The 2020-21 Budget: California Department of Food and Agriculture

The 2020-21 Budget: California Department of Food and Agriculture Summary In this analysis we assess the Governor’s 2020-21 budget proposals for the California Department of Food and Agriculture (CDFA). Specifically, we make recommendations regarding the Governor’s proposals to (1) fund a comprehensive assessment to identify solutions to the California Exposition and State Fair’s (Cal Expo) declining revenues and make available funding to offset near-term deficiencies, and (2) establish a Fresno-Merced innovation corridor to boost the region’s economy. In summary, we recommend the following: • Cal Expo Fiscal Support and Assessment. We find that the proposed comprehensive assessment of Cal Expo’s operations is a reasonable step to undertake given Cal Expo’s fiscal difficulties. However, we recommend that before the Legislature approves this $750,000 (one time) request, it require that the department testify at budget hearings to provide additional details about the scope of the assessment that would be performed by a contractor. We further recommend the Legislature approve the $1.5 million (one time) proposed by the administration to provide short-term fiscal relief to Cal Expo if it is needed, thereby reducing the risk of Cal Expo becoming fiscally insolvent within the next year. • Fresno-Merced Innovation Corridor. We recommend the Legislature require the department to report at budget hearings and provide more information about how the proposed $33 million grant program would be administered and the types of projects that would be eligible for grant funding. If the administration is unable to provide sufficient information about how it will implement this proposal and ensure transparency and accountability, we would recommend that the Legislature reject the proposed funding. (We note that the administration recently indicated it is likely to revise this proposal. However, the details of a revised proposal had not been made public at the time this analysis was prepared.) GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 28, 2020 analysis full gutter 2020-21 BUDGET DEPARTMENT OVERVIEW CDFA is charged with protecting and promoting year-over-year General Fund spending would the state’s agriculture. The department manages increase by $63 million, or 39 percent, mainly programs in the areas of (1) animal health and due to the following proposals: (1) $33 million food safety, (2) agricultural marketing, (3) pest one-time funding for the Fresno-Merced innovation prevention, (4) enforcement of weights and corridor, (2) $20 million (one time) for State measures, and (5) assistance to fairs and county Water Efficiency and Enhancement Program agricultural activities. Many of the department’s (SWEEP), (3) $11.3 million for capital outlay activities are conducted in partnership with county projects, and (4) $10 million ($8.5 million one agricultural commissioners and county sealers of time and $1.5 million ongoing) for the Farm to weights and measures. School Program. The increases in year-over-year The Governor’s budget proposes $589 million General Fund spending are largely offset by the from various fund sources for support of CDFA following year-over-year decreases in other funds: in 2020-21. This is an increase of $1 million (less (1) $39 million from the Cannabis Control Fund than 1 percent) from the estimated current-year that mainly reflects the phase-out of one-time spending level. Under the Governor’s plan, program startup costs and (2) $24 million from the Greenhouse Gas Reduction Fund. CAL EXPO FISCAL SUPPORT AND ASSESSMENT Background Cal Expo Generally Operates on the Revenues It Generates. Funds received by Cal Expo are Cal Expo Is an Independent Entity in State deposited into a continuously appropriated fund, Government. Cal Expo is an independent state and Cal Expo generally must sustain its operations entity governed by an 11-member board of with the revenues it generates from the state directors (Board) appointed by the Governor fair and other sources. For 2019, Cal Expo had and the Legislature. The Board serves as the estimated total revenues of about $28 million with policymaking body for Cal Expo and has full almost $17 million, or 61 percent, of the revenue responsibility for its year-round management and generated by the state fair. The Board adopts operation of all of its facilities. Daily operations are an annual budget which reflects the projected managed by a Chief Executive Officer selected by revenues and expenses for the calendar year. State the Board. law requires the Board to submit a report to the Cal Expo Manages the State Fair and Hosts Legislature and Governor on or before May 31st of Other Events. Cal Expo is an approximately each year with respect to the financial condition, 350 acre facility that opened in 1968. It is present operations, and future planned activities of responsible for