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Other Budget Issues

Last Updated: 3/16/2015
Budget Issue: Hazardous materials emergency response
Program: Governor's Office of Emergency Services
Finding or Recommendation: Do not approve the proposed $10 million loan for additional emergency response resources until OES provides information on whether a gap in response capability will exist after the resources provided in the current year have been deployed. Structure fee to ensure resources are utilized by either authorizing it as a tax or expanding it to cover hazardous materials transported by other means.
Further Detail


Hazardous Materials Travelling by Rail

Increased Volume of Crude Travelling by Rail. Each year, various hazardous materials (such as crude) travel through California by rail. While data on the volume of all hazardous materials travelling through California by rail is not available, data on the transportation of crude is available. Such data indicates that the volume of crude travelling by rail in the state has increased substantially in recent years. For example, California imported 5.7 million barrels of crude by rail in 2014—nearly 130 times the amount that was imported by rail in 2009.

Accidents Involving Hazardous Materials Travelling by Rail. In recent years, there have been a number of serious accidents across North America involving hazardous materials travelling by rail. For example, in July 2013, a train carrying crude through Lac-Megantic, Quebec derailed and exploded in a downtown area. In addition, there have been incidents across the United States involving crude and ethanol that have caused significant environmental damages and posed a risk to human health and safety. While California has not had a large-scale rail accident involving hazardous materials in recent years, a train accident in Dunsmuir in 1991 spilled 19,000 gallons of pesticide into the Sacramento River. The effects of the spill were substantial and impacted a significant area. While a rail accident is potentially of a much larger scale when it does occur, 92 percent of costs over the last ten years related to hazardous material transit accidents (including both damages and response costs) have been associated with accidents involving trucks.

Response to Hazardous Materials Rail Accidents

Since federal law significantly limits the ability of the state to regulate railroads, the state’s primary role with respect to rail safety is enforcing federal regulations and responding to accidents when they occur. In California, there are numerous entities involved in the response to rail accidents involving hazardous materials. These entities include:

  • Railroads. Railroads have staff to specifically respond to railroad accidents involving hazardous materials. The major railroads that transport hazardous materials also have informal agreements to assist one another in the response and clean up if an accident occurs. In addition, railroads have emergency response materials stockpiled around the state, including large quantities of foam used to fight flammable liquid fires and the necessary equipment to deploy it. Railroads also have equipment to prevent or mitigate leakage from damaged tank cars and trucks that can transfer hazardous materials out of damaged containers. Railroads generally have spill response contractors that respond to and clean up rail accidents involving hazardous materials.

  • Petrochemical Industry Mutual Aid. The petrochemical industry in California—including refineries and chemical companies—has a substantial amount of hazardous material response capability and an extensive mutual aid system. For example, member organizations respond both to major industry incidents (such as a fire at a refinery) and nonindustry accidents involving hazardous materials (such as a rail accident).

  •  State and Local Governments. In most instances, local responders arrive first on the scene of a rail accident involving hazardous materials. Local responders will typically evacuate the surrounding area and notify the Office of Emergency Services (OES) and the railroad. About 100 communities around the state currently have local hazardous materials response teams, which typically can deploy a more sophisticated response by identifying the hazardous material and taking additional steps to mitigate the accident. Once OES is notified, it notifies relevant state agencies as necessary, such as the Department of Fish and Wildlife’s Office of Spill Prevention and Response, the California Environmental Protection Agency, Department of Forestry and Fire Protection, and the California Military Department. Depending on the scope of the accident, local responders may be able to address an incident without needing significant state support.

  • Federal Government. Depending on the scale of the accident, federal government agencies such as the U.S. Environmental Protection Agency, the U.S. Department of Transportation, and the Federal Emergency Management Agency may become involved.

Responsible Party Pays for Response and Clean Up. Once response has been completed and clean up and remediation have been taken care of, the responsible party is required to reimburse the costs of all the public entities involved in the clean up. (The responsible party is typically the railroads in the case of a rail accident, but it could also be other parties, such as the company who owns the rail cars being transported.) If evacuations are necessary, the responsible party also pays the cost of relocating those evacuated to an alternate location.

State Funding for Railroad Hazardous Material Accident Response

Fee Previously Assessed on Trucking Companies and Railroads. Following the Dunsmuir accident in 1991, the state assessed a fee on hazardous materials transported in the state. This fee was assessed from 1991 until it expired in 1995 on trucking companies and the railroads. In 1994, each trucking company paid a $205 fee. In addition, major railroads paid differing fees, all of which generated over $1.2 million in revenue. We note that information on how the fee rate was determined is unavailable. Funds collected from the fee were deposited in the Rail Accident Prevention and Response Fund and used to support grants to local communities for hazardous materials response equipment and training.

Loan Authorized in 2014-15 to Support Response Activities. As part of the 2014-15 budget, the Legislature authorized a $10 million loan from the High-Cost Fund-B Administrative Committee Fund, which provides subsidies to telephone carriers that provide basic local telephone service in high-cost areas, to a new Regional Railroad Accident Prevention and Immediate Response Fund. The funds are intended to support six new hazardous materials response teams with the purchase of hazardous material response vehicles and training. The loan is scheduled to be repaid with interest by July 1, 2017, although, at the time the loan was made, no funding source was designated to provide repayment.

