1. Department of Parks and (3790)
1. Current-Year Revenue Shortfall
2. State Park System Faces Significant Long-Term Challenges
   
3. Use of Bond Funds
2. California Integrated Waste Management (3910)
1. No Room for Error in
2. Increase in Tire Recycling Program Not Justified
3. Late Decisions Reduce Legislative Oversight
3. State Water Resources Control Board (3940)
1. Coastal "Initiative" Is Really Coastal "Catch Up"
2. Unexpended Tank Cleanup Fund Appropriations Raise Concern
4. Department of Toxic Substances Control (3960)
1. Railroad Accident Prevention and Immediate Deployment Fee Should Be Reinstated
2. Expenditures for Direct Site Cleanup
1. Office of Environmental Health Hazard (3980)
1. The OEHHA's Work Does Not Duplicate
2. Reimbursements From Risk Managers Raise Concern
3. Consistency in Assessment Risk Assessment of Chemical Exposure Still Inconsistent
   
4. The HWCA Inappropriately Funds the OEHHA

The state park system consists of 265 units, including 38 units administered by local and regional park agencies. The system contains approximately 1.3 million acres of land with 280 miles of ocean and 811 miles of lake, reservoir, and river frontage. During 1997-98, approximately 70 million visitor-days are anticipated at state parks and beaches operated by the department, about the same number as in 1996-97.

The budget proposes expenditures totaling $209.6 million for departmental support and local assistance in 1997-98. This is a decrease of $5.6 million, or 2.6 percent, from estimated current-year expenditures. Of the total expenditures, the budget requests $186 million for support of the department, which is an increase of $3.7 million, or 2 percent, from the estimated current-year level. In addition, the budget proposes a total of $23.6 million (from special and federal funds) for local assistance grants. This is a decrease of $9.2 million, or 28 percent, below estimated current-year spending for local assistance. This decrease is due to depletion of park bond funds. The budget also proposes $32.5 million for capital outlay expenditures, including $6.8 million from the General Fund. (Please see our analysis of those expenditures in the capital outlay section of the Analysis.)

The department is one of four departments selected by the administration for a pilot project in performance-based budgeting. (See writeup on the Department of Finance in the General Government chapter.)

Current-Year Revenue Shortfall

The department's State Parks and Recreation Fund (SPRF) faces a potential revenue shortfall in the current year. A deficit will occur in the budget year without new fee revenues or expenditure reductions. We recommend that the department report at budget hearings on its expenditure priorities, its plans for generating additional revenue, and how it proposes to balance the SPRF.

The department relies heavily on the SPRF for its support. In the current year, SPRF will account for about $81.3 million or 45 percent of total support expenditures, and is proposed to make up 44 percent of departmental support for 1997-98.

Department Faces Current-Year Shortfalls in SPFR Revenues. The bulk of funding for SPRF--about 65 percent for 1996-97--comes from state beach and park user fees. In the current year, the budget estimates that revenues from beach and park user fees will total $52.5 million.

Our review shows that the department's revenue projection is not being borne out. The department now advises that to date, current year fee revenues are approximately $1.6 million (3 percent) lower than anticipated. At this level, the SPRF will face a deficit at the end of the current year rather than having a reserve of $1.2 million as initially estimated.

Fund Will Face Budget-Year Deficit Absent New Revenues or Expenditure Reductions. The budget projects revenues of $52.9 million for 1997-98. It is likely that the department will face funding problems again in the budget year, as our review indicates that some of the anticipated revenues are subject to considerable uncertainty. Specifically, DPR expects to generate about $585,000 in new revenues in 1997-98 by charging fees to school groups for entrance to state parks. This will require enactment of legislation, as the department does not currently have statutory authority to charge these fees. Without these additional revenues, SPRF will have a deficit in the budget year, instead of a reserve of $457,000 as projected.

Options for Balancing SPRF. Given the revenue shortfalls, the Legislature and the department will have to find other means of keeping the SPRF in balance in 1996-97 and 1997-98. Specifically, the department could:

• Use Alternative Fund Sources. In recent years, the Legislature has made up SPRF fee revenue shortfalls by redirecting money from other funds, including the Motor Vehicle Fuel Account (funded from the gasoline tax). For 1997-98, the budget proposes to transfer an amount similar to the amounts transferred in past years.
• Increase Revenues. Another way of coping with revenue shortfalls is to increase revenues. The department reports that raising state park fee levels further would likely result in decreased revenues because of fewer people being willing to pay the increased fees. Other options that the department is currently developing for generating revenues include private sector sponsorships of selected parks, park merchandising programs and concessions.
• Decrease Expenditures. In the past, the department has managed to sustain budget cuts without a significant impact on services. Instead of decreasing expenditures for park operations, it has reduced costs largely by deferring outlays for maintenance. As a result, the department faces costs for deferred maintenance of over $35 million. It does not appear feasible to continue to defer maintenance as this will likely result in degradation of park units and ultimately have an adverse impact on the department's ability to accomplish its mission.

Department Should Report on Expenditure Priorities. We recommend that the department report at budget hearings on its expenditure priorities, its plans for generating additional revenue, and how it proposes to balance the SPRF.

