Analysis of the 2007-08 Budget Bill: Resources

Department of Parks and Recreation (3790)

The Department of Parks and Recreation acquires, develops, and manages the natural, cultural, and recreational resources in the state park system and the off-highway vehicle trail system. In addition, the department administers state and federal grants to local entities that help provide parks and open-space areas throughout the state.

The state park system consists of 278 units, including 31 units administered by local and regional agencies. The system contains approximately 1.5 million acres, which includes 4,100 miles of trails, 300 miles of coastline, 970 miles of lake and river frontage, and about 14,800 campsites. The state park system includes parks and attractions that require entrance or use fees and other parks, beaches, and attractions that are free to enter. Almost 80 million visitors traveled to state parks in 2005, including more than 50 million visitors to free day-use sites.

The budget proposes $494 million in total expenditures for the department in 2007-08. This is an overall decrease of about $235 million below current-year estimates. This decrease reflects the elimination of a one-time expenditure of $90 million for state parks deferred maintenance that occurred in the current year, reduced federal funding (a decrease of $40 million), and a reduction of $91 million in capital outlay expenditures funded from bond funds and special funds.

The budget proposes $382 million in departmental support, $44 million in local assistance, and $67 million in capital outlay expenditures. Of total departmental spending, $150 million comes from the General Fund, $121 million comes from the State Parks and Recreation Fund (primarily fee revenues), $69 million comes from bond funds, and $60 million comes from the Off-Highway Vehicle Trust Fund. Major budget proposals include the reversion of $160 million to the General Fund (the unspent balance of a $250 million appropriation for state parks deferred maintenance in 2006-07), $5.2 million in bond funds for state park system planning and administration, $5 million (General Fund) in local assistance for the Simon Wiesenthal Center, and $4.1 million (General Fund) for hazardous material remediation at Empire Mine State Historic Park.

Budget Fails to Address State Parks Deferred Maintenance Backlog

Despite a growing backlog of deferred maintenance projects in state parks—totaling over $900 million—the budget proposes essentially no funding for this purpose in the budget year. In fact, the budget proposes to revert $160 million of funding appropriated in the current year for deferred maintenance back to the General Fund. To address this issue, we recommend that the Legislature (1) appropriate $160 million from Proposition 84 bond funds, and adopt related budget bill language, to backfill the General Fund reversion; (2) withhold approval of request for staffing to administer existing appropriation for deferred maintenance; (3) adopt supplemental report language requiring the department to develop a strategy to use outside funding sources to help fund deferred maintenance projects; and (4) augment the department’s support budget by $15 million and adopt budget bill language directing the department to raise fees by a similar amount, in order to fund ongoing maintenance in the state park system. (Increase Item 3790-001-6051 by $160 million and increase Item 3790-001-0392 by $15 million.)

Growing Deferred Maintenance Problem

The state park system includes 278 units, of which almost 250 are directly managed by the department. These park facilities vary from state beaches to historic parks to off-highway vehicle recreation areas. The department estimates that almost 80 million people visited the system in 2005. The size and breadth of the state park system, heavy usage by the public, and the fact that so much of the system’s infrastructure is exposed to the elements means that the department has a significant obligation to perform maintenance activities.

Based on its internal facility management program, the department estimates that the cost to maintain the system at its current capacity is approximately $117 million per year. However, the department’s maintenance budget (funded primarily by the General Fund and park fee revenues) is approximately $67 million per year—yielding a maintenance shortfall of $50 million per year. Over many years, the difference between ongoing maintenance needs and available funds has created a backlog of deferred maintenance projects. Typically, these projects encompass the replacement or rehabilitation of an existing asset that has not been adequately maintained. The department currently estimates that the deferred maintenance backlog is over $900 million. Given the current shortfall between the department’s maintenance budget and its estimated maintenance requirements, this backlog will likely continue to grow over time unless corrective action is taken.

Past Funding for Deferred Maintenance Projects

While the backlog of deferred maintenance projects has grown substantially in past years, the department has never had a dedicated source of funding for these projects. (In past years, the Legislature has periodically appropriated one-time General Fund money or bond funds for deferred maintenance.) While a small amount of general obligation (GO) bond funds has been used for deferred maintenance, generally bond funds allocated to the state park system have been used for acquisition, expansion, and development of the system, rather than repairs. Of the resources-related GO bonds passed by the voters prior to 2006, almost all of the funding for state parks has been exhausted. In the 2006-07 Budget Act, the Legislature appropriated $250 million from the General Fund for deferred maintenance projects in the state park system. Funds from this appropriation are available to be spent through 2011-12.

