The 2023-24 Budget: Governor’s Proposals for the Department of General Services

2023-24 BUDGET The 2023-24 Budget: Governor’s Proposals for the Department of General Services GABRIEL PETEK | LEGISLATIVE ANALYST | MARCH 2023 SUMMARY In this brief, we provide an overview of the total amount of funding in the Governor’s proposed 2023-24 budget for the Department of General Services (DGS), as well as assess and make recommendations on several specific budget proposals. Recommend Withholding Action on Proposal for Direct Digital Control Upgrades and Directing DGS to Report on Prioritization. The Governor’s budget proposes $11.8 million annually from the General Fund for three years—a total of $35.4 million—to upgrade direct digital control systems in eight buildings to improve operations and energy efficiency. Of the eight projects, a private firm assessed four as low priority. Accordingly, it is unclear if these systems need replacement. Additionally, the Governor’s budget proposes to revert $92.5 million General Fund for deferred maintenance and direct digital control projects provided in past budgets, including for direct digital control projects assessed as high priority. This calls into question DGS’ prioritization methodology. Given this, we recommend the Legislature withhold action on the proposed funding for direct digital control projects and the reversion of funding related to high-priority direct digital control projects and require DGS to report at spring budget hearings on its prioritization methodology. Recommend Requiring DGS Develop a Plan for Adjusting Rental Rates to Address Deferred Maintenance Backlog and Reflect Actual Building Costs. The Governor proposes $20.4 million one time from the General Fund in 2023-24 for deferred maintenance projects to replace fire, life, and safety systems because they are at or nearing the end of their useful life. While the state has previously provided General Fund for deferred maintenance, the state currently is experiencing a budget problem and rental rates paid by DGS tenants are normally intended to cover maintenance costs. Moreover, despite these repeated General Fund augmentations, DGS deferred maintenance needs continue to grow. Given the immediate need for the fire, life, and safety system projects, we recommend the Legislature approve them. However, we recommend requiring DGS to provide a plan on how it will adjust rental rates going forward to incorporate building maintenance and needs, including its deferred maintenance backlog. Consider Funding Electric Vehicle Service Equipment Infrastructure Through Zero-Emissions Vehicle (ZEV) Package. The Governor proposes $35 million from the General Fund to perform installations of electric vehicle service equipment infrastructure at state facilities in order to help the state transition its fleet to ZEVs. Separately, the previous two budgets committed significant funding across five years for a ZEV package to promote the purchase and use of ZEVs more broadly, such as by paying for privately owned vehicles and charging stations. While the intent of the Governor’s proposal has merit, it would commit the state to new discretionary General Fund spending. Given the General Fund condition and the fact that overseeing the state fleet is a core state responsibility, the Legislature may want to consider prioritizing funding for electric vehicle service equipment infrastructure at state facilities within the ZEV package over proposals to pay for activities that are not core responsibilities, such as for paying for privately owned vehicles and charging stations. www.lao.ca.gov 1 2023-24 BUDGET OVERVIEW Roles and Responsibilities. DGS provides a Governor’s Proposed Budget. The Governor’s variety of services to state departments, such as budget proposes a total of about $1.7 billion procurement, management of state-owned and from various funds to support DGS in 2023-24. leased real estate, management of the state’s This amount reflects an increase of $210 million vehicle fleet, printing, administrative hearings, (about 14 percent) from the revised 2022-23 level. legal and fiscal services, development of building This net increase reflects the net effects of the standards, and oversight over school construction. expiration of one-time funding provided in previous The department generally funds its operations years and augmentations this year, some of which through fees charged to client departments. are described below. This brief provides our analysis of several of the Governor’s major proposals related to DGS. DEFERRED MAINTENANCE AND DIRECT DIGITAL CONTROL UPGRADES Background They are set such that operating costs, including overhead, are recovered on an annual basis. DGS Owns and Maintains Buildings Across In 2022-23, DGS rental rates for office space the State. DGS is responsible for managing generally ranged from $1.49 to $8.35 per square approximately 36.5 million square feet of space foot per month. Tenants in DGS-managed buildings that supports a variety of state programs and include a variety of state departments, some with functions. Of