State Park System Faces Significant Long-Term Challenges

The department faces a number of long-term challenges:

• Backlogs In Deferred Maintenance and Equipment Replacement. The department indicates that it has a backlog of deferred maintenance of about $35 million. The budget requests $3.6 million to address this backlog. The department also has a backlog in the replacement of equipment.
• Development of General Plans. Current law requires DPR to prepare a General Plan for each park unit. These plans are required to define the proposed land uses, identify facilities and concessions for the park unit and address the operation of the unit and the management of its resources. The department has yet to complete plans for about 35 percent of its units. Without these plans, the department lacks established objectives to guide its long-term management and operation of the units.
• Stable Funding Plan Yet to Be Developed. The department is still developing a long-term plan to increase revenues, reduce operations thereby lowering costs, and operate more efficiently. Our review indicates that there is still uncertainty regarding elements of the department's plan, such as the generation of new revenues (as we discuss above).

Department Is Reviewing Options for "Right-Sizing." As one solution to meeting these challenges, the department is assessing ways to reduce its costs to operate the state park system through the following steps:

• Sell 34 units or properties of lowest statewide significance.
• Privatize and convert eight units to operation by a for-profit or nonprofit concessionaire.
• Convert five units to local operation.

In our view, this right-sizing of the state park system would help to ensure that the state administers only park units that are of statewide interest because of their natural resource or historic value. Park units that do not meet these criteria would be turned over to local or private operations where possible. Because of the fiscal condition of many local agencies, however, those agencies may not be able to take over state parks. Moreover, they may no longer find it in their interest to continue to administer state park units, and return the units to the state. As this occurs, the department's operating costs would increase.

Recommendation. The department faces long term challenges in accomplishing its mission. We think it is important that the Legislature consider how to provide stable, long-term funding support for the state park system, while exercising oversight over the department's efforts to address those challenges. Accordingly, we recommend adoption of the following supplemental report language:

The Department of Parks and Recreation shall submit a report to the Legislature by January 1, 1998 that contains the following information: (1) a long-term plan for addressing the backlog of deferred maintenance, (2) lists of units which the department proposes to sell, convert, and privatize, and (3) a plan for adequately funding support of the remaining units.

Based on this information, the Legislature will be able to assess whether the department's proposals are consistent with legislative priorities and direct the department to act accordingly.

Use of Bond Funds

We recommend a reduction of $2.4 million requested from the 1984 park bond fund for department support, because Department of Parks and Recreation has not justified the request. (Delete Item 3790-001-0722 for $2,417,000.)

In past years, DPR has relied largely on bond funds to acquire, develop and restore property in the state park system, and to pay department support costs associated with those activities. For example, the Parklands Fund of 1984 provided DPR with $145 million for acquisition, development, rehabilitation, and restoration of property in the state park system. For 1997-98, the budget requests $2.4 million from the Parklands Fund of 1984 for department support.

The funds are not being requested to administer particular capital outlay projects. (In fact, the department does not propose to spend any 1984 park bond funds for capital outlay in 1997-98.) Instead, DPR indicates that it proposes to use the requested bond funds for general administrative activities, including the development of general plans and administrative activities necessary to acquire park properties and develop park projects. However, DPR has not provided any details on how it would spend the funds.

Without this information, we are unable to evaluate whether the request is consistent with the requirements of the 1984 park bond. Accordingly, we recommend a reduction of $2.4 million from the Parklands Fund of 1984 for department support.

The budget proposes total expenditures of $77 million from various funds (primarily special funds) for support of the CIWMB. This is a reduction of $4.1 million, or 5 percent, from estimated 1996-97 expenditures. Major budget adjustments include (1) an increase of $5.4 million for grants and contracts in the tire recycling program, and (2) reductions of $2.2 million in various programs. The budget also proposes to reduce the transfer from the Integrated Waste Management Account (IWMA) to the Solid Waste Disposal Site Cleanup Trust Fund by $2.8 million due to declining revenues in the IWMA.

No Room for Error in

Essentially no reserve is projected in the Integrated Waste Management Account for either 1996-97 or 1997-98 to address potential revenue shortfalls or unanticipated expenditures. We recommend that the board establish a reserve for the budget year, and advise the Legislature on actions it intends to take to accomplish this.

The budget proposes that $31.4 million (41 percent) of the CIWMB's total 1997-98 expenditures come from the IWMA. The account derives its revenues primarily from "tipping fees" based on the volume of waste disposed at landfills.

No Room for Error. The budget projects no reserve for economic uncertainty in the IWMA in the current year, and a negligible reserve of $177,000 (or 0.6 percent of board support expenditures) in 1997-98. The purpose of a reserve is to address revenue shortfalls and unanticipated expenditures that may occur during the year. Lacking a reserve, the board would be required to reduce programs and/or increase fees to address these unanticipated events.

Revenue Projections Are Subject to Uncertainty, and Tended to Be Optimistic in the Past. The budget's estimates of tipping fee revenues for 1996-97 and 1997-98 are based on assumptions about the state's economy and the amount of waste diverted from landfills due to recycling and source reduction. Generally, the stronger the economy (particularly construction activity), the more waste that is generated and sent to landfills. Assumptions about the strength of the economy and the degree to which local jurisdictions will meet the statutory goal of 50 percent diversion of waste from landfills by 2000 are inherently uncertain. This uncertainty supports the need for a reserve, particularly if it is likely that revenues will be overestimated.