hosting the annual State Fair in the Cal Expo. summer and other events held during the rest of CDFA Has Authority to Exercise Fiscal the year. These events include satellite wagering for Oversight of Cal Expo. Under state law, CDFA horse racing, live harness racing, interim shows and has authority to assume the rights and duties trade exhibitions, an aquatic park, and Sacramento of the Board if the department determines there Republic soccer games. Cal Expo also can be is insufficient fiscal or administrative control. activated as a regional emergency evacuation and Specifically, the department may petition the courts recovery support center by the Governor’s Office of for an order appointing the department, or a person Emergency Services. designated by the department, as a receiver if it determines that Cal Expo is insolvent, or is in 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET imminent danger of insolvency. According to CDFA, • Contract for a Comprehensive Assessment it has historically provided little to no oversight of ($750,000). The Governor proposes $750,000 Cal Expo since Cal Expo is an independent state for CDFA to contract with an independent agency. entity for a comprehensive assessment that CDFA Projects Potential Operating Loss identifies solutions to Cal Expo’s operational, for Cal Expo. Based on information available in fiscal, and statutory issues. the fall of 2019, CDFA projected Cal Expo would • Short-Term Deficiency Funding have a roughly $1.5 million operating loss in 2019. ($1.5 Million). The Governor proposes However, based on more recent information, $1.5 million (one time) available upon order Cal Expo is not expected to incur an operating loss of the Director of the Department of Finance in 2019, but is projected to incur a $3.1 million loss (DOF) to offset Cal Expo’s short-term funding in 2020. CDFA cites several reasons why Cal Expo deficiencies and reduce the risk of Cal Expo has suffered operating losses in recent years becoming fiscally insolvent within the next including rising insurance premiums, higher energy fiscal year. costs, increased deferred maintenance costs due to aging infrastructure, and declining admissions Assessment for the state fair. As shown in Figure 1, over the Proposal to Hire Contractor to Perform past five years revenues have ranged between Comprehensive Assessment Has Merit… $26.4 million and $27.9 million while operations The proposal to hire a contractor to perform an costs generally have equaled or exceeded assessment of Cal Expo’s operational, fiscal, and revenues. This has resulted in declining reserves. statutory issues has merit for several reasons. First, The Board and Chief Executive Officer have Cal Expo does not have staff with the required already implemented many options to generate additional revenues and reduce costs. For example, Cal Expo Figure 1 has imposed a hiring freeze, Cal Expo Revenues and Expenditures reduced the number of vehicles As of January 2020 (In Millions) in its fleet, and eliminated all nonessential spending. The Board $35 also states that it faces various Total Expenses statutory and regulatory hurdles 30 that are not imposed on county fairs throughout the state. These 25 Total Revenues hurdles include being subject 20 to state collective bargaining requirements and being charged 15 statewide administrative assessments. 10 Governor’s Proposal 5 The Governor’s budget plan for 2020-21 proposes a total of Income/Loss $2.3 million in one-time General -5 Fund resources to address Cal Expo’s projected revenue -10 shortfalls and identify solutions 2016 2017 2018 2019 2020 (Estimated) to its operational, fiscal, and statutory issues as follows: www.lao.ca.gov 3 analysis full gutter 2020-21 BUDGET expertise that could be redirected to undertake should be adopted by Cal Expo? For example, such a study. Second, we find that Cal Expo would will the contractor be required to review benefit from an external review of its operations operations in other states to determine what to determine if there are efficiencies that can be other revenue-generation opportunities implemented, as well as to generate innovative Cal Expo should implement? ideas of ways to generate additional revenue. Third, • Real Estate Valuation. Will the assessment the one-time nature of the study and the breadth of include information about the value of the the issues it must address make it more practical to real estate where Cal Expo is located and its contract with a firm that has a team of subject-area potential alternative uses? experts in place than it would be for CDFA to hire • State of the Physical Plant. Will the new staff on a short-term basis. assessment include an evaluation of …But Clarification of the Scope of the Cal Expo’s physical plant and the estimated Proposal Is Needed. Based on discussions with costs to maintain, upgrade, or replace it? CDFA, the department intends to contract with a In our view, the assessment should provide full-service consulting firm that has the capability sufficient information to form the basis of a to assess all aspects of Cal Expo’s operations, long-term strategic plan that would ensure the and that such an assessment is likely to take financial viability of Cal Expo into the future. 