Friday, February 3, 2012

Pre-Budget Brief: Environmental Programs Were Cut $1.5 Billion, When Is It Enough?

Gov. Corbett presents his budget proposal Tuesday to a joint session of the General Assembly and about the only good news expected is-- we're not as broke as the federal government.
            So far what Budget Secretary Charles Zogby said during his mid-year budget briefing in December is holding up, unfortunately.  He expected an end-of-fiscal year deficit of $500 million and as of now we are at $497 million.  Some are now saying the deficit will go as high as $800 million.
           He also said the Governor's budget will have to accommodate more than $1 billion in unavoidable spending growth in the 2012-13 state budget.  He pointed to a $520 million in increase school ($320 million) and state employee ($200 million) pension costs, $400 million increase in Medical Assistance and an $80 million increase in debt service, in spite of efforts to cut costs.
            The bottom line, Secretary Zogby said, is the Governor is likely to need about $750 million to bring the FY 2012-13 budget into balance.  Drawing a line, he said the Governor is not going to make up the shortfall with tax increases.
            At the beginning of January, Gov. Corbett  directed his Budget Office to freeze nearly $160 million in state spending.  The Governor also asked government entities not under his jurisdiction to reduce their spending by nearly $66 million, although they haven't really come through.
            On top of that, state agencies were asked to submit a budget for FY 2012-13 assuming a further 5 percent reduction in spending, with no exemptions.
            He noted even more cuts may be in store if federal funding is cut through automatic sequestration.
            The Corbett Administration has also cut the number of new Capital Budget project authorizations in half.  Of course that didn't stop the state from spending $100 million to buy an existing building-- the Forum Place in Harrisburg-- just a few weeks ago.
            The Governor also signed legislation-- Senate Bill 1310 (Gordner-R-Columbia)-- authorizing the state to float $4.5 billion in new state bonds, the largest bond issue ever for the Commonwealth, to repay monies loaned from the federal government for unemployment compensation.
            Asked if the Governor will be addressing transportation funding needs, Secretary Zogby said the state continues to see a weak economy and reductions in state revenue and that will affect whether or not the Governor will move forward with a transportation funding plan.  And that has been the Governor's position ever since.
            Also pending is Marcellus Shale impact fee legislation which the Governor, and House and Senate Republicans have been working on for months that could generate several hundred million dollars for communities impacted by drilling and to fund some environmental programs.
            As of Friday, negotiators were working to put the finishing touches on a proposal they hope to put up for a vote on Monday in the Senate.
            The Governor and key players in the budget process all agree-- the budget is about setting priorities for spending the revenue we have.  On Tuesday we find out the priorities Gov. Corbett has.
            Recapping The FY 2011-12 Budget
            Last year the General Assembly and Governor approved spending $27.1 billion, a 4.1 percent reduction in spending from the FY 2010-11 funding levels and without any tax increases.
            There are no provisions for re-funding the Growing Greener Program which became all but bankrupt this year.  Just $6 million in Growing Greener funds will be available for the next round of grants, down from its peak of $50.1 million in 2001.
            And of course, there was no Marcellus Shale legislation.
            Funding for the PA Center for Environmental Education was zeroed out-- $368,000-- as well as funding for the McKeever Environmental Center-- $213,000.
            The only bright spots in the budget were conservation district funding remained at previous levels,  the Resource Enhancement and Protection (REAP) Farm Conservation Tax Credit Program which was restored to its full $10 million in funding.
            There were no raids on other environmental funds, like the Oil and Gas Fund, Keystone Recreation, Park and Conservation Fund, the Recycling Fund or the Storage Tank Fund to help balance the state budget like there were during the Rendell Administration.
            $1.5 Billion Cut/Diverted From Environmental Programs
            For those keeping score, a total of $1.5 billion has been diverted or cut from environmental programs to help balance the state budget or to fund programs that could not get funding on their own over the last nine years.
            Here are the highlights of the cuts and diversions--
-- $481 million in Act 339 grants intended to support wastewater plant operations over the last nine years were eliminated to balance the budget;
-- $143 million diverted from the DCNR Oil and Gas Fund to balance the FY 2008-09 budget;
-- $79 million cut from the DEP and DCNR General Fund budget during FY2009-10;
-- $60 million diverted from the DCNR Oil and Gas Fund to balance the FY 2009-10 budget;
-- $100 million in 2002 from the Underground Storage Tank cleanup insurance fund to balance the budget (although this is slowly being repaid over 10 years);
-- $52.7 million “one-time” diversion from the Keystone Recreation, Parks and Conservation Fund in 2006 to balance the budget;
-- $50 million in 2007 and 2008 from the Environmental Stewardship Fund, which supports mine reclamation and watershed restoration, to fund the Hazardous Sites Cleanup Program because there was no agreement on how to fund that program;
-- $164.3 million in FY 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 from the Environmental Stewardship Fund to pay debt service on the Growing Greener II bond issue and taking funding away from restoration projects each year for the next 25 years – reflecting a pattern of only environmental programs being required to address their own bond debt service;
-- $15 million from the Recycling Fund in to balance the FY 2008-09 budget;
-- $18.4 million put into budgetary reserve in 2008-09 from the Department of Environmental Protection and Department of Conservation and Natural Resources;
-- $5 million reduction in Resource Enhancement and Protection (REAP) farm conservation tax credit program in FY 2009-10;
-- $102.8 million cut from the DEP and DCNR General Fund budget in FY 2010-11 budget;
-- $180 million diverted from the DCNR Oil and Gas Fund to General Fund in proposed FY 2010-11 budget;
-- $5.5 million reduction in Resource Enhancement and Protection (REAP) farm conservation tax credits in FY 2010-11;
-- $5 million in additional cuts to the agencies to balance the FY 2010-11 budget;
-- $3.9 million in across-the-board cuts to help fill gaps caused by reduced federal Medicaid appropriations-- $2.4 million from DEP, $1.5 million from DCNR; 
-- $669,000 from the Safe Water line item in DEP's budget;
-- $102.8 million cut continued from the FY 2010-11 DEP and DCNR General Fund budget in FY 2011-12 budget; and
-- Mid-year budget freeze cuts additional resources for environmental programs: Agriculture: $2.6 million; DCNR: $1.5 million; and DEP: $4.2 million.
            DEP/DCNR Staff Cuts
            Complement levels over the last 9 years at DEP were reduced by over 500 positions from 3,211 in FY 2002-03 to below about 2,770 now, even less if you take out the more than 105 positions DEP added for the Marcellus Shale drilling inspection and permit program.
            The FY 2011-12 budget reduced DEP complement levels by 69 positions.
            In addition, the Rendell Administration used over 100 DEP Air, Waste and Water Quality field staff  to act as managers for federal stimulus projects, projects funded by the Energy Harvest and PA Energy Development Authority programs taking time away from permit reviews, inspections and compliance activities.
            The FY 2009-10 budget cuts alone required DEP and DCNR to furlough or eliminate 333 full time positions. DCNR had to eliminate or reduce hours for 1,131 seasonal workers, putting appropriations for DEP at 1994 levels and for DCNR at 1995-96 levels.
             One result of all these cuts is the permit review backlog DEP said was already building in 2009 and in truth the last 7 years, delaying hundreds of millions of dollars in economic development projects across the state.
            Complement levels at DCNR were 1,391 in FY 2002-03 and have been reduced to about 1,389 positions now of which about 1,289 positions are filled.
            The current complement numbers will be updated as part of the Governor's budget announcement Tuesday.
            Of course, DEP and DCNR still have the same amount of work to do, the same laws to enforce and State Forests and State Parks to protect and manage.
            In the case of DEP, they face the further challenge of new programs to get up and running, like the electronics recycling program, and the continuing challenges of regulating Marcellus Shale drilling.
            General Fund Budget Perspective
            The state's General Fund budget has always been a huge part of how environmental programs and agencies are funded, but that has changed dramatically over the last 9 years.
            In most cases, General Fund cuts to DEP and Agriculture resulted in significant staff reductions with only a small portion being made up in things like permit review fee increases.  In the case of DCNR, monies from the Oil and Gas Fund fed by Marcellus Shale drilling revenues on State Forest land made up many of the losses.
            Here's some perspective--
-- Dept. of Environmental Protection: 
   General Fund FY 2002-03: $728.2 million
   General Fund FY 2011-12: $135.4 million