Our review of past projections of IWMA fee revenues finds that there is a history of overestimation. Figure 18 shows that actual revenues collected from tipping fees fell short of projections in a number of recent years.

Figure 18
Integrated Waste Management Account Projected Versus Actual "Tipping Fee" Revenues
(In Millions)
	1992-93 a	1995-96	Estimated 1996-97
Projected	$58.0	$47.7	$45.6
Actual/estimated	54.4	43.8	44.0
Overestimation	$3.6	$3.9	$1.6
a Tipping fee revenues deposited in the Integrated Waste Management Account and the Solid Waste Disposal Site Cleanup and Maintenance Account.

Proposal to Establish Reserve. We recommend that the board establish a reserve at the end of 1997-98 of at least $1.1 million, or about 3 percent of proposed total expenditures from the IWMA. Given the degree to which revenues have been overestimated in the past, we think that a higher reserve would be preferable. However, achieving that level of reserve would necessitate more drastic actions.

The board has a number of options to establish this reserve. First, the board could raise the tipping fee administratively--from $1.34 to $1.40 per ton, which is the maximum fee authorized by Chapter 656, Statutes of 1993 (AB 1220, Eastin). Indeed, Chapter 656 provides that the tipping fee should be set at a level that includes "a prudent reserve." Such an increase could raise about $1.9 million in additional revenues for a reserve.

Alternatively, the board could reduce program expenditures. In our view, any reductions ought to be spread among programs in such a way as to minimize adverse impacts on the board's program effectiveness. Thus, we think reductions ought to be in areas other than permitting, enforcement, site closure and remediation, and oversight of local enforcement agencies. Rather, expenditure reductions should be concentrated in administration, public education, and local assistance expenditures. Of course, the board could adopt a combination of raising "tipping fees" and program expenditure reductions to provide for a reserve.

We further recommend that the board advises the Legislature on the actions it plans to take to achieve that reserve. The Legislature can then take corresponding budget actions to ensure a reasonable reserve in the account.

Increase in Tire Recycling Program Not Justified

Tire Recycling Program Addresses Environmental Problem. Current law requires the CIWMB to implement a tire recycling program which provides grants, loans, and contracts to public agencies and businesses for research, business development, tire pile cleanup, and other specified purposes to reduce landfill disposal of used tires. According to the board, about 10 million of the 30 million used tires generated in the state each year are not recycled. Without recycling, tires are added to existing stockpiles. Currently, there are about 30 million waste tires in stockpiles which pose substantial public health and safety concerns related to mosquito breeding and the risk of fires.

The tire recycling program has been funded by a disposal fee of 25 cents per tire levied when used tires are left for disposal at a seller of new or used tires. Beginning January 1997, Chapter 304, Statutes of 1996 (AB 2108, Mazzoni) replaces the disposal fee with a fee of 25 cents per new tire purchased. The budget projects that this change will raise an additional $1.1 million in 1997-98.

Increase in Grants and Contracts Not Substantiated. The budget requests $8.9 million for the tire recycling program in 1997-98, including an increase of about $5.4 million for discretionary external grants and contracts. The board has provided essentially no details regarding how the requested increase in grants and contracts will be allocated among the various authorized purposes. Thus, the Legislature is not able to determine whether the grants and contracts will be used to clean up tire piles or for research on potential uses for recycled tires. Without this information, the Legislature is therefore not able to assess whether resources will be allocated in the most effective manner to achieve the desired recycling results, and whether the increase is justified. Accordingly, we recommend that the increase be deleted.

Late Decisions Reduce Legislative Oversight

We recommend the Legislature adopt supplemental report language directing the board to submit, as part of its budget requests, a proposal indicating how tire recycling funds will be allocated.

Our review also shows that the board typically is late in making decisions about the allocation of tire recycling funds. For example, in 1995-96, the board did not make a decision on how to allocate funds for grants and contracts among different purposes until December 1995--six months into the fiscal year. As a consequence, grants and contracts were not awarded until late in the spring of 1996. In fact, one contract of $750,000 to clean up waste tire piles, was not signed until June 26, 1996. No cleanup has yet to occur with these funds. Such late decisions on fund allocation result in delays in program implementation.

The board has advised us that it is taking steps to improve the speed of awarding contracts, and that it plans to allocate contract funds for 1997-98 by June 1997. While such an allocation date would be an improvement over past practices, it still does not provide any opportunity for the Legislature to assess the board's priorities for these funds as part of its review of the 1997-98 budget.

In order to ensure that the board plans ahead regarding the use of proposed tire recycling funds, and to ensure that the Legislature is apprised of the board's proposed allocation of these funds, we recommend that the Legislature adopt the following supplemental report language:

The California Integrated Waste Management Board, as part of its 1998-99 and future years' budget requests, shall provide a proposed allocation of funds for tire recycling grants, loans, and contracts among authorized purposes, including research, business development, and tire site cleanup and remediation, in order to assess the board's priorities for the tire recycling program.

