor and educational improvements P $4.0 $29.5 Colusa-Sacramento River state recreation area: boat launching improvements P 0.4 6.5 Subtotals ($4.4) ($36.0) Totals $29.6 $335.6 A = acquisition; P = preliminary plans; W = working drawings; and SHP = state historic park. www.lao.ca.gov 59 analysis full gutter 2019-20 BUDGET funding for contract counties was eliminated Funding Formula Not Based on Specific beginning in 2012-13 due to General Fund budget Capital Outlay Needs . The formula that the constraints . Since that time, the annual budget Governor proposes to reinstate is based on two has not included capital outlay funding for contract factors (1) the annual spending level for CalFire counties with the exception of $250,000 provided capital outlay projects, and (2) the ratio of contract on a one-time basis in 2016-17 . county fire stations to CalFire fire stations . However, these two factors do not account for actual capital Governor’s Proposal outlay needs for contract counties . Instead, the Reinstates Capital Outlay Funding for factors that are most likely to affect local costs to Contract Counties . The Governor’s budget build and maintain wildland fire protection facilities proposes to reinstate capital outlay funding for are the age of existing facilities and changes contract counties on an ongoing basis . Under the in demands on facilities . In addition, counties proposal, CalFire would determine annual funding sometimes operate fire stations that serve both levels for this purpose utilizing its historic formula their wildland fire protection responsibilities, as well based on state spending on CalFire capital outlay as their responsibilities to respond to local structure projects . For 2019-20, this results in $3 .3 million fires, making it more challenging to determine from the General Fund for contract county capital what share of capital costs should be attributed to outlay . The proposal does not include estimates of the SRA responsibilities . Currently, the state does future costs . not have data on actual local capital outlay needs associated with wildland fire protection . Moreover, LAO Assessment obtaining such accurate information and updating it regularly could be relatively expensive compared to Providing Funding for Contract County the total level of funding proposed . Capital Outlay Is Reasonable in Concept . In our view, the concept of providing some funding for LAO Recommendation capital outlay for contract counties is reasonable . Select Different Approach to Determining Contract counties are providing a service to Funding Level if Funding Is Reinstated . The CalFire, and counties have to build and maintain concept of providing funding to contract counties infrastructure, such as fire stations, in order to for capital outlay is reasonable . However, because provide this service effectively . this funding generally has not been provided in Funding Formula Proposed Likely to several years, the Legislature may wish to weigh Result in Planning Challenges . As described whether reinstating this funding is as high of a above, the proposed funding formula is linked to priority for the General Fund as other programs . annual spending on state capital outlay projects . If providing this funding is a legislative priority, State expenditures on CalFire projects can vary we recommend that the Legislature simply considerably from year to year based on the designate the funding amount for this program number, type, and phase of capital projects funded in the 2019-20 budget and ongoing based on its in a particular year . Consequently, the proposed General Fund priorities . This would provide counties formula is likely to result in significant fluctuations with a more consistent level of funding for counties in the annual funding level provided to contract than under the Governor’s proposal . It would also counties for capital outlay . For example, if this be simpler to administer than the proposed formula . funding had not been removed from the budget in 2012-13, the annual amount provided since then We note that there is probably not a “right” would have fluctuated from a low of $97,000 in level of funding to provide contract counties for 2018-19 to a high of $9 .3 million in 2013-14 . capital outlay . So, we offer a couple of different Fluctuations of this magnitude could make it approaches the Legislature could consider . One difficult for counties to plan for how they would use approach would be to establish the Governor’s the funds . proposed level of $3 .3 million as the ongoing annual funding level . Alternatively, the ongoing 60 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET funding level could be based on the average of SRA contract counties, such as if an additional amount that would have been provided over the county became a contract county . In the future, last decade—about $2 .2 million . Additionally, if better information were available about actual the Legislature could consider mechanisms for capital outlay costs associated SRA responsibilities, adjusting the level of funding over time to account the Legislature could revisit the funding level for factors such as inflation or changes in the share provided . BOND ADMINISTRATION PROPOSITION 68 State in Initial Year of Implementing Proposition 68 . As shown in Figure 19 (see We believe the Governor’s Proposition 68 next page), Proposition 68 provides funding for proposals are reasonable, however the multiple types of activities . (Because the bond Legislature may want to provide more or has over 75 discrete categories for how funds less funding for particular bond categories must be used, the figure provides a consolidated to expedite or increase the effectiveness of summary .) The bond measure