Budget Proposal

The budget proposes to revert $160 million of the prior $250 million General Fund appropriation for deferred maintenance—the amount projected to remain unspent at the end of the current year. While the Governor’s Budget Summary indicates that there are available bond funds as a replacement funding source for deferred maintenance projects, the budget includes no bond funding for deferred maintenance.

The budget proposal also includes a request for 41 new positions and 16 redirected positions to manage projects funded from the General Fund appropriation for deferred maintenance in the current year. As these positions were not provided in the 2006-07 budget, the department created them administratively during the current year, and is now seeking to make these positions permanent. While the budget shows that the bulk of the appropriation (the portion not proposed for reversion) will be spent in the current year, most of these projects will take several years to complete, and hence the department is requesting permanent positions, funded out of the 2006-07 General Fund appropriation, to manage these projects to completion.

Proposition 84 as a Potential Funding Source

In November 2006, the voters approved Proposition 84, which provides $5.4 billion for various resources-related projects, including $400 million for the state park system. (See the “Resources Bonds” write-up in the “Crosscutting Issues” section of this chapter for more discussion of resources bonds.) Proposition 84 provides this funding for “development, acquisition, interpretation, restoration and rehabilitation of the state park system and its natural, historical, and visitor serving resources.” Based on discussions with Legislative Counsel, it appears that many deferred maintenance projects are an eligible use of these bond funds as they fit within “restoration and rehabilitation”—provided that the requirements of the state’s GO bond law are met. The governing bond law, Government Code Section 16727, states that GO bond funds may only be used for the construction or acquisition of “capital assets” which are defined as “tangible physical property with a useful life of 15 years or more” and include “major maintenance, reconstruction, demolition for the purposes of reconstruction of facilities, and retrofitting work that is ordinarily done no more often than once every 5 to 15 years or expenditures that continue or enhance the useful life of the capital asset.”

The department has indicated that it does not intend to make future requests for Proposition 84 funds for deferred maintenance projects, as it considers maintenance projects generally ineligible for bond funding. While we differ on this point, we note that restoration and rehabilitation are only two of several allowable uses of Proposition 84 state park funds. It is a policy choice for the Legislature under its appropriation authority to allocate the $400 million among the eligible uses. We also note that even if the Legislature appropriated all the available Proposition 84 state parks bond funds to deferred maintenance projects, these funds would not even pay for one-half of the estimated backlog.

Recommendations for Addressing Deferred and Ongoing Maintenance

Given the magnitude of the deferred maintenance backlog and the legislative intent to significantly reduce this backlog as reflected in the current-year budget, we believe that it is important for the state to address both the existing deferred maintenance backlog and the underlying availability of funds for ongoing maintenance. To this end, we recommend the Legislature take the following steps:

Appropriate $160 Million in Proposition 84 Funds for Deferred Maintenance. Since there will be many competing uses for these funds—such as the acquisition of new parks and upgrading and expanding visitor attractions—it would not be appropriate to use all the available funds allocated to state parks for deferred maintenance. However, we believe that maintaining the existing system in good condition by working down the deferred maintenance backlog should be a priority when appropriating bond funds. We believe that the Legislature can fulfill its previously stated intent to reduce the deferred maintenance backlog by appropriating $160 million in Proposition 84 funds to offset the proposed General Fund reversion of the same amount. Consistent with previous legislative intent, we recommend the adoption of budget bill language authorizing the expenditure of these funds through 2012-13.

Adopt Budget Bill Language Specifying That Bond Funds Be Used According to GO Bond Law. Based on the requirements of Proposition 84 and GO bond law, we believe that these bond funds can be appropriately used for deferred maintenance projects that generally have a useful life of more than 15 years. Pursuant to information provided by the department, we believe that there are many such projects included in the deferred maintenance backlog for which bond funds are an appropriate fund source. To ensure that bond funds are used for appropriate projects, we recommend the adoption of the following budget bill language under Item 3790-001-6051:

Of the funds appropriated in this item, $160 million shall be available for expenditure for deferred maintenance projects that comply with the requirements of Government Code Section 16727 and shall be available for encumbrance until June 30, 2013.