The board carries out its water quality responsibilities by (1) establishing wastewater discharge policies; (2) implementing programs to ensure that the waters of the state are not contaminated by underground or aboveground tanks; and (3) administering state and federal loans and grants to local governments for the construction of wastewater treatment, water reclamation, and storm drainage facilities. Nine regional water quality control boards establish waste discharge requirements and carry out water pollution control programs in accordance with state board policies. The regional boards are funded by the state board and are under the state board's oversight.

The board's water rights responsibilities involve issuing and reviewing permits and licenses to applicants who wish to take water from the state's streams, rivers, and lakes.

The budget proposes expenditures of $434 million from various funds for support of SWRCB in 1997-98. This amount is an increase of $121.3 million, or 39 percent, over estimated current-year expenditures. A majority of the increase reflects $90 million requested to pay more claims for the cleanup of underground storage tanks. Other major budget proposals include (1) $54 million from Proposition 204 bond funds for grants and loans to local governments for various water quality projects and (2) an increase of $7.5 million for water quality monitoring, planning, standard-setting, enforcement, and other "core regulatory" functions.

Coastal "Initiative" Is Really Coastal "Catch Up"

The budget proposes $1.4 million from the General Fund for the SWRCB's component of a statewide "coastal initiative." (The budget proposes a total of $17.1 million in five state agencies for the initiative.) There are four elements to the board's component:

• $500,000 to update the California Ocean Plan.

• $450,000 to develop and adopt the Enclosed Bays and Estuaries Plan.
• $300,000 to continue the Mussel Watch monitoring and assessment program.
• $150,000 for environmental reviews and implementation of a plan for disposal of dredged materials in the San Francisco Bay region.

Our review shows that these elements do not reflect new programs or a new way of implementing existing programs. Rather, they mainly attempt to address existing statutory mandates that have been subject to serious delays in implementation.

1991 Review of Ocean Plan Continues Into 2000. Current law requires that the board's California Ocean Plan--which sets water quality standards to protect ocean waters--be amended based on triennial reviews. The last review, initiated in 1991, identified 24 high priority issues to be analyzed for potential plan amendments. For example, control of stormwater discharge was identified as a high priority issue. As of today, only two issues have been analyzed, resolved, and scheduled for board action in 1997. With the increased funding, the board anticipates reviewing and resolving the remaining issues by the end of 2000--nine years after the review was initiated.

Enclosed Bays and Estuaries Plan Will Take Ten Years to Develop. A statute enacted in 1989 required the board to adopt an Enclosed Bays and Estuaries Plan as a basis for setting water quality standards and waste discharger permit requirements to protect existing and future uses of bays and estuaries. The board has yet to adopt this plan. The budget proposes $450,000 (to replace one-time funding provided in the current year) to continue development of the plan. The board anticipates that the plan will be ready for adoption by December 1999.

Mussel Watch Program Is Core Board Activity. The State Mussel Watch Program is a monitoring program that has served as an early detection of water quality problems for over ten years. Due to declining resources, the 1996-97 Governor's Budget proposed to eliminate this program. However, the Legislature considered this program a high priority activity and redirected $268,000 on a one-time basis to continue funding for the program. The budget proposes $300,000 to continue the program in 1997-98.

Planning for San Francisco Bay Dredging Begun in 1990. The budget requests $150,000 to continue a multiagency effort begun in 1990 to develop and implement a plan for the environmentally safe disposal of materials dredged from San Francisco Bay. The board anticipates ongoing expenditures of $150,000 to coordinate the dredging operations with the disposal of the dredged materials once the plan is operating after the budget year.

Recommend Approval. Because the proposed amount of $1.4 million will enable the board to continue work on activities and programs that have merit and have been delayed as a result of depletion of bond funds and reductions in other fund sources, we accordingly recommend approval of the request.

Unexpended Tank Cleanup Fund Appropriations Raise Concern

The board's Underground Storage Tank Program has three major components: (1) permitting of underground tanks (containing hazardous substances, such as petroleum), (2) cleanup of leaking tanks under local oversight, and (3) payment of claims from owners who have cleaned up their leaking tanks.

Since 1983, about 30,000 out of up to 200,000 tanks have been found to be leaking. In these cases, regional water boards and, where authorized, local oversight agencies, order and approve cleanup plans and supervise tank cleanups. About 18,000 of the leaking tanks may still require cleanup action.

Tank owners may claim reimbursement for up to $1 million of tank cleanup costs. Claims are paid from the Underground Storage Tank Cleanup Fund (USTCF), an "insurance" fund supported by a per gallon storage fee on petroleum tank owners. Based on the availability of funds, the state board issues "letters of commitment" to tank owners who have submitted claim applications. When an initial letter of commitment is issued, funds to pay the estimated amount of claims for past cleanup and six months of future cleanup are set aside in the USTCF. Commitments expire within a three-year period. Tank owners must submit invoices before receiving any reimbursement from the USTCF.