includes a number program implementation . We recommend the of requirements designed to control how these Legislature adopt a Proposition 68 package that funds are administered and overseen by state reflects its priorities . To inform these decisions, agencies . For example, most of these funds must we recommend using the spring budget be used for local assistance—typically allocated subcommittee process to solicit feedback from through a competitive grant process to local stakeholders and implementing departments on governments, nonprofits, and other organizations information such as current program demand to implement projects . Bond funds will be and available funding from other sources . distributed across 20 state departments (including ten state conservancies) . As shown in the figure, Background the 2018-19 budget included $1 .3 billion from Proposition 68 Provides $4 .1 Billion in Proposition 68, leaving $2 .8 billion available for General Obligation Bonds . In June 2018, voters future appropriation . passed Proposition 68, authorizing the state to sell Governor’s Proposals a total of $4 .1 billion in general obligation bonds for natural resources-related purposes, including Appropriates $1 Billion From Proposition 68 . parks, habitat restoration, and water projects . (The Figure 19 also displays the Governor’s various Legislature placed this bond on the ballot through Proposition 68 proposals for 2019-20 . As shown, Chapter 852 of 2018 [SB 5, de León] .) This total these proposals total about $1 billion across includes $4 billion in new bonds and a redirection multiple departments and programs, representing of $100 million in unsold bonds that voters just over one-third of the total bond funding still had previously approved for natural resources available for appropriation . Major proposals include: activities . The bond also includes several provisions • Safe Drinking Water Projects ($170 Million) . designed to assist “disadvantaged communities” Funding for an established SWRCB program (with median incomes less than 80 percent of the that allocates grants and loans to local statewide average) and “severely disadvantaged agencies for projects to improve water communities” (with median incomes less than quality and access to safe drinking water . 60 percent of the statewide average) . For example, This program has previously been funded it requires that for each use specified in the bond, by Proposition 1 (2014 water bond) . The at least 15 percent of the funds be spent to assist focus of these funds would be to support severely disadvantaged communities . www.lao.ca.gov 61 analysis full gutter 2019-20 BUDGET the construction of drinking water projects in through four programs . This includes the disadvantaged communities . Systemwide Flood Improvement Program • Flood Protection Projects ($136 Million) . ($73 million), which would fund portions of Funding for DWR to increase flood protection eight projects in the Central Valley (including five in the Yolo Bypass) that are intended to Figure 19 Proposition 68 Overview (In Millions) Implementing Bond 2018-19 2019-20 Program Department Allocation Budgeted Proposed Natural Resources Conservation and Resiliency $1,497 $406 $310 Restoration and conservation projects Conservancies $345 $100 $48 Restoration and conservation projects WCB 265 70 127 Voluntary agreements CNRA 200 — 70 Salton Sea management CNRA 200 30 — Habitat restoration and protection DFW 95 24 3 Los Angeles River watershed RMC/SMMC 75 17 14 Various specified projects CNRA 71 68 <1 Deferred maintenance DFW 50 — 10 Restoration and conservation projects CCC 40 10 12 Healthy coastal and marine ecosystems OPC 35 10 <1 Watershed Improvement Program SNC 25 23 <1 Forest management and urban forestry CalFire 25 15 9 Projects that assist coastal communities OPC 21 10 <1 Working lands and riparian corridors DOC 20 2 15 Multibenefit green infrastructure CNRA 20 19 <1 Healthy Soils CDFA 10 9 <1 Parks and Recreation $1,323 $496 $105 Improve and expand local parks Parks $1,035 $463 $54 Improve and expand state parks Parks 170 19 16 Lower cost coastal accommodations SCC/Parks 60 — — Trails, greenways, and river parkways CNRA 40 10 28 Deferred maintenance at fairgrounds CDFA 18 4 7 Water $1,280 $357 $578 Flood protection and repair DWR $460 $99 $136 Sustainable groundwater management DWR 240 62 112 Safe drinking water SWRCB 220 36 170 Sustainable groundwater management SWRCB 160 142 -8a Multibenefit stormwater CNRA 100 <1 93 Water recycling SWRCB 80 — 74 Water efficiency and enhancement CDFA 20 18 1 Totalsb $4,100 $1,260 $995 a Governor proposes to revert some funding from the current-year appropriation. b Includes funding for bond administration. WCB = Wildlife Conservation Board; CNRA = California Natural Resources Agency; DFW = Department of Fish and Wildlife; RMC = San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy; SMMC = Santa Monica Mountains Conservancy; CCC = California Conservation Corps; OPC = Ocean Protection Council; SNC = Sierra Nevada Conservancy; CalFire = California Department of Forestry and Fire Protection; DOC = Department of Conservation; CDFA = California Department of Food and Agriculture; SCC = State Coastal Conservancy; Parks = Department of Parks and Recreation; DWR = Department of Water Resources; and SWRCB = State Water Resources Control Board. 