Withhold Approval of Requested Positions Pending Additional Information. The department has requested a significant number of permanent positions (41 new positions and 16 redirected positions) to be funded from the existing General Fund appropriation for deferred maintenance made in the current year. These positions would provide staff support for projects funded from the $90 million of the existing appropriation that the administration has not proposed for reversion. As projects are completed over the next few years, the department indicates that the number of filled positions will be reduced through attrition. The information provided by the department did not provide sufficiently detailed information to fully evaluate the need for the proposed positions. Therefore, we recommend the department report at budget hearings on the workload requirements associated with the projects to be funded from the existing appropriation. Additionally, the department should address whether there are potential efficiencies from using outside services—for example the Department of General Services—to provide specialized expertise, such as architectural services, rather than adding permanent staff in the department.

We do not believe it is necessary to add permanent positions in order to spend funds with a limited duration. Therefore, if the Legislature decides to approve the department’s staffing request, we would recommend that any positions granted be 3-year limited-term positions, as the department indicates that it will take three years to fully expend the existing appropriation. While we do not recommend adding new positions in connection with the $160 million in bond funds we recommend for appropriation in the budget year, the department can address any related staffing requirements at budget hearings.

Require the Department to Report on Other Options to Fund Deferred Maintenance. The department has had success working with outside groups to provide private funding for projects in state parks. However, we are not aware of a department-wide strategy to use private funding to support deferred maintenance projects. We recommend that the Legislature adopt the following supplemental report language requiring the department to devise a plan to maximize private donations and other new funding mechanisms to support deferred maintenance projects:

On or before January 10, 2008, the department shall provide a report to the Legislature which presents the department’s plan to supplement state funds for deferred maintenance projects with private funds and other nonstate sources of revenue.

Direct an Increase in Park Fees to Fund Ongoing Maintenance. While the department faces a growing deferred maintenance problem—in part because its annual maintenance budget does not meet its estimated maintenance requirements—fee revenues collected by the department have remained relatively flat in recent years. In the late 1990s, the state dramatically reduced park fees. Beginning around 2002, fees were subsequently increased, but not to the previous level. Therefore, while paid attendance at state parks has consistently increased over time, fee revenues collected by the department are less now than they were in the late 1990s, as shown in Figure 1. From 1995 to 2005 (the last full year for which data are available), paid attendance in the state park system increased by 7.5 million visits. Over this period, however, total fee revenues collected increased by only $5.4 million. Total fee revenues actually declined by $0.75 per paid visit over this period (in nominal dollars). If one adjusts for inflation, fee revenues were almost $2 less per paid visit in 2005 than in 1995.

In the budget year, the department projects park fee revenues of approximately $75 million. Some of these funds are used for ongoing maintenance, but none are used for deferred maintenance. In order to slow the growth in the deferred maintenance backlog, we recommend that the Legislature take action to provide increased funding for the department’s ongoing maintenance requirements. Specifically, we recommend that the Legislature increase the department’s expenditure authority from the State Parks and Recreation Fund by $15 million and adopt budget bill language directing the department to raise its fees by a similar amount, to be used solely for ongoing maintenance activities. While this increase will not cover the entire ongoing maintenance shortfall ($50 million per year), it does represent a 20 percent increase in currently projected fee revenues.

In the past, concerns have been raised about the effects of proposed fee increases on attendance at the state park system. We find that while park system attendance varies over time, paid attendance to the system does not seem to be very sensitive to changes in park fees, as shown in Figure 1. We also note that park fees represent only a portion of the total potential cost of attending a state park—including the costs for gasoline, lodging, food, and recreational equipment. Based on these factors, and the historically low park fees currently being charged, we believe that the department can raise fees without significantly reducing attendance. As it has done in the past, the department should target fee increases to park units that have very high demand and can sustain increased fees without significantly reducing visitation. We believe that if the department is given flexibility to implement this proposed fee increase, it should be able to target increases to avoid or at least minimize reductions in attendance—particularly with respect to low income visitors. (We also note that the department’s Golden Bear Pass provides discounted fees for certain low-income park visitors.) Based on the above, we recommend the adoption of the following budget bill language under Item 3790-001-0392:

This item includes a $15 million augmentation to be used solely for ongoing maintenance activities in the state park system, to be generated by an increase in state park fee revenues of an equal amount. The department shall endeavor to target fee increases in a manner that minimizes the impact on state parks attendance.