Substantial Appropriations Have Gone Unexpended. Our review finds that from 1992-93 (when the first reimbursement payments were made) through the current year, the Legislature has appropriated over $640 million to the board to make reimbursement payments. We also find that annually, the board has to revert significant amounts of funds set aside because actual claim payments were less than estimated. As a result, about $85 million has been reverted from 1992-93 through the end of 1995-96. Because reversions are not made until the end of the year, the Governor's budget understates the current-year's reserve in the USTCF. In fact, we estimate the reserve to be $107 million at the end of the current year--$20 million more than estimated in the Governor's budget due to anticipated reversions.

According to the board, funds set aside are reverted to the USTCF when (1) actual costs of cleanup are less than estimated, (2) cleanups progress slowly and fail to be completed in the three-year period for which funds are committed, and (3) the cleanup cost estimate used in the letter of commitment included costs ineligible for reimbursement (for example, costs that are reimbursed by another source, such as insurance and litigation).

While it is reasonable to expect some funds to be reverted, setting aside too many funds for claim payments that are eventually not needed prevents other eligible claimants from being funded. There are currently about 6,000 tank owner claimants "waiting in line" to be issued a letter of commitment, representing potential claims of about $900 million. For many owners of leaking tanks, a letter of commitment is necessary for them to finance the cleanup.

Requested Increase Warranted. The budget proposes $244 million from the USTCF--an increase of $90 million (58 percent) from the current year--to issue additional letters of commitment to pay claims in 1997-98. Given the large number of tank owners who have applied for, but have not been issued, a letter of commitment, we find that the requested increase is warranted.

Board Is Addressing Past Reversions of Appropriations. However, we also think that it is important that the board take actions to better estimate the amount of funds it needs to set aside for claims in order to allow for a more efficient use of money to facilitate a larger number of tank cleanups. The board indicated that it is taking steps in this direction, for example, by requiring that claimants submit a more detailed estimate of cleanup costs in their initial applications for funding. We recommend the board report at budget hearings on what other steps it plans to take to speed up payment of claims and minimize unexpended appropriations from the USTCF.

The budget requests $142.8 million from various funds for support of DTSC in 1997-98. This is an increase of $6.2 million, or 5 percent, above estimated current-year expenditures. Major budget proposals include $6 million from the General Fund for direct site cleanup and related staff costs at particular high-risk hazardous waste sites. The budget also proposes to reduce $4.2 million in federal funds for cleanup of federal military bases and to shift $2.8 million for the cleanup of illegal drug labs from the Hazardous Waste Control Account (HWCA) to the General Fund.

Railroad Accident Prevention and
Immediate Deployment Fee Should Be Reinstated

We find that the Railroad Accident Prevention and Immediate Deployment program provides for an effective, coordinated government response to hazardous spills from surface transportation accidents. In order to continue funding for this program at an appropriate level, we recommend that the Legislature enact legislation to reinstate a fee levied on railroad and trucking companies that carry hazardous substances.

The Railroad Accident Prevention and Immediate Deployment (RAPID) program was established by Chapter 766, Statutes of 1991 (SB 48, Thompson) to coordinate the activities of a number of state agencies in preventing and responding to hazardous spills from surface transportation accidents. The DTSC has been designated as the lead agency for these activities. The program was established after the disorganized state and local response to the train derailment at Dunsmuir in 1991 when about 20,000 gallons of pesticides spilled into the Sacramento River. Sixty government agencies from all levels of government responded to this accident, with no one taking charge and with little coordination of effort.

Fee Has Expired. Chapter 766 authorized a fee to be levied, until December 31, 1995, on railroad and trucking companies transporting hazardous materials to fund the program at up to $3 million annually. While the statutory authority for this fee has expired, the requirements to coordinate technical support and respond to hazardous spills continue.

The budget proposes $685,000 for the RAPID program in 1997-98 ($535,000 from the remainder of collected fees and $150,000 from cost recoveries). This amount is $354,000, or 34 percent, less than estimated expenditures in the current year, and about $2.3 million less than expenditures in prior years when the RAPID fee existed.

Program Has Been Beneficial. In the past, the RAPID fees have been used to provide emergency response equipment and training to state and local agencies, support staffing at DTSC to coordinate a statewide emergency response team, and provide technical assistance at hazardous spills. The benefit of the program was illustrated by the coordinated emergency response to the recent hazardous spill in the Cajon Pass (San Bernardino County), with RAPID team members on-site to provide an immediate scientific assessment of the chemical risks.

There appears to be an ongoing need to respond to hazardous spills from trains and trucks as evidenced by a 70 percent increase in these accidents over the last ten years. We find that the RAPID program has enabled emergency response agencies to provide an effective response to hazardous spills, resulting in savings due to better coordinated responses. Past expenditures for training and equipment have built up an "infrastructure" (in some, but not all, parts of the state) which will provide benefits over a number of years. Given this infrastructure, we estimate that an annual expenditure level of between $1.5 and $2 million would maintain an effective RAPID program over the next several years. This level of expenditure would provide training and equipment in local areas that lack this infrastructure, and continue the RAPID team to respond to spills.