62 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET provide both flood control and ecosystem • Implementation of Voluntary Agreements benefits . (The budget also proposes ($70 Million) . Funding for CNRA to $19 million from Proposition 1 to supplement implement projects developed through Proposition 68 funds for these projects .) The voluntary agreements among federal and Stormwater, Mudslide, Flash-Flood Protection state agencies, local governments, water Program ($30 million) would undertake districts and agencies, and nongovernmental projects and allocate grants to protect people organizations . Pursuant to the bond, the and property in California’s alluvial fan, funds must be used for projects that facilitate coastal, and riverine floodplains . The Urban implementation of SWRCB’s Bay-Delta Water Flood Risk Reduction Program ($25 million) Quality Control Plan, improve ecological flows would fund portions of five projects intended and habitat for species, and create water to provide both flood control and ecosystem supply and regulatory certainty for water benefits in urban areas in the Central Valley for users . which the state has special flood management Establishes 15 .5 New Positions to Implement responsibilities and liabilities . Programs . The Governor’s proposal also includes • Sustainable Groundwater Management establishing 15 .5 new positions to implement Act (SGMA) Implementation ($112 Million) . Proposition 68-funded programs and activities . Funding for DWR to allocate competitive (These would add to the 80 .5 positions established grants to local Groundwater Sustainability as part of the 2018-19 budget .) These consist Agencies for projects that implement of nine new positions for DWR to implement their Groundwater Sustainability Plans SGMA . The other positions are to administer ($88 million) . Current- and prior-year budgets Proposition 68 grant programs: three positions have funded SGMA planning grants from for the Department of Food and Agriculture, four Propositions 1 and 68, but this would be the positions for the Tahoe Conservancy, one position first appropriation for implementation grants . for the San Gabriel and Lower Los Angeles Rivers Would also fund various state-level activities and Mountains Conservancy, and a half position for for DWR to assist in SGMA implementation, the Coastal Conservancy . including providing technical assistance as Certain Activities Not Proposed to Be Funded well as collecting and disseminating data in 2019-20 . The Governor’s proposal would ($24 million) . fund nearly every category of Proposition 68 in • Multibenefit Stormwater Projects either 2018-19 and/or 2019-20 . However, a ($93 Million) . Funding for CNRA to initiate few exceptions exist . Under the Governor’s a new program that allocates competitive proposal, seven specific bond categories grants for multibenefit projects to address would not receive funding in either year . The flooding in urbanized areas . Pursuant to administration provides two reasons for this the bond, eligible projects might include approach . First, some programs have funding stormwater capture and reuse, planning and remaining from earlier bonds . These include (1) two implementation of low-impact development, Coastal Conservancy-administered programs restoration of urban streams and watersheds, (Proposition 68 provides $63 .8 million for coastal and increasing permeable surfaces to help restoration and $16 million for the Santa Ana River reduce flooding . Conservancy program), (2) $30 million for the Salton • Water Recycling Projects ($74 Million) . Sea Authority to conduct air quality and habitat Funding for an established SWRCB program projects at the Salton Sea (out of $200 million total that allocates grants to local agencies for the in Proposition 68 for CNRA to conduct Salton Sea planning, design, and construction of water activities), and (3) San Joaquin River Conservancy recycling projects that offset or augment fresh projects (Proposition 68 provides $6 million) . The water supplies . This program has previously administration plans to propose Proposition 68 been funded by Proposition 1 . funds for these efforts in future years after www.lao.ca.gov 63 analysis full gutter 2019-20 BUDGET previously approved bond resources are depleted . this report, the administration presented its Second, some bond categories are not yet ready Proposition 68 proposals in a consolidated form to expend funds because departments need to without the level of budget detail typically provided undertake additional work to prepare for effective to the Legislature and public . This is particularly implementation . These include a new program to problematic for programs that are essentially develop lower-cost overnight accommodations being initiated for the first time in 2019-20 . In along the coast, for which Proposition 68 provides contrast, the administration provided more detailed $30 million each for Parks and the Coastal information as part of the 2018-19 budget process Conservancy . (This would help implement a for programs proposed to receive significant program established through Chapter 838 of 2017 new funding from Proposition 68 . (Additionally, [AB 250, Gonzalez Fletcher] .) The administration certain programs—like SWRCB’s Safe Drinking states that it wants to use an assessment of Water Program—were first established through existing low-cost coastal accommodations to prior bonds and the Legislature reviewed relevant help guide the rollout of this program, and that implementation details in prior years .) Activities that report was not completed before the Governor’s will receive significant Proposition 68 funding for the budget was prepared . (The Coastal Conservancy first time in 2019-20 and represent substantively published a draft copy of this assessment in new state efforts include funding for (1) CNRA to November 2017 .) The final funding category for allocate grants for multibenefit stormwater projects which the administration is still determining how ($93 million); (2) DWR to allocate grants to local best to use Proposition 68 funds before requesting groundwater agencies to implement sustainable