Administration of Bond Funds for Local Parks Should Be Consolidated

The administration proposes to appropriate Proposition 84 local park funds to the Department of Parks and Recreation (DPR), while appropriating Proposition 1C local park funds to the Department of Housing and Community Development. We recommend the enactment of legislation to consolidate the administration of all local park bond funds in DPR. We also recommend the enactment of legislation specifying what portion of the $850 million of Proposition 1C funds, set aside for infill housing development, should be allocated to local parks. Finally, we recommend the department report at budget hearings on its plan to spend Proposition 84 local park funds. (Reduce Item 2240-101-6071 by $30 million; reduce Item 2240-001-6071 by $685,000; reduce reimbursements in Item 3790 by $350,000; increase Item 3790-101-6071 by $30 million.)

Past Spending on Local and Regional Parks. The department has a great deal of experience administering grant programs that allocate funds to local and regional parks. Over the last decade, the department has administered approximately $1.7 billion in bond-funded grants for local and regional parks. Essentially all of the funds for local and regional parks allocated in resources bonds approved prior to 2006 have been spent.

New Bond Funds for Local and Regional Parks. In November 2006, the voters approved a series of GO bonds to provide funding to support and expand the state’s infrastructure. Of these bonds, Proposition 84 provides $400 million for local and regional parks, to be administered by the department. In addition, Proposition 1C (the housing bond) provides $200 million for housing-related local and regional park grants and up to $200 million for park grants to encourage infill housing development. (Proposition 1C authorizes a total of $850 million for infill housing grants that can be allocated for a number of purposes, including park creation, water, sewer, and other infrastructure development, without allocating a specific amount of funding to each of the various eligible uses.) While Proposition 1C does not identify an implementing department for these funds, the administration is proposing that the Department of Housing and Community Development (HCD) administer the park-related grant programs.

Budget Proposal for Local Parks Funds. For the department, the budget proposes $1.4 million in Proposition 84 funds (and ten positions) for planning, developing grant guidelines, and other administrative functions. The budget proposal does not include any grant funds for local parks in 2007-08, and in fact, the administration indicates that the department will not make any Proposition 84-funded local park grants until 2009-10. In HCD, the budget proposes to spend $30.7 million ($30 million in local assistance and $685,000 in state administrative costs) for housing-related local and regional parks. Also, the budget proposes to spend $101.3 million ($100 million in local assistance and $1.3 million in state administrative costs) for regional planning, housing, and infill incentives, of which local parks are an allowed use. The budget proposal is not specific as to what portion of the $100 million would be allocated for local parks. In addition to adding staff within HCD, the budget proposes to add reimbursement-funded staff at the department to assist HCD in program development and administration.

Recommend Legislature Appropriate All Parks-Related Bond Funding to Department. We think that the Legislature should consolidate parks-related bond programs in Propositions 1C and 84 within the department, and we therefore recommend the enactment of legislation designating the department as the implementing agency for the Proposition 1C park-related funds. We make this recommendation because the department has a history of administering these kinds of grant programs and it has staff expertise and existing guidelines and procedures for selecting projects and administering grants. Consolidating these programs in a single department would avoid duplicating administrative costs, allow for more consistent project evaluation and selection, and minimize the time and effort spent on grant applications by local agencies. Accordingly, we recommend reducing HCD’s local assistance appropriation from Proposition 1C by $30 million and increasing the department’s local assistance appropriation by a similar amount. We further recommend reducing HCD’s state operations appropriation from Proposition 1C by $685,000 and reducing the department’s state operations appropriation from reimbursements by $350,000. (Please see the “General Government” chapter of the Analysis for our recommendation regarding HCD.) Because the department has an existing local assistance program and proposes to add staff to spend Proposition 84 local park funds, we consider the department’s additional staffing requirements to implement Proposition 1C park funds to be minimal.

Recommend Legislature Specify Allocation of Proposition 1C Park Funds. While Proposition 1C provides up to $200 million for parks amongst other infill-related uses (totaling $850 million), the measure is not specific about the precise amount that should be spent on parks. We recommend the enactment of legislation specifying what portion of the $850 million allocation is to be spent on parks, and would therefore be available for appropriation to the department. Annual funding would then be appropriated through the budget.

Recommend Department Report at Budget Hearings on Ways to Speed Up Grant Delivery. Finally, as previously mentioned, the administration indicates that the department will not begin making grants from Proposition 84 local park funds until 2009-10. With the depletion of pre-2006 bond funds for local parks, there is virtually no funding for local parks from resources bonds proposed in 2007-08. It is important that bond funds for local assistance projects be granted according to well-designed guidelines and procedures, in order to ensure that the bond funds are spent wisely. However, given the department’s history of implementing local park grants and the existence of procedural guidelines for doing so, we are concerned about the projected pace of Proposition 84 grant delivery. We recommend the department report at budget hearings on any reasons why a grant solicitation could not be made in the budget year to start the flow of funds earlier, and any planned revisions to their long-term expenditure plan for Proposition 84 local parks funds.