12 months. However, few specific details about While it is our understanding that CDFA envisions the scope of the assessment have been provided a far-reaching assessment that would include by CDFA, and it is unclear how CDFA arrived at potential options for the land Cal Expo is on as $750,000 as being the appropriate amount of part of a broader vision of optimizing it as a state funding for the assessment. and/or local community asset, we believe further Additional details about the scope of the clarification of the proposal would be beneficial to proposed assessment would provide the the Legislature. Legislature with information to determine if the Size of Near-Term Funding Deficiency assessment will meet the Legislature’s needs and Still Uncertain. Based upon our analysis of the align its priorities. For example, the Legislature may Cal Expo and State Fair Approved 2020 Budget wish to ensure that the assessment will include the adopted by the Board on December 13, 2019, following: Cal Expo is estimated to have an operating profit • Recommendations for Statutory Changes. in 2019 of about $121,000 instead of the projected Will the assessment include a complete legal $1.6 million operating loss assumed by the review of all statute pertaining to Cal Expo, administration. This reduces the need for the state and will it identify recommended statutory to provide funding to offset Cal Expo’s short-term changes? funding deficiencies in 2019 and lessens the risk of • A Complete Operational Review. Which Cal Expo becoming fiscally insolvent over the next specific areas of Cal Expo’s operations will several months. However, Cal Expo is projecting be included in the assessment? Will the an operating loss of $3.1 million in its approved assessment include personnel, maintenance, 2020 budget. Therefore, it remains likely that the accounting, marketing, and other operational state will be asked to provide fiscal support to areas? Will the assessment be completed Cal Expo during 2020-21. in time to inform the 2021-22 budget Near-Term Funding Proposal Does Not deliberations? Provide for Sufficient Legislative Oversight. As • Summary of Best Practices. Will the proposed, the Governor’s proposal would allow assessment include a summary of best the Director of DOF to approve up to $1.5 million financial and operational practices used in funding for Cal Expo without notifying the Joint by other state and county fairs with Legislative Budget Committee (JLBC). In our view recommendations for best practices that this does not allow for sufficient legislative oversight 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET of the expenditure of these funds. In analogous Approve Proposal for $1.5 Million in situations where there is uncertainty about the level Short-Term Fiscal Relief. We recommend the of midyear resources that will be provided, it is a Legislature approve the $1.5 million proposed by standard practice for the Director of DOF to send a the administration to provide short-term fiscal relief notification letter to the JLBC 30 days prior to the to Cal Expo if it is needed, thereby reducing the release of such funds in order to facilitate legislative risk of Cal Expo becoming fiscally insolvent within oversight of state expenditures to ensure that the the next year. The proposed $1.5 million would be proposed spending is consistent with legislative insufficient to offset the $3.1 million operating loss intent. currently being forecast by Cal Expo. However, there is some uncertainty about whether Cal Expo, Recommendations in fact, will incur an operating loss in 2020 and, Require Additional Information About the if so, of what magnitude. Given the uncertainty Comprehensive Assessment Proposal. We find regarding Cal Expo’s projected revenues in 2020, that the proposed comprehensive assessment is we do not recommend an adjustment to the a reasonable step to undertake given Cal Expo’s Governor’s proposal. fiscal difficulties. However, we recommend that Require Legislative Notification Prior to the before the Legislature approves this request, Release of Short-Term Funds. We recommend it require that the department testify at budget the Legislature adopt budget bill language requiring hearings to provide additional details about the that the Director of DOF provide 30-day notification scope of the assessment that would be performed to the JLBC prior to the release of any funds to by a contractor. In addition, the Legislature could Cal Expo to address its 2020 deficiency. This would consider adopting budget bill language requiring ensure the JLBC has an opportunity to review the CDFA to include specific