According to OES, the vehicles will be given to local communities under mutual aid agreements. Locals would have to immediately deploy their teams and equipment at the request of OES to respond to a rail accident involving hazardous materials. However, locals would be able to use the equipment for other incidents that OES does not require them to respond to. As part of the agreements, they would be responsible for staff costs and replacement costs for anything depleted or damaged while the vehicle was out on local service. Since most local hazardous material transit accidents involve trucks, the equipment could be frequently used for nonrail accidents.

Governor’s Proposals

Another Loan to Support Additional Response Activities. The Governor’s budget proposes a $10 million loan in 2015-16 from the High-Cost Fund-B Administrative Committee Fund to the Regional Railroad Accident Prevention and Immediate Response Fund. This loan, which would be in addition to the $10 million loan authorized for 2014-15, would fund hazardous material response vehicles and training for six additional teams for locals.

New Fee on Hazardous Materials Moving by Rail. In addition, the administration proposes budget trailer legislation to establish a new fee on hazardous materials transported by rail. The fee would be assessed on the owner of the hazardous materials, which could be the seller, the receiver, or the railroad. The railroads would be responsible for collecting this fee from the owner and paying it to the state Board of Equalization. Under the proposal, revenue from the fee would be used to repay the $10 million loan authorized in the current year and the $10 million loan proposed for the budget year. Collected fees would also support future training and equipment for local teams, as well as statewide emergency coordination activities.

The proposed legislation would give OES flexibility in determining which hazardous materials the fee is assessed on. According to OES, it plans to assess the fee only on the top 25 hazardous materials travelling by rail in California. The legislation would also allow the fee-payer—at the discretion of OES—to provide goods and services (such as response equipment and training) instead of a monetary fee payment. At the time of this analysis, OES had not provided information on the level of the fee that would be assessed.

LAO Assessment

No Information Provided on Previously Authorized Funds. At this time, OES has provided no information regarding the use of the $10 million provided in the current year to support six new hazardous materials response teams. Specifically, no information has been provided in terms of (1) whether any of the funds have been spent and (2) a detailed plan on how the funds will be utilized. For example, OES has been unable to identify the specifications of the hazardous materials trucks being purchased, as well as the type of training that will be provided to local teams. The OES has also been unable to identify the specific local governments that would receive the trucks, equipment, and training. Without such information, it is difficult for the Legislature to determine if the previously funded teams are being or will be deployed effectively.

Amount of Additional Response Capability Needed Unclear. We find that OES has not provided sufficient justification for why six additional hazardous materials response teams are needed to respond to rail accidents. Recently, OES provided the Legislature with an analysis of gaps in statewide response capability. This analysis includes an account of existing state, local, and industry response capability. However, it does not include the additional state resources provided in the current year. As a result, it is unclear what gaps would remain—if any—after these resources are deployed. This makes it difficult for the Legislature to assess whether the amount of additional resources proposed by the Governor are necessary.

Allowable Uses of Proposed Fee Would Be Limited. According to the State Constitution, the benefits from fees (such as response capability) cannot be provided to those not charged. Since only the owners of the hazardous materials transported by rail would be paying the fee under the Governor’s proposal, the response capacity funded by the fee could only be used to respond to rail accidents involving hazardous materials. Thus, local jurisdictions receiving equipment from OES under this proposal would not be able to use the equipment to respond to local hazardous material accidents not involving rail, such as those involving trucks. Since truck-related hazardous materials accidents are historically much more common than those involving rail, this could severely limit the usefulness of these resources for local communities.

LAO Recommendations

Require OES to Provide Additional Information. We recommend that the Legislature direct OES to provide information on where the additional state resources provided in the current year will be deployed. We recommend the Legislature also direct OES to indicate whether any gaps in statewide response capability will continue to exist after these resources have been deployed. This additional information would allow the Legislature to assess whether the amount of additional resources proposed in the Governor’s budget is appropriate. We also recommend that the Legislature not approve the proposed $10 million loan to the Regional Railroad Accident Prevention and Immediate Response Fund until OES can demonstrate that the additional resources requested are necessary.

Structure Fee to Ensure That Resources Are Utilized. Whether or not the Legislature determines that additional resources are necessary, the loan that funded the six hazardous materials response teams authorized in 2014-15 must be repaid. We recommend that the revenue source for paying back the loan—and for paying for any additional response capability found to be necessary—be structured to ensure that the resources funded by the loan are fully utilized. In order to achieve this, we find that the Legislature could pursue one of two options.

  • Authorize a Tax Rather Than a Fee. Because the proceeds of taxes are not subject to the same constitutional limits as fees, the Legislature could consider implementing a tax with a two-thirds majority vote instead of a fee. This would allow the hazardous material response teams to respond to a broader array of hazardous material emergencies.

  • Expand Proposed Fee to Hazardous Materials Transported by Other Means. Alternatively, the Legislature could choose to assess the proposed fee but also charge other entities that are likely to require hazardous material accident response, such as entities that use trucking companies to transport their hazardous materials. This would ensure that the teams would be able to respond to a wider array of hazardous material accidents.