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Council Discusses Options for Fish, Wildlife Program Budget by CBB Staff Columbia Basin Bulletin - January 30, 2004

The Northwest Power and Planning Council continued to ponder potential courses of action to remedy a fish and wildlife program that is struggling to match expenses with available funds.

The Bonneville Power Administration a year ago established $139 million as a spending cap for the Columbia River basin fish and wildlife program during fiscal 2003. That forced the Council at mid-year to face what was projected to be $40 million in excess expenditures. The budget bubble was incurred in large part because of a wave of invoices for work done in prior years. The BPA also at the end of fiscal 2002 switched from an "obligations" to an "accruals" strategy for accounting, meaning the budget needs to be managed each year to hold actual spending to a certain level.

BPA ultimately softened its stance, saying that the budget needed to average no more than $139 million per year for the 2003-2006 period. That allows program to exceed $139 million as long as lower budgets in future years pull the average annual expenditure back down to $139 million.

The Council staff, in developing a fiscal 2004 budget proposal, assumed that the 2003 budget would be underspent by about $15 million. So a $154 million budget was proposed, and adopted, that included $126 million in Council project recommendations and $27.7 million in placeholders for such things as subbasin planning, BPA's fish and wildlife division overhead and scientific review budgets.

"That $15 million was largely consumed," Doug Marker, director of the Council's fish and wildlife division, told the Council Wednesday. With bills for 2003 still coming in, that year's spending still remained about $6.4 million below the $139 million benchmark. So something less than that amount could be credited toward the 2004 fiscal year that began Oct. 1. That leaves the Council program about $9 million short of what was expected.

Obligations made in previous years continue to stress the budgets. NPCC staff this week reported that about $4.7 million in previously unreported spending during fiscal 2003 for work done in 2002 or earlier. That and $8.1 million that was spent on 2003 work in excess of the Council's recommendations served to eat up a large chunk of the available cash in 2003.

A "worst-case" scenario described to the Council last week during its meeting at southwest Washington's Skamania Lodge shows the potential for $52.5 million more in spending demands on the program that were included in the Council's spending recommendations. Marker said it was unlikely, however, that that big of an influx would hit the budget.

"Our effort was to depict the worst case," Marker said. The biggest portion of that is $30.4 million for land acquisitions that that the Council has recommended over the past few years.

"That's a lot of work, and good projects, that haven't been implemented yet," Marker told the Council's Fish and Wildlife Committee. It was intended that the habitat purchases be paid for out of a separate $36 million annual allowance BPA has said it will provide for capital expenditures. The agency at first balked at classifying the purchases as capital, and now insists that some sort of crediting mechanism must be in place. BPA wants credits established toward its overall obligation to fund mitigation for fish and wildlife projects.

"We're still struggling with the crediting issue," Marker said. The NPCC staff's Patty O'Toole told the Council that anticipated corrections to 2004 the budget recommendations, and the inclusion of contract amounts that weren't in original accounting, could swell spending by as much as $4.8 million. BPA has also added some $1.9 million in projects into the process that weren't in the Council recommendation, largely for Endangered Species Act work.

And there are $2.8 million in other projects that the Council thought could be capitalized but now have to be funded under the $139 million average expense budget unless the Council and staff can change BPA's mind.

Additionally, there are $5.2 million in requests pending for increases to 2004 budgets, and potential exposure remains for $7.4 million in contracts issued prior of 2003 for which BPA has not been billed. BPA's Scott Hampton said that for the latter category, bills for completed work that come in must be paid. But the agency is going through that list of projects and closing out any contracts for uncompleted work. He said it is unlikely that much of that total exposure would be realized.

The many risk categories have the "potential to impact the budget in a significant way," O'Toole said.

"It's not as bad as last year, but still frightening," Marker said of the budget questions. "We have a budget that's greater than (BPA CEO) Steve Wright committed to the program."

The Council staff offered three suggesting for addressing the budding budget crisis.