appropriations is $4 .8 million for the Coastal Groundwater Management Plans ($88 million); Conservancy to fund a conservation program at (3) CNRA to implement voluntary agreements West Coyote Hills . ($70 million); (4) Parks to allocate grants to local agencies for generating revenues ($37 million); LAO Assessment and (5) DWR to initiate new efforts to protect Governor’s Proposals Appear Consistent people and property in California’s alluvial fan, With Legislative and Voter Intent . We find coastal, and riverine floodplains ($30 million) . the Governor’s Proposition 68 proposals to be While the Governor’s proposals are consistent with reasonable . The Legislature and voters structured bond language directing funding to these broad the bond around specific priorities . In proposing categories of activities, assessing the merits and to begin implementing most bond categories in efficacy of the administration’s specific plans for the current and budget years, the administration is how it will implement these new efforts is difficult taking steps to address those identified issues . In without additional information . The administration leaving almost one-half of total funding for future has been forthcoming in providing detail on these appropriations, the Governor helps ensure some proposals to us upon request, however such funding is reserved to meet needs that may emerge information has not been made available to the in future years . We also find merit in the Governor’s broader public . We discuss this in greater detail in plan to delay appropriating Proposition 68 funds for the “Budget Transparency” section of this report . certain programs, either because they are still in the Legislature May Want to Modify Timing of process of utilizing funds from previous bonds, or Bond Appropriations . Although the Governor’s because they are not yet ready to expend the funds Proposition 68 proposals generally are reasonable effectively . and consistent with the bond language the Lack of Detail Makes it Difficult to Assess Legislature adopted, they do not represent the only Specific Proposals . While we did not identify approach to appropriating funding . The Legislature any concerns with the overall structure of the could opt to provide more or less funding for Governor’s Proposition 68 proposals, our review particular bond categories based on its priorities was somewhat hindered by a lack of information and feedback from stakeholders and implementing for certain proposals . As described later in departments . The Legislature could use budget 64 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET subcommittee hearings this spring to solicit such LAO Recommendation information . For example, the 2018-19 budget Adopt Proposition 68 Package That Reflects provided $277 million for competitive grants Legislative Priorities . We recommend the to create and expand parks in park-poor Legislature adopt a Proposition 68 package that neighborhoods, but the Governor proposes only reflects its priorities . We believe adopting the $2 million for this program in 2019-20—leaving Governor’s proposals would be a reasonable nearly $450 million in this category for future approach, however the Legislature may want to appropriations . If the Legislature discovers provide more or less funding for particular bond that there is unmet demand for these funds in categories to expedite or increase the effectiveness communities that are ready to submit applications of program implementation . To inform these in the budget year and begin spending grants right decisions, we recommend using the spring budget away, it might want to increase the appropriation subcommittee process to solicit feedback from for this funding category beyond the Governor’s stakeholders and implementing departments on proposed amount . In contrast, if the Legislature information such as current program demand and learns that certain other programs have large available funding from other sources . amounts of uncommitted funding from prior bonds, it could choose to delay providing Proposition 68 funds for those categories for a few more years . BUDGET TRANSPARENCY SEVERAL PROPOSALS LACK Background TYPICAL SUPPORT INFORMATION Budget Development Process Includes Documents to Justify Proposals . Pursuant The Governor’s administration presented to the State Constitution, each January the a number of its 2019-20 resources and Governor’s administration proposes a budget environmental protection budget proposals bill to the Legislature to serve as a starting place using an approach that lacks public for budget negotiations . Along with the budget transparency, detailed explanation, and bill, the administration prepares and publishes a sufficient workload justification . We recommend number of other documents to explain and justify (1) legislative staff and members request its budget proposals . These include budget change additional information about any of the proposal (BCP) documents, which provide detailed proposals for which they believe additional descriptions of proposed budget modifications for detail and rationale is needed, and (2) the the coming fiscal year, as well as justification for Legislature direct the administration to revert why new activities should be funded or existing to the long-standing practice of providing activities discontinued . If the administration is detailed justification documents for budget proposing that new state employee positions be proposals that involve new, expanded, or established or funded, the BCP usually describes extended activities and/or positions . This will the new workload, the proposed position better enable the Legislature to exercise its classifications, and the estimated amount of staff oversight role over how state funds are used time that would be spent on each task needed to and ensure that funds are spent effectively and complete the workload . These documents typically for well-justified purposes . also include an analysis of other alternatives that the administration considered and a rationale for why the proposed approach is preferable . www.lao.ca.gov 65 analysis full gutter 2019-20 BUDGET Legislative members and staff use these documents BCPs are primarily for funding from various bonds, to help evaluate the merits of the administration’s although certain General Fund and special fund proposals, and they are publicly available to proposals are also included . Specifically, these facilitate stakeholders’ ability to track and engage three consolidated BCPs include: in the budget process . • CNRA . 