areas of investigation proposed release of funds and that the Legislature in the contracted assessment that align with the has an opportunity to engage in ongoing oversight Legislature’s priorities. This approach would help to of Cal Expo’s fiscal health and what actions it has ensure the Legislature receives key information from undertaken to manage its resources. the assessment to inform future policy decisions regarding Cal Expo. FRESNO-MERCED FOOD INNOVATION CORRIDOR Background one of the most productive agricultural regions in the world. Fresno-Merced Corridor Is a Productive Region’s Agriculture Is Supported by Agricultural Region. The Fresno-Merced corridor Educational Institutions. The San Joaquin Valley’s includes the Counties of Fresno, Merced, and agricultural industry is supported by several Madera which recently ranked 3rd, 6th, and 11th educational institutions. The Jordan College of respectively amongst California’s 58 counties in Agricultural Sciences and Technology at California terms of the gross value of their annual agricultural State University, Fresno—with an enrollment of production. In 2017, the combined value of the more than 2,500 students—is comprised of seven agricultural production from these three counties departments: (1) agricultural business, (2) animal totaled $12 billion, or about 20 percent of statewide sciences and agricultural education, (3) child and production. Major agricultural products include family science, (4) food science and nutrition, almonds, pistachios, grapes, poultry, and dairy. The (5) industrial technology, (6) plant science, and Fresno-Merced corridor lies within the broader San (7) viticulture and enology. University of California Joaquin Valley, spans across eight counties, and is (UC) Merced offers a number of programs and www.lao.ca.gov 5 analysis full gutter 2020-21 BUDGET degrees that help prepare students for careers selection services; (2) technical assistance, in agriculture. The UC Agriculture and Natural financing, and state procurement information for Resources Cooperative Extensions also support the small businesses; and (3) help to obtain information San Joaquin Valley’s agriculture industry in various about the various regulatory agencies that issue ways. permits in California. GO-Biz also helps businesses Office of Environmental Farming and needing to contact various state agencies and Innovation (OEFI) Administers Grant Programs. provides assistance for international investors. The OEFI, within CDFA, supports agricultural Governor’s Proposal production and incentivizes practices intended to result in a net benefit for the environment Establish an Innovation Corridor. The through innovation, efficient management, and Governor’s budget proposes $33 million in one-time science. OEFI currently administers incentive grant General Fund (which can be committed over three programs intended to improve air and water quality years) to establish the Fresno-Merced Innovation and sustainable agriculture. For example, OEFI Corridor Grant Program. The proposed program administers the Healthy Soils Program (HSP) that would provide grants for various efforts intended provides financial assistance for implementation to support research and development, education, of conservation management practices that commercialization, and innovation that will advance improve soil health, sequester carbon, and reduce sustainable agricultural production and create jobs greenhouse gas (GHG) emissions. OEFI also in the San Joaquin Valley. CDFA plans on making administers SWEEP, which provides financial grants available primarily to educational institutions, assistance in the form of grants to implement but would consider other state agencies and other irrigation systems that reduce GHGs and save regional partners. water on California agricultural operations. In According to CDFA, it would partner with addition to HSP and SWEEP, OEFI administers local education institutions, GO-Biz, and regional a competitive grant process that awards funds partners—such as local government agencies— to technical assistance providers, such as the to design and implement this proposal. The UC Cooperative Extension, that have expertise department would use the public meetings of in designing and implementing agricultural EFASAP to establish a grant framework for the management practices. program and solicit public comments on it. CDFA Environmental Farming Act Science Advisory plans to work with state and local stakeholders Panel (EFASAP). EFASAP is a nine-member panel to develop specific program outcomes to be convened by the Secretary of Food and Agriculture measured. CDFA would report on the program (Secretary). The panel is tasked with reviewing at the quarterly public meetings of EFASAP, and and documenting agriculture’s impacts on the materials would be posted online for public viewing. environment and identifying incentives to encourage Proposal Might Change. The