The Polluter Should Pay. We recognize that the general public benefits from the RAPID program, and that equipment and training provided under RAPID have potential application in responding to emergencies other than surface transportation accidents. However, we think that it is appropriate that railroad and trucking companies that transport hazardous materials fund the RAPID program, on the basis of the "polluter pays" principle discussed in our Analysis of the 1992-93 Budget Bill (please see pages IV-19 through IV-25).

RAPID Fee Should Be Reinstated. Accordingly, we recommend that the Legislature reinstate a fee levied on railroad and trucking companies that transport hazardous materials, in order to fund the RAPID program at a level of between $1.5 and $2 million annually. This funding level would result in fees that are about 35 percent to 50 percent lower than what they were when the fees sunsetted in 1995. We recommend that statute provide direction as to how the fee is to be allocated among railroad and trucking companies. In this regard, we think that there should be a sliding scale of fee rates based on a company's size to prevent a disproportionate fee burden on small companies. Finally, we think that the department should continue to explore opportunities to increase the amount of emergency response costs that can be recovered directly from parties causing surface transportation accidents that result in hazardous spills. The department should advise the Legislature if additional statutory authority is necessary to facilitate these recoveries.

Expenditures for Direct Site Cleanup

Funding requirements for direct site cleanup will increase in future years. While the General Fund is an appropriate funding source for these expenditures, we provide some funding options for the Legislature's consideration.

Department Is Involved in Direct Site Cleanup. In addition to overseeing the cleanup of hazardous waste sites by parties responsible for the contamination, the department is involved in the direct site cleanup at "orphan" sites. These are highly contaminated sites that present a major threat to public health and safety. In addition, these are sites where the parties responsible for the contamination cannot be found or are unable or unwilling to provide a timely cleanup. These sites include:

• National Priority List (NPL) State-Match "Orphan" Sites. NPL sites (Federal Superfund Program) are the most contaminated sites in the nation. Under federal law, states are required to provide a 10 percent match for cleanup costs and have ongoing operations and maintenance responsibility at these sites.
• State-Only "Orphan" Sites. These "State Superfund" sites are high-risk contaminated sites where there are no viable identified responsible parties to pay for the cleanup.
• SB 923 "Orphan" Sites. These sites are part of a pilot program established by Chapter 435, Statutes of 1994 (SB 923, Calderon) to expedite the voluntary cleanup of up to 30 hazardous waste sites, ten of which may have an "orphan share" (in which case the state will pay the orphan share's cleanup costs).

The department also incurs direct cleanup expenditures at sites where the state is liable for creating the contamination. Currently, this includes major cleanup costs at the Stringfellow Federal Superfund Site in Riverside County (although the finding of state liability is being appealed) and the Casmalia Hazardous Waste Management Facility in Santa Barbara County.

Budget Proposal. The budget proposes about $6.1 million ($4.8 million General Fund, $1.3 million HWCA) for direct site cleanup at the three types of "orphan" sites listed above. This is an increase of $900,000 (17 percent) above estimated current-year expenditures. In prior years, bond funds supported most of the department's direct site cleanup expenditures. However, these funds will be fully expended at the end of the current year. The budget also proposes $12 million from the General Fund for cleanup at Stringfellow, and to reappropriate $18.1 million from the General Fund to settle its liability at Casmalia.

State-Match Requirements Will Increase in Future Years. Of the $6.1 million proposed for cleanup at orphan sites in 1997-98, $2.7 million is to provide the state match for NPL site cleanup. The department has indicated that the state match required for these sites in 1998-99 will likely be close to $11 million, and will vary between $3 million and $12 million annually over the next several years. Expenditures at other categories of orphan sites (state-only and SB 923 sites) in future years are anticipated at about the 1997-98 proposed levels ($2.1 million and $1.3 million, respectively).

How Should Direct Site Cleanup Be Funded? In cases where the state is responsible for contamination it created, the General Fund is the appropriate funding source for the cleanup. It is also appropriate to fund direct site cleanup at orphan sites using broad-based fund sources--including the General Fund and bond funds--given the broad public health and environmental benefits from cleaning up these sites and since, by definition, there is not a polluter to pay for the cleanup.

Funding Options. While the General Fund and bonds (if available) are appropriate funding sources for direct site cleanup, we think that there are other options that the Legislature may wish to consider. In particular, we think that it would also be appropriate to fund some of direct site cleanup from fees levied on parties that contribute to the hazardous waste problem, provided that the fee burden is spread among a large base so as to minimize the economic impact on any individual party. For example, the Legislature could amend two existing fees that meet these requirements--the environmental fee and the lubricating oil fee--to raise additional revenues to meet funding needs for direct site cleanup.

The environmental fee (which supports the department) is levied currently on about 24,000 corporations with 50 or more employees--from large dry cleaners to oil refineries--that use, generate, store, or conduct activities related to hazardous materials. Additional revenues could be raised for direct site cleanup by expanding the feepaying base to include businesses (not just corporations) and by changing the rate structure.

The lubricating oil fee--currently at 16 cents per gallon--is paid by oil manufacturers on every gallon of lubricating oil sold for use in California. Fee revenues support the California Integrated Waste Management Board's used oil recycling program. Used oil is the single largest type of hazardous waste generated in the state (about 25 percent). Since the lubricating oil fee is ultimately paid by anyone driving a vehicle in the state, an expansion of the fee to fund direct site cleanup would mean that a broad group of persons contributing to the hazardous waste problem would also be responsible for some of the costs created.