72 proposals totaling $92 million and In Last Year’s Budget Process, Administration 0 .5 new positions . Combined Multiple Technical Adjustments • CalEPA . 14 proposals totaling $29 million and Into One BCP . As part of the 2018-19 budget 6 new positions . development process, the administration used a • Proposition 68 . 124 proposals totaling somewhat new approach of combining multiple about $890 million and 96 positions (15 .5 of proposed budget changes for the natural which are proposed to be newly established resources policy area into one BCP—rather than and 80 .5 of which were first established in providing separate BCPs . Specifically, for multiple 2018-19) . departments under CNRA, a single BCP contained “requests for various technical reappropriations, As we discuss below, the Governor’s budget reversions, reversions with associated new also includes certain other new funding proposals appropriations, and baseline appropriation for which detailed BCPs were not prepared or adjustments to continue implementation of provided . previously authorized programs .” LAO Assessment Governor’s Proposals Consolidated Budget Documents Include Governor’s Budget Combines Numerous New Proposals, Not Just Technical Adjustments . Proposals Into a Few Consolidated BCPs . For The administration’s consolidated BCPs for the 2019-20 budget, the administration has again 2019-20 represent a significant expansion of the taken the approach of consolidating multiple approach used in 2018-19 . While some of the proposals into single BCPs . This year, however, proposals contained in these 2019-20 BCPs are the administration has expanded this practice similarly technical in nature—such as reversions of to three distinct consolidated BCPs—one for minor funding amounts that had been appropriated departments under CNRA, one for departments in previous years for similar projects—the under the California Environmental Protection documents also include several proposals to fund Agency (CalEPA), and one for all 2019-20 proposals new activities and provide significant levels of new funded by Proposition 68 (the water and parks funding . In our view, these types of proposals bond authorized by voters in June 2018) . (While should not be considered technical, but rather this report focuses on proposals related to the represent fresh initiatives meriting a dedicated Natural Resources and Environmental Protection justification . Such proposals include (1) newly Agencies, the administration used a similar authorized and funded positions; (2) funding for consolidated approach for other areas of the new activities; and/or (3) extensions of funding, budget as well, including the Health and Human activities, and/or positions that the Legislature Services Agency and the Department of General previously had authorized only on a limited-term Services .) According to DOF, this is to lessen basis . Some examples include: administrative workload for departments for proposals they believe are repeat versions of similar • CARB: AB 617 Program Implementation . activities the Legislature has already approved in Proposes $4 .2 million from the GGRF to prior years . Each individual proposal is presented (1) support 3 new human resources positions as one line in a spreadsheet with the dollar amount, and (2) extend funding for 22 positions for funding source, and sometimes a brief (one to two three additional years that the Legislature sentence) description of how the funding would be previously authorized on two-year basis . used . The proposals included in these consolidated 66 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET • CNRA: Voluntary Agreements . Proposes adoption, modification, or rejection . In addition, $70 million in Proposition 68 funds to information provided in BCPs also can be the implement voluntary agreements with local basis for the Legislature to conduct oversight of agencies or nongovernmental organizations department programs to ensure that currently for projects that facilitate implementation of funded activities are performing effectively before SWRCB’s Bay-Delta Water Quality Control providing additional resources . For example, if the Plan . This is an example of a program for administration provided individual BCPs for the which this is the first year that Proposition 68 following proposals that were instead presented in funds are proposed . the consolidated BCPs, the Legislature would be • DWR: SGMA Implementation . Proposes able to answer certain types of questions, such as: $112 million from Proposition 68 for • CARB: AB 617 Program Implementation . (1) implementation grants for local agencies, The Legislature allocated $12 million in (2) technical assistance to local agencies, and 2017-18 to CARB to implement AB 617, (3) nine new positions to conduct state-level including ongoing funding for 50 positions and activities . This is the first year the department two years of funding for 