this amount, 13.2 million net usable budgets entirely supported by the General Fund square feet is attributable to 59 DGS-managed and others with budgets supported from special state office buildings; 2.4 million gross square feet funds (or a combination thereof). Tenants use the related to 23 other state-owned buildings, including funding in their budgets to make rental payments warehouses, storage, and parking structures; and to DGS, which are then deposited into the Service 20.9 million net usable square feet is associated Revolving Fund. with DGS-managed commercial leases of all space types. DGS buildings are located across the state, Previous Budgets Have Provided Significant with a significant presence in the Sacramento General Fund Support for DGS Deferred region, as well as other major metropolitan areas Maintenance Needs. When routine maintenance such as the San Francisco Bay Area and Greater activities are delayed or do not occur, we refer Los Angeles Area. to this as deferred maintenance. In 2022-23, DGS identified a deferred maintenance backlog DGS Funds Building Operating and of $581.5 million. Past budgets have repeatedly Maintenance Costs Through Charging Rental provided General Fund on a one-time basis Rates. DGS funds building maintenance costs, in to support DGS deferred maintenance needs. addition to other costs associated with operating Specifically, from 2020-21 to 2022-23, the state buildings, such as custodial and groundskeeping provided a total of $216.6 million General Fund to services, by charging monthly rental rates to the help DGS address its backlog, including projects for state departments that are tenants in these facilities. elevators and fire, life, and safety systems. Building rental rates are determined individually for each building based on the building’s condition and the region in which the building is located. 2 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Governor’s Proposal Unclear if All Proposed Direct Digital Control Upgrades Should Be Prioritized. DGS hired Funding for Fire, Life, and Safety System a firm to assess existing direct digital control Deferred Maintenance. The Governor proposes systems throughout the state. The firm issued its $20.4 million one time from the General Fund in report in September 2020, which assigned a low-, 2023-24 to replace fire, life, and safety systems in medium-, and high-priority system replacement eight buildings because they are at or nearing the rating to state buildings. Of the eight projects in the end of their useful life. Governor’s proposal, the report identified two—the Funding for Direct Digital Control Upgrades Elihu M. Harris Building and the Van Nuys State and Associated Positions. The Governor’s budget Building—as high-priority system replacement; one proposes $11.8 million annually from the General as medium to high; one as medium; and four as Fund for three years—a total of $35.4 million—to low. In fact, three of the low-priority replacements upgrade direct digital control systems in eight were identified as “up-to-date,” which the report buildings to improve operations and energy defines as the system components are currently efficiency. Direct digital control systems offer a manufactured and supported and that these are high level of control for building mechanical and essentially “new” systems where replacement electrical systems and can allow managers to does not make economic sense. In addition, the monitor trends in their building’s mechanical and report simply states that the building assigned electrical performance, thus increasing operational as a medium-priority system replacement has a and energy efficiency. In addition, the Governor proprietary system and is “somewhat outdated,” proposes four positions and $972,000 from the and that the building assigned as medium- to Service Revolving Fund for three years to establish high-priority system replacement has a proprietary a Statewide Energy Management Program for system and is approximately 20 years old. building management and controls. Accordingly, it is unclear from the report if Reversion of $92.5 Million General Fund the systems rated as lower than high-priority From Deferred Maintenance and Direct Digital replacement need immediate replacement or any Control Projects Approved in Prior Budgets. replacement for that matter. The Governor’s 2023-24 budget proposes to Proposed Reversions Raise Further revert $92.5 million General Fund for deferred Questions About DGS Prioritization of Direct maintenance and direct digital control projects Digital Control Projects. As part of the proposed included in the 2021-22 and 2022-23 budgets. $92.5 million reversion, DGS is proposing to revert (We note this is about 61 percent of the total $20.9 million for direct digital control projects that funding provided in those years.) DGS indicated are potentially in greater need of replacement that the department reduced spending on these than the ones that would be funded by the projects given the deterioration in the state’s Governor’s proposal. For example, funding for budget condition. three