administration agricultural practices with environmental benefits, recently informed us that it is likely to revise the amongst other tasks. The panel advises the Fresno-Merced innovation corridor proposal. Secretary on the implementation of HSP; SWEEP; However, the details of a revised proposal had not and on issues relating to the impact of agricultural been made public at the time this analysis was practices on air, water, and wildlife habitat. The prepared. panel holds quarterly public meetings. Assessment Governor’s Office of Business and Economic Development (GO-Biz) Leads State’s Economic While the administration indicates that it might Development Activities. Several small units of revise this proposal, in the absence of any details GO-Biz serve as points of contact for businesses related to such changes, our assessment is based considering relocating to or expanding in California. on the current proposal in front of the Legislature. These services include (1) no-fee, tailored site 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Few Details on How Grant Funds Would Be • Provide more information on the process to Spent. The proposal gives CDFA broad discretion apply for grants, criteria for reviewing and to consider a wide array of grant proposals. In approving grants, and the reporting the our view, the proposal does not provide sufficient department would provide on grant awards information to determine what types of projects will and project outcomes. It should also identify be funded by the program, who will benefit from the OEFI resources that would be used to the grants, and whether the grant program would administer the grants. duplicate existing programs or fill unmet needs. • Provide information on how CDFA would Furthermore, it does not identify the amount of ensure that grant funds are targeted to grant funds that would be dedicated to specific (1) meet identified regional agricultural or allowable uses. For example, the proposal does not economic needs, (2) provide the greatest identify the amount of funds that would be available public benefit, and (3) reflect legislative for grants to educational institutions versus funds priorities. available for other purposes. Absent these types • Describe how the department would ensure of details, it is impossible to analyze what the public transparency and accountability, such economic benefits of the proposal would be to the as by posting grant information—such as on San Joaquin Valley. grant awards and project outcomes—on a Few Details on How CDFA Would Administer public web page. Grants. The proposal provides a high-level We recommend that the Legislature wait to take description of how grants would be administered action on the proposal until the administration by CDFA. However, CDFA has not yet provided provides the additional information described any detail on (1) the process for interested parties above. In our view, the administration’s proposal to apply for a grant, (2) the criteria for reviewing does not include sufficient information about the grant applications and how the review would proposed grant program to allow an assessment be performed, and (3) the type of reporting the of its costs and benefits. When additional department would provide on grant awards and information is provided, we will reassess the project outcomes. In discussions, CDFA indicated proposal. If the administration is unable to provide that its experience administering other grant sufficient information about how it will implement programs such as HSP and SWEEP will help it this proposal and ensure transparency and to quickly and efficiently establish the new grant accountability, we would recommend that the program and administer it in a fair and transparent Legislature reject the proposed funding. manner. We Will Evaluate Details of a Modified Recommendations Proposal if Submitted to Legislature. As noted earlier in this analysis, the administration has Withhold Action Pending Additional signaled its intent to issue a revised version of Information. We recommend the Legislature the Freson-Merced innovation corridor proposal. require the department to report at budget hearings However, at the time this analysis was prepared, no and provide detailed information about how the additional details regarding specific revisions were grant program would be administered and the types available for us to evaluate, nor was it clear when a of projects that would be eligible for grant funding. revised proposal would be made public. If a revised Specifically, we believe it would be beneficial for proposal is released, we will analyze it and provide CDFA to do the following: the Legislature with updated recommendations. www.lao.ca.gov 7 analysis full gutter 2020-21 BUDGET LAO PUBLICATIONS This report was prepared by Shawn Martin, and reviewed by Brian Brown and 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. 8 LEGISLATIVE ANALYST’S OFFICE