22 positions . What plans to allocate funding under the SGMA work are the positions that were funded on a implementation grant program . limited-term basis currently performing and • Parks: Revenue Enhancement Activities . how might their workload change over the Proposes $37 million in Proposition 68 next three years? Why do the 22 limited-term funds to provide grants to local agencies for positions need to be extended for an revenue enhancement measures aimed at additional three years? What specific tasks improving and enhancing local or regional will the three new positions perform? How park infrastructure . This is the first time the will CARB’s AB 617 activities differ from work department has undertaken this program . being done by local air districts to implement • DFW: Trout Hatchery Improvements . AB 617? Proposes a one-time increase of $2 .5 million • CNRA: Voluntary Agreements . How from the Hatchery and Inland Fisheries specifically will the proposed funds be spent? Fund to replace aged fish transport vehicles Are there specific projects already identified? and tanks, purchase additional fish food to How will projects be prioritized and selected increase trout production, and for efforts to for funding? Why is this amount being enhance public outreach and visitation . proposed for 2019-20 rather than a larger • Tahoe Regional Planning Agency (TRPA): or smaller amount (out of the $200 million Employee Salaries and Benefit Increases . total available from Proposition 68 for these Proposes $411,000 ongoing from the activities)? How much funding is still available Environmental License Plate Fund to provide to execute these agreements from previous merit salary increases and retirement benefits appropriations from earlier bonds? to TRPA employees . • DWR: SGMA Implementation . The state provided six new positions for this program in Lack of Typical Justification Inhibits 2018-19 . Why has staff workload increased? Legislature’s Ability to Evaluate Proposals . Why are additional positions needed? What As noted above, typically these types of new activities will they undertake? What is the proposals would be presented in standalone justification for nine new positions being BCPs with detailed descriptions of program proposed as opposed to some other amount? activities to be undertaken and explanations What is the status of the SGMA planning for why the administration believes the level of grants that were funded in the current funding and positions requested are needed . The and prior years? What is the demand for Legislature uses this information to determine implementation grants from local agencies whether the Governor’s proposals are worthy of www.lao.ca.gov 67 analysis full gutter 2019-20 BUDGET and what is the justification for why this departments accountable for meeting these additional funding is needed now (as opposed expectations . Assuming the Legislature approves to in future years)? How many local grants a BCP as proposed, a public record of intended will the proposed level of funding for 2019-20 spending facilitates the Legislature’s ability to support? What prioritization criteria will be monitor whether such commitments ultimately used for allocating grants across applicants? are completed . This is because a BCP provides • Parks: Revenue Enhancement Activities . something for the Legislature to compare against What is the structure of this new program? actual expenditures to identify instances where How will grantees be identified and how much funds may have been spent for unauthorized funding will each grantee receive? What types purposes . Absent this documentation, legislators, of reporting requirements must grantees staff, and stakeholders may struggle in future years meet? How will the department evaluate to understand what expectations were set when the the effectiveness of local agencies’ revenue budget was approved . generation proposals? Certain Other Proposals Also Lack BCPs and • DFW: Trout Hatchery Improvements . How Adequate Detail . Our review of the Governor’s specifically will the proposed funds be spent? budget revealed a couple additional examples How much will be spent for each proposed of new proposals for which detailed BCPs and activity and at which facilities? What are justification was not provided, apart from those current trout production levels and how might contained within the three aforementioned those increase by purchasing additional food? consolidated BCPs . These include: What types of public outreach and visitation • Coastal Commission Increased Lease enhancement activities will be undertaken Costs . The budget proposal includes and why is it appropriate to fund these on $1 .3 million in new ongoing General Fund a one-time basis when this seems like an for higher rent costs in the new office ongoing need? location to which the Coastal Commission is • TRPA: Employee Salaries and Benefit moving in the budget year . This would be in Increases . What is the origin of and rationale addition to the $1 .4 million ongoing that the for these proposed salary and benefit Legislature approved in 2018-19 for such increases? What is TRPA’s base budget costs . The administration, however, did not and why is it unable to accommodate these submit a formal proposal or justification for employee increases with existing funding? why additional funds are needed and what Why are state funds an appropriate source alternatives were considered . Rather, the new for these increases when TRPA staff are not funds were simply built into the department’s considered employees of the state? base budget . Absent the information to answer these types of • San Francisco Bay Conservation and questions, the Legislature is left with little basis for Development