-- Dept. of Conservation & Natural Resources:
   General Fund FY 2002-03: $322.9 million
    General Fund FY 2011-12: $55.2 million

-- Department of Agriculture:
   General Fund FY 2002-03: $274.3 million
   General Fund FY 2011-12: $133 million

            Permit Review Fees
            The Department of Environmental Protection in particular has been trying to make up for some of the General Fund budget cuts finalizing about $27.8 million in fee increases over the last 18 months as a result of Rendell Administration initiatives:
-- Marcellus Shale Drilling Permits: $7,465,000 (from $935,000 to $8.4 million annually);
-- NPDES Water Quality Permits: $4,250,000 (from $750,000 to $5 million annually);
-- Chapter 102 Regulations: $6,665,000 (from $635,000 to $7.3 million annually);
-- Laboratory Certification: $1,550,000 (from $500,000 to $1.6 million annually);
-- Beneficial Use of Coal Ash: $75,000 annually; and
-- Uniform Environmental Covenants: $82,250 annually.
            Another fee package for Air Quality Permits was adopted as final by the Environmental Quality Board in November 2010.  The new fees would have raised $7.8 million (from $19,570,000 to $27,408,000 annually).
            Although adopted as final by the EQB, DEP has decided not to take the steps needed to publish them as final in the PA Bulletin and they are considered withdrawn.
            DEP also proposed additional fee increases totaling just over $7 million in the last 18 months, again all in the Rendell Administration:
-- Coal Surface Mining Permits: $350,000 (from $50,000 to $400,000 annually), the fees were published as proposed for comment and are still with DEP for finalization;
-- Non-Coal Surface Mining Permits: $2,475,000 (from $25,000 to $2,500,000 annually), DEP just solicited additional public comments on the fee package; and
-- Dam Safety and Water Management Permits: $4,267,612 a year (dam safety would increase to $1,390.850 from $28,000 and waterway management permit fees income would increase to $2,952,612 from $47,850) [Note: these revenue numbers were revised downward from the original Fee Report Form published with the proposed regulation in December 2010.] ;
            In December DEP took action to withdraw proposed Drinking Water permit fee increases adopted by the Environmental Quality Board in November 2010 which would have generated $8.1 million (from $250,000 to $8,385,000 annually).

            With all this as background, you'll be better able to sort through the Governor's proposal on Tuesday.

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