Since the department's funding requirements for direct site cleanup are expected to increase in future years, the Legislature may wish to consider these and other options as alternatives to funding from the General Fund.

The OEHHA was established as a separate office with the creation of Cal-EPA in 1991. Most of its initial responsibilities had been carried out previously by staff at the Department of Health Services.

The budget requests $12.2 million for support of the OEHHA in 1997-98. This is an increase of $353,000, or 3 percent, above estimated current-year expenditures. Major budget proposals include an increase of $835,000 to assess the health risks of contaminants in drinking water and adopt public health goals for these contaminants.

Funding Mainly From Reimbursements and General Fund. Of the proposed total expenditures, about $6.3 million (52 percent) is from reimbursements and $5 million (41 percent) is from the General Fund. Reimbursements come mainly from the Air Resources Board (ARB)--$2.4 million; the Department of Toxic Substances Control (DTSC)--$1.7 million; and fees, primarily from the registration of environmental assessors--$1.6 million.

Issues Examined. In this writeup, we review the OEHHA's primary statutory responsibilities, and evaluate the degree to which its work duplicates that of other agencies. We consider how well the OEHHA is meeting its statutory mandates and examine the "value added" by the OEHHA. Finally, we evaluate the appropriateness of the way in which the OEHHA is currently funded.

The OEHHA's Work Does Not Duplicate Other Agencies' Risk Assessments

In general, the OEHHA's workload consists of four types: (1) developing chemical-specific risk information that is used by agencies throughout the state, (2) acting as a peer reviewer of risk assessments conducted by other agencies, (3) providing health risk assessments of particular facilities or sites, upon request of other agencies, and (4) administering arbitration panels to assign hazardous waste site cleanup liability and registration programs established by statute. Figure 19 (see page 92) summarizes the key program activities of the OEHHA.

Most of the OEHHA's activities are required by statute. These activities are supported mainly by the General Fund and reimbursements from other departments. Using General Fund money, the OEHHA identifies cancer-causing chemicals for annual updates of the state list of chemicals required by Proposition 65, develops public health goals for contaminants in drinking water, and reviews health risk assessments of pesticides and jointly regulates pesticide worker health and safety with the Department of Pesticide Regulation (DPR).

Reimbursements from ARB are used primarily to provide (at ARB's direction) health risk assessments of potential "toxic air contaminants" and to develop guidelines for use by industry to assess risks of their emissions of toxic chemicals into the air. Reimbursements from DTSC, funded by the Hazardous Waste Control Account (HWCA), are not directly tied to statutory mandates. Rather, these reimbursements are for health risk reviews at hazardous waste sites conducted at DTSC's request, and for general scientific support to other state and local agencies.

Other Agencies Perform Risk Assessments. Other agencies in addition to the OEHHA--including other Cal-EPA departments and the Department of Health Services--perform activities assessing health risks of chemicals in the environment. However, we find that the OEHHA's work does not duplicate that of other agencies. This is because, as we discuss below, each agency focuses on particular components of risk assessment. In cases where the OEHHA gets involved in risk assessment work that is typically the responsibility of another agency, our review of interagency agreements and discussions with affected agencies indicate that there is an

Figure 19
Office of Environmental Health Hazard Assessment Key Program Activities
Program	Description/Activities
Safe Drinking Water and Toxic Enforcement Act of 1986 (Proposition 65)	Identify chemicals for annual list of chemicals known to cause cancer or reproduction-related problems.
	Determine levels of exposure to listed chemicals that pose no "significant risk" to health.
Drinking Water Public Health Goals	Recommend goals for maximum allowable levels of at least 75 contaminants in drinking water.
Toxic Air Contaminants	Provide health risk assessments of high-risk chemicals emitted into the air.
Air Toxic "Hot Spots"	Review risk assessments conducted by high-risk facilities (such as oil refineries) that emit toxic chemicals into the air.
Pesticide Risk Assessment	Review the Department of Pesticide Regulation's (DPR's) assessment of health risks of pesticides.
	Regulate jointly with the DPR pesticide worker health and safety.
Registered Environmental Assessor Program	Register, on a voluntary basis (1) private assessors who review a business' operations for compliance with hazardous substances laws and (2) private site managers at the cleanup of lower-risk contaminated hazardous waste sites.

The OEHHA Focuses on the "Chemical," Other Agencies Focus on the "Site." In general, the health risk of a chemical in the environment depends primarily on two factors: (1) the potency of the chemical and (2) the extent of the exposure. Currently, DPR assesses both the potency and the exposure risk of pesticides. For all other chemicals, the OEHHA focuses on the potency of chemicals and assesses adverse health effects at varying, hypothetical "doses" of a chemical. Other agencies, using monitoring data from their own programs, focus on calculating actual levels of exposure to a chemical at specific sites or facilities or in a geographic region. For example, DTSC assesses exposure to chemicals at hazardous waste sites. This difference in focus helps to minimize duplication.