Commission (BCDC) Regional determining whether the proposals are reasonable Climate Change Adaptation Planning . As or appropriate . This impedes the Legislature’s discussed earlier in this report, the budget ability to exercise its oversight role over how state proposes $1 .8 million in GGRF and to funds are used, or to ensure that funds are spent establish four new positions for BCDC to effectively and for well-justified purposes . support regional sea-level rise planning efforts in the San Francisco Bay Area . This is an Lack of BCPs Also Increases Difficulty of increase of $1 .3 million compared to prior Holding Administration Accountable . The one-time appropriations and includes new absence of public documentation for exactly and expanded activities, but the GGRF BCP how the administration proposes to expend did not include any justification for or detail funding will also make it difficult in future years as to what those activities would be or what for stakeholders and the Legislature to hold 68 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET workload the proposed new positions would administration and will share it with legislative undertake . staff and others who may request it from us, but there might be individual issues for which Administration Has Been Forthcoming With members require additional information . To that Additional Detail Upon Request . To its credit, end, we recommend legislative staff and members when we raised concerns about the lack of detail request additional information about any of the provided with budget documents and requested proposals for which they believe additional detail additional information, the administration has and rationale are needed . This should not be been very responsive . In most cases, departments difficult or time-consuming for the administration, have been able to provide us with descriptions as presumably the individual departments had to of and justifications for their budget proposals prepare similar justification for DOF before their in response to our individual requests . Based on requests were included in the Governor’s budget . those justifications, we find the proposals contained Direct Administration to Provide BCPs in these consolidated BCPs generally reasonable . When Proposing New or Extended Positions Such information, however, has not been made and Activities in the Future . We recommend the publicly available (as BCP documents are), and Legislature direct the administration to revert to therefore still is not broadly accessible to legislative the long-standing practice of providing standalone members, legislative staff, or stakeholders . This BCPs specifically for proposals that include (1) new makes it difficult for the public to understand positions; (2) funding for new activities; and/or and evaluate the Governor’s budget proposals (3) extensions of funding, activities, and/or positions now, or in future years to hold the administration that the Legislature previously had authorized only accountable for meeting intended expenditure on a limited-term basis . This will better enable the plans . Legislature to exercise its oversight role over how LAO Recommendation state funds are used and ensure that funds are spent effectively and for well-justified purposes . We Ensure Administration Provides Sufficient note, however, that the consolidated BCP approach Justification Prior to Approving New Budget makes sense for proposals that are truly technical Proposals for 2019-20 . The Legislature must in nature, such as reversions and reappropriations feel comfortable that the proposals contained for similar purposes . in the consolidated BCPs and elsewhere in the budget are justified before approving them . Our office has requested certain information from the www.lao.ca.gov 69 analysis full gutter 2019-20 BUDGET SUMMARY OF RECOMMENDATIONS Issue Governor’s Proposal LAO Recommendation Wildfire Prevention and Response Implementation of $235 million (mostly from the Greenhouse Gas Adopt the Governor’s proposals. Ensure administration 2018 legislative Reduction Fund [GGRF]) for several departments is implementing proposals consistent with legislative package to implement the major components of a package intent. Conduct ongoing oversight to monitor the state’s of 2018 legislation designed to improve forest progress at addressing wildfire risks. health and reduce wildfire risks. Expansion of fire $96.9 million (mostly General Fund)—growing to Adopt most of the Governor’s proposals, but ensure that response capacity $120 million in out-years—for CalFire to implement amount requested for new air tankers is reasonable. several proposals to increase the state’s capacity Require assessment of statewide wildfire response to respond to wildfires. Includes additional fire capacity and needs to better inform future budget engines and crews, operating costs for newly decisions. acquired air tankers, and new fire detection and response equipment. Climate Change Cap-and-Trade: Assumes cap-and-trade revenue of $2.6 billion in Estimate revenue will be roughly $800 million higher over revenue and 2018-19 and $2.1 billion in 2019-20, proposes to the two-year period and, as a result, about $450 million fund condition spend a total of $2.4 billion in 2019-20, and leaves would remain unspent at the end of 2019-20. Under less than $100 million GGRF balance at the end our assumptions, Legislature could spend somewhat of 2019-20. higher amount and still maintain healthy fund balance. Recommend the Legislature ensure multiyear discretionary spending commitments do not exceed $900 million annually. Cap-and-Trade: $2.4 billion expenditure plan, including over $1 billion Direct the administration to report at budget hearings on expenditures in discretionary spending. (1) expected outcomes that will be achieved with the proposed funding, (2) programmatic adjustments to existing programs that might be needed in order to stay within their proposed allocations, and (3) additional information on the proposal to expand workforce apprenticeship programs and establish new worker transition pilot. Coastal adaptation $1.8 million to San Francisco Bay Conservation and Adopt Governor’s proposals and continue working to Development Commission and $1.5 million to the identify how the state can help local communities adapt California Coastal Commission in ongoing GGRF to the impacts of rising seas. funding for local sea-level rise adaptation efforts. Water Safe and affordable $24.9 million in one-time General Fund support Consider various issues including (1) consistency with drinking water to establish the Safe and Affordable Drinking the human right to water policy, (2) uncertainty about Water Program including (1) $3.4 million for State the estimated revenues that would be generated and Water Resources Control Board (SWRCB) and the amount of funding needed to address the problem, $1.4 million for the California Department of Food (3) comparing the beneficiaries of the program with and Agriculture to administer the new program and those who would pay the new charges, and (4) trade-offs (2) $20 million for grants. associated with the proposal’s safe harbor provisions. Water conservation $5.1 million for Department of Water Resources and Adopt Governor’s proposals and conduct ongoing oversight $2.7 million for SWRCB from the General Fund to ensure deadlines are being met and overall efficiency in 2019-20, and over $2 million ongoing in future and drought resilience outcomes are being attained. years, to implement recent water conservation legislation. (Continued) 70 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Issue Governor’s Proposal LAO Recommendation Environmental Quality AB 617 implementation $276 million to continue AB 617 implementation, Reject component of proposal to extend $3.8 million for including incentives for emission reductions, local CARB administrative costs. Direct the administration to air district implementation costs, California Air develop a long-term funding plan for first year AB 617 Resources Board (CARB) implementation costs, communities, and direct CARB to report at budget and community technical assistance grants. hearings on its plan to expand the program to additional communities. Exide cleanup efforts $74.5 million in one-time General Fund loans to fund Require the Department of Toxic Substances Control continue the cleanup of residential properties contaminated (DTSC) to report at budget hearings on the time frame by airborne lead from the Exide lead-acid battery for completing the residential cleanup, the total estimated recycling facility. cost of the cleanup, and when Exide will begin to repay the state for the costs of cleanup DTSC special fund According to DTSC, the Toxic Substances Control Await DTSC and the Department of Finance reconciliation conditions Account (TSCA) and the Hazardous Waste Control of the TSCA and HWCA accounts for fiscal years 2015-16 Account (HWCA) have faced structural imbalances through 2017-18. Once available, we will analyze their in recent years. condition and report our findings to the Legislature. Resources Capital Outlay Deferred maintenance $67 million from the General Fund and Require departments to identify the projects they intend Proposition 68 bond funds to implement deferred to implement to ensure they will focus on high-priority maintenance projects at six natural resources activities. Adopt reporting requirements to enable departments. legislative oversight of how departments maintain their facilities on an ongoing basis and what projects are actually implemented with this funding. CalFire funding for $3.3 million from the General Fund to reinstate Designate an ongoing amount of funding—rather than contract counties capital outlay funding formula for contract counties relying on the proposed formula—to provide a more on an ongoing basis. consistent funding level for counties and be simpler to administer. Bond Administration Proposition 68 $1 billion from Proposition 68 across multiple Solicit feedback from stakeholders during spring budget departments for various projects and programs. process and adopt a spending package that reflects legislative priorities. Budget Transparency Several proposals Multiple new budget proposals presented using an Request additional information about proposals for which lack typical support approach that lacks public transparency, detailed additional detail and rationale are needed, and direct the information explanation, and sufficient workload justification. administration to provide detailed justification documents for future budget proposals that involve new, expanded, or extended activities and/or positions. www.lao.ca.gov 71 analysis full gutter 2019-20 BUDGET 72 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET www.lao.ca.gov 73 analysis full gutter 2019-20 BUDGET 74 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET www.lao.ca.gov 75 analysis full gutter 2019-20 BUDGET Contact Information Brian Brown Managing Principal Analyst, 319-8325 Brian.Brown@lao.ca.gov Resources and Environment Ross Brown Cap-and-trade and air quality 319-8345 Ross.Brown@lao.ca.gov Rachel Ehlers Coastal adaptation, water conservation, 319-8330 Rachel.Ehlers@lao.ca.gov and resources bond Shawn Martin Drinking water and toxic pollution 319-8362 Shawn.Martin@lao.ca.gov Jessica Peters Parks and forestry and fire protection 319-8363 Jessica.Peters@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. 76 LEGISLATIVE ANALYST’S OFFICE