• "add money to the program to address the actions of the past that continue to impact the current program;

• cut the program to manage to the financial number -- Council makes the cuts or Bonneville makes the cuts based upon Council developed principles;

• Bonneville manages to the financial goal, while fully implementing the Council's recommendations, with the Council monitoring implementation and taking corrective actions, if necessary."

Oregon's Melinda Eden agreed with the need to address the apparent "bow wave" of extra needs in 2004. Pulling down spending in 2005 and 2006 to make up for a 2004 excess of that size "would have drastic implications for the program what we've worked on for so long."

The numbers previewed by the Council staff "succinctly tell us the risk to the program" in the worst case, Hampton said. He said he felt the spending issue could likely be addressed through careful management of the contracts.

Representatives for fish and wildlife management entities stressed that the process needs reform to bring more stability, and clarity.

The Idaho Department of Fish and Game's Pete Hassemer pointed out that after a memorandum of agreement that dictated 1996-2001 spending levels expired, "there was money left on the table." But BPA chose not to carry forward unspent amounts into the new rate period. He suggested that BPA has the financial wherewithal, and responsibility to solve the Council's budget problems.

Hassemer said project sponsors need clarity as regards funding for projects that have been approved by the Council.

"You need to move on. You need to make some decisions," he told the Council. "Somebody needs to do something about those risks and come up with a decision that solves those problems." The easiest solution, he said, would for Bonneville to pay off those past obligations and clean the slate.

Mary Verner agreed. "We don't need to be talking about finding more cuts in this program," the executive director for the Upper Columbia United Tribes said. With BPA's financial much improved in recent months, "this program could be made whole."

BPA officials have insisted whenever that topic comes up that it will not increase funding beyond that $139 million average.

"Bonneville's position now is to have to make it up in 2005 and 2006," Marker said of any 2003 spending that skews the four-year average.

"That's a big issue -- the liability for the old MOA," Idaho Councilor Judi Danielson said during the committee meeting.

Verner said many sponsors were still reeling from last year's round of cuts, and good approved projects are falling by the wayside. She said talks of unilaterally adjusting contracts is legally and ethically wrong.

The Columbia Basin Fish and Wildlife Authority's Rod Sando said the system needed reform. He said it should be managed on an encumbered account basis with funding set aside and reserved.

Hampton said Bonneville is issuing contracts in accordance with the Council's $154 million recommendation. O'Toole noted that with nearly four months gone in the new year, well over half of the contracts have been renewed.

"We do have the ability to reduce the budget throughout the rest of the year," Hampton said. "We would have to renegotiate contracts." Hampton said that through the first 3 ½ months of the fiscal year, only about $4 million had been billed to the program, leaving about $150 million.

"Bonneville is thinking about how to respond to this," Marker said of the newly identified needs or "risks" of overspending.

Washington Councilor Tom Karier expressed frustration about the need for the Council and staff to spend so much time trying to assess the status of the budget. "We should get back to the fundamentals" -- that is tracking whether Bonneville is implementing the Council's recommendation. He said it should be left to BPA to solve the accounting dilemmas -- such as the $8.1 million in 2003 spending that was allowed in excess of the Council's recommendations.

"Let's get away from chasing Bonneville's latest numbers of the week," Karier said.

Marker and Danielson acknowledged that BPA is working hard develop systems to better track within-year spending under the new accrual system.

"Bonneville needs to develop the tools" to predict when invoices will come in, Marker said. Without that ability "it is impossible to make budget recommendations."

"It is a transition problem," Therese Lamb told the committee. BPA's vice president for Environment, Fish and Wildlife said her newly formed team is working hard to develop such tools, as well improve the communications between the agency and the project sponsors about work progress, and invoice timing.

Related Sites:
NPCC: www.nwcouncil.org
BPA: www.bpa.gov/indexmain.shtml
CBFWA: www.cbfwa.org/Default.htm