Reimbursements From Risk Managers Raise Concern

For risk assessments to be scientifically credible, they ought to be conducted independent of "risk managers"--regulators who make value judgment regarding acceptable levels of risk and reasonable control options in light of costs and benefits. As an office in Cal-EPA separate from the other boards and departments that have regulatory authority, the OEHHA is at the very least separate from the risk managers in terms of formal organizational structure. However, the fact that about 40 percent of the OEHHA's funding consists of reimbursements from other Cal-EPA departments raises a concern as to whether this independence is maintained.

Our review finds that this concern is mitigated to the extent that the OEHHA's work is subject to external scientific peer review conducted in a public forum. We find that roughly half of the OEHHA's work is publicly peer reviewed, pursuant to requirements in statute or regulation. Specifically, reimbursed work related to toxic air contaminants and air toxic "hot spots" is reviewed by the statutorily created Science Review Panel. Similarly, work related to Proposition 65 is reviewed by the Science Advisory Board, established by regulation.

Work that is not peer reviewed--at least formally and publically by an established review panel--includes review of DPR's pesticide-related risk assessments, and risk assessments of drinking water contaminants (funded mainly from the General Fund), and other reimbursed assistance provided to DTSC and other agencies.

Consistency in Assessment of

The Office of Environmental Health Hazard Assessment has centralized the assessment of the potency of chemicals, allowing for greater consistency statewide by agencies that use this information.

Pursuant to the Safe Drinking Water and Enforcement Act of 1986 (Proposition 65), the OEHHA is the lead state agency in developing and updating a state list of chemicals known to cause cancer or reproduction-related problems such as birth defects. The OEHHA has compiled a centralized list of the potency of hundreds of chemicals. (Potency may be expressed as the risk of getting cancer from a certain level of exposure to a chemical.) This list enables Cal-EPA departments and other regulatory agencies to apply the same probability of getting cancer or other health problems from a chemical when they assess the risk of exposure to a chemical at a particular site.

This consistency did not exist in the past. For example, prior to the OEHHA becoming part of Cal-EPA in 1991, agencies involved in regulating the use of benzene were using at least seven different probabilities for the risk of getting cancer from that chemical.

Centralizing the task in the OEHHA also eliminates the need for other agencies to develop their own assessments of chemical potency, thereby reducing their workload.

Risk Assessment of Chemical Exposure Still Inconsistent

One of the primary objectives for establishing the OEHHA was to develop guidelines for use by Cal-EPA departments when they assess the risk of exposure to a chemical at a particular site. The guidelines were to emphasize the importance of considering the "cumulative effects of total exposure from all pollution sources" in exposure assessments. Without these guidelines to ensure that assessments of chemical exposure are done consistently among Cal-EPA departments, the regulatory decisions that are based on these assessments will also be inconsistent among departments.

The OEHHA has yet to fulfill this role of ensuring consistency among departments in risk assessment. Specifically, an external review of risk assessment practices of departments within Cal-EPA--required by Chapter 418, Statutes of 1993 (SB 1082, Calderon)--found that exposure assessment practices vary among Cal-EPA boards and departments. In particular, exposure assessments differ in how comprehensively they account for the cumulative impacts of exposure to chemicals through all possible avenues of exposure or "media" (air, water, soil).

Budget Proposal for Multimedia Risk Assessment Model and Guidelines. The budget requests a redirection of $487,000 ($89,000 General Fund, $398,000 reimbursements) for the OEHHA to develop a single, multimedia risk assessment model and guidelines to be used by Cal-EPA departments and to provide training for their use. The office expects to complete the model and guidelines in 2002. A multimedia approach would enable regulators to account for the risks associated with exposure to a chemical in air, water, and soil.

We think the request is warranted given that it will facilitate the OEHHA meeting one of the primary objectives for which it was established. In the following section, we also discuss the appropriateness of the funding source for the proposed work.

The HWCA Inappropriately Funds the OEHHA

The budget for the OEHHA proposes $1.7 million in reimbursements from DTSC that are funded from the HWCA. (Revenues to HWCA are from fees levied on persons that generate, transport, treat, store, or dispose of hazardous wastes.) The $1.7 million includes:

• $350,000 (20 percent) for direct assistance to DTSC related to hazardous waste-related sites and facilities.
• $1,350,000 (80 percent) for the multimedia risk model development, Proposition 65 implementation, and other general assistance to state and local agencies.

Our review finds that of the $1.7 million in HWCA-funded reimbursements, $1,350,000 is proposed to support work that does not relate directly to hazardous waste regulation and is therefore an inappropriate expenditure from the account. We think that the General Fund is the more appropriate fund source for these activities because of their broad-based public health nature.

We also think that substituting the General Fund for a majority of HWCA-funded reimbursements will allow the OEHHA to more effectively plan its longer range workload. This is because the General Fund is a more stable funding source than the HWCA which has been a declining revenue source over the past several years.

Therefore, we recommend that reimbursements be reduced by $1,350,000 in order to make HWCA expenditures consistent with statutory intent for expenditures from this account. We also recommend an increase of $1,350,000 from the General Fund to replace this funding, including that provided for the development of the multimedia risk assessment model which will be used for risk assessment of all chemicals.