State Parks and Recreation Fund Reserve Depleted

The budget proposes an expenditure level from the State Parks and Recreation Fund which would leave virtually no reserve at the close of the budget year. We recommend the department report at budget hearings on its plans to secure a prudent year-end reserve.

Fund Supported by User Fees. The State Parks and Recreation Fund (SPRF) is the department’s primary special fund supporting state park operations. In the budget year, it is second only to the General Fund in providing support for department operations. The two primary revenue sources for this fund are fee revenues—including park admission fees, camping fees, and other fees charged to state park visitors—and an annual transfer from the Motor Vehicle Account. The budget projects total revenues of $118 million (including $75 million in fee revenues) and expenditures of $121 million. After taking into account prior-year balances carried into the budget year, the department’s projections indicate that the fund will have virtually no reserve at the end of the budget year—only $56,000 (less than one-tenth of one percent of expenditures).

Parks and Recreation Fund Reserve Depleted. Leaving virtually no year-end reserve in SPRF, as projected in the budget proposal, is problematic. Without a reserve, the department lacks a cushion against revenue fluctuations and a source of funding should unforeseen expenses arise during the budget year. (As a general rule of thumb, we have recommended that fee-funded special funds should ideally have a reserve of at least 3 percent to 5 percent of expenditures.) We note that fee revenues generated by the state park system have varied in past years and can be difficult to predict accurately. Because the state park system relies on tourism revenues—primarily outdoor-oriented tourism—attendance can vary based on unpredictable factors such as weather. In 2004-05, actual fee revenues were 96 percent of estimates, while in 2005-06 actual fee revenues were 91 percent of estimates. If fee revenues were to decline or unforeseen expenditures were to arise in the budget year, the department would be forced to reduce programs and/or increase fees to address these unanticipated events.

Recommend Department Report at Budget Hearings on Its Plan to Provide a Sufficient Reserve. Given the problems that we have identified with the lack of a budgeted fund reserve, we recommend the department report at budget hearings on its plan to achieve a prudent reserve in SPRF. In considering the amount of the reserve, the department should take into account its experience with revenue fluctuations and unanticipated expenses over the past several years. Given the preceding discussion of the department’s ongoing maintenance shortfall, the department should consider opportunities to both reduce expenditures and increase fee revenues.

Concession and Operating Agreement Proposals

The budget includes proposals for three concession agreements and two operating agreements requiring legislative approval. While we find three of the five proposals warranted, we recommend the Legislature withhold approval for two of the proposals, pending delivery of a final economic feasibility for one and the determination of all the agreement terms for the other.

Under current law, the Legislature is required to review and approve any proposed or amended concession contract that involves a total investment or annual gross sales over $500,000. Concessions are private businesses operating under contract in state parks to provide services such as food that are not normally provided by the state. The Legislature is also required to approve most types of operating agreements, in which one governmental entity operates and maintains another entity’s facility. In some cases the department contracts with local government agencies to operate state park facilities while in other cases the department agrees to operate federal or local facilities. In past years, the Legislature has provided the required approvals in the supplemental report of the budget act.

As shown in Figure 2, the department has included three concession proposals and two operating agreement proposals in the budget that require legislative approval. While we find three of the proposals warranted, we recommend that the Legislature withhold its approval on two of the proposals that lack sufficient detail, as discussed below.

Two of Five Proposals Lack Sufficient Detail. The department has not yet completed the final economic feasibility study for the California Citrus State Historic Park concession proposal. Without this information, the Legislature is not able to determine whether this proposal is in the state’s interest. In addition, while the department proposes to extend the existing operating agreement for Kings Beach State Recreation Area, the terms of the agreement—in particular the length of the agreement—have not been finalized. It would be premature for the Legislature to approve these two proposals before all the pertinent information is available for consideration. Therefore, we recommend the Legislature withhold approval of (1) the California Citrus State Historic Park concession proposal, until the department has provided a final economic feasibility study and (2) the Kings Beach operating agreement proposal, until the terms of the agreement have been finalized and the Legislature has been notified of them.

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