of the projects being reverted—California Assessment Tower, Governor Edmund G. “Pat” Brown Building, and Ronald Reagan State Building—are Proposed Fire, Life, and Safety Projects identified as high-priority replacements in the Appear Necessary. Fire, life, and safety systems firm’s report. In fact, the Ronald Reagan State typically have a life span of 10 to 15 years. With the Building is described as possibly being the “most exception of one fire, life, and safety system that is outdated” system in the DGS portfolio. Given 14 years old, all of the other projects requested in that the Governor’s proposal would be funding the Governor’s proposal are older than 15 years. several direct digital control projects identified Accordingly, it appears necessary to replace as low-priority replacement, it calls into question these systems. why DGS is prioritizing replacing those systems and if their proposal is truly addressing the highest-priority needs. www.lao.ca.gov 3 2023-24 BUDGET Actual Costs of Direct Digital Control Projects • First, this funding approach disconnects the Could Be Lower Than Proposed. DGS notes that rental rates paid by each tenant department the proposed costs to replace the direct digital from the costs of operating and maintaining control systems assume that all systems will be buildings, which reduces DGS’ incentive to be replaced in their entirety. However, DGS reports a good steward of its buildings. that the actual scope will be developed on a • Second, this approach places a project-by-project basis, and any functional system disproportionate share of costs on the General components that can be reused and integrated into Fund, rather than allocating some costs to the new system will be considered. Accordingly, the special funds that support some DGS the amount requested in the Governor’s budget tenants and therefore should bear some could exceed the actual costs to replace the of these costs. For example, one of these systems. Moreover, the firm’s report that assessed proposals requests $11.2 million to upgrade buildings’ direct digital control systems estimated the direct digital control system in the Elihu M. lower costs than what the Governor proposes in Harris Building in Oakland, California. The some cases. We recognize that the report is dated Department of Real Estate, which is almost September 2020 and inflation could account for entirely funded by its special fund, the some differences in cost, but the differences are Real Estate Fund, has a district office and significant. For example, the firm’s report estimated examination site in the building. Accordingly, that replacing the system at the Elihu M. Harris if DGS was budgeting for these upgrades as Building would cost $3 million to $5 million, while part of its rental rates, the Real Estate Fund— the Governor’s proposal requests $11.2 million for and not the General Fund—would be paying this specific replacement. The report also estimated for the department’s respective share of $950,000 to replace the system at the Van Nuys the upgrade. State Building, while the Governor proposes DGS Deferred Maintenance Backlog $2.2 million for this project. It is not clear whether Continues to Grow. Despite the repeated this difference is because the firm envisioned a less augmentations from the General Fund to support comprehensive replacement than DGS or whether DGS deferred maintenance needs over the the differences are due to other factors, such as years, DGS deferred maintenance projects grew poor cost estimation. Regardless, this suggests from $316 million in 2021-22 to $581 million in that there is uncertainty about the estimated cost of 2022-23. We recognize that DGS has recently each proposed project and it is possible that there taken steps to prioritize and categorize its deferred could be significant unspent funds. This is notable maintenance projects and that this increase may be because, if approved as proposed, DGS could end a consequence of a change in how the department up having unspent funds that it could redirect to identifies and catalogues its deferred maintenance other lower priorities with no legislative oversight. needs. However, whatever the cause, this increase General Fund Not an Appropriate Funding is problematic. This is because the increase Source to Support DGS Buildings on Regular suggests that DGS building rental rates are not set Basis. Building rates are intended to reflect the cost at the appropriate amount as they do not appear of operating and maintaining buildings. While the to be high enough to cover routine maintenance state has on occasion provided some General Fund costs, resulting in growth in the number of deferred support in the past for building maintenance, the maintenance projects. Moreover, when repairs to state currently is experiencing a budget problem, key building and infrastructure components are put where General Fund revenues already are insufficient off, facilities can eventually require more expensive to fund existing commitments. As a result, additional investments, such as emergency repairs (when spending proposed from the General Fund comes systems break down), capital improvements (such at the cost of already funded legislative priorities. as major rehabilitation), or replacement. Moreover, we find that it is not appropriate for DGS to rely on General Fund augmentations on a long-term basis to fund its deferred maintenance needs for two additional key reasons: 4 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Recommendations as low priority. This information would help the Legislature determine which projects are the most Approve Proposed Funding for Fire, Life, and critical, urgent projects and thus merit approval for Safety Systems. Ideally, DGS would have set rental 2023-24. Less urgent projects should generally be rates such that the Service Revolving Fund, rather planned for in advance and funded over a period of than the General Fund, could support the projects time through DGS’ rates structure. This approach proposed to replace fire, life, and safety systems. would more fairly apportion building costs across However, given (1) the immediate need for these various funds and also create better incentives for projects (as they are at or nearing the end of their DGS to be a good steward of its buildings. useful life) and (2) the amount of time it would take for rental payments to generate sufficient revenue Adopt Provisional Language to Limit Use of to pay for the projects, this is not a feasible option. Funding to Specific Projects. It is reasonable Accordingly, we recommend that the Legislature to think that the proposed direct digital control approve the proposed funding for the fire, life, and projects could cost less than estimated by DGS, safety systems. such as if some project costs are closer to the firm’s lower estimate in its report. Accordingly, we Approve Portion of Proposed Reversion. recommend that the Legislature adopt provisional We recommend the Legislature approve language that limits the use of any funding it $71.6 million of the $92.5 million proposed for chooses to provide to the specific facilities and reversion. This would revert all the proposed funds projects it chooses to approve. This will ensure that, except those associated with the high-priority if the specific projects that the Legislature approves direct digital control projects for the California are ultimately less costly than proposed, the unused Tower, Governor Edmund G. “Pat” Brown Building, funds would return to the General Fund rather than and Ronald Reagan State Building. As discussed allowing DGS to use the funds on other projects next, we recommend that the Legislature weigh that may be of less urgency. whether these projects are of greater priority than some of the direct digital control projects proposed Require DGS to Develop a Plan for Adjusting for funding. Rates to Address Deferred Maintenance Backlog and Reflect Actual Costs. We Withhold Action on Proposal for Direct Digital recommend requiring DGS to provide a plan to Control Upgrades, Direct DGS to Report on the Legislature by January 10, 2024 on how it will Prioritization. We recommend that the Legislature adjust rental rates going forward to incorporate withhold action on the proposed funding and building maintenance and needs. As part of positions for direct digital control upgrades and this plan, DGS should propose how to address require DGS to report at spring budget hearings the existing backlog of deferred maintenance on those projects that are in critical need of projects. The Legislature can then consider replacement. This is important given that DGS is how to move DGS toward more appropriately proposing to revert funding for some projects that funding its maintenance needs through rental have been identified as high-priority replacement, rates while addressing its considerable deferred while proposing funding for others identified maintenance backlog. www.lao.ca.gov 5 2023-24 BUDGET ELECTRIC VEHICLE SERVICE EQUIPMENT INFRASTRUCTURE ASSESSMENT AND FACILITY DEVELOPMENT Background funds, and $366 million from other special funds. Most of the funding is for continuing or expanding State Has Set Goals for Transitioning Fleet existing programs, such as rebates for purchasing to ZEVs. Chapter 628 of 2017 (SB 498, Skinner) vehicles and incentive payments for developing requires DGS to ensure that at least 50 percent charging infrastructure. of the light-duty vehicles purchased for the state fleet each fiscal year are ZEVs (such as electric Governor’s Proposal vehicles). Further, the Governor issued an executive Provides Funding for Installing Electric order setting statewide goals for phasing out Vehicle Service Infrastructure at State Facilities. gasoline-powered cars and trucks sold in California The Governor proposes $35 million from the by 2035 and medium- and heavy-duty trucks by General Fund over three years ($11.7 million in 2045, where feasible. In response, DGS plans to 2023-24, $11.7 million in 2024-25, and $11.6 million issue a statewide policy to require state agencies to in 2025-26) to perform installations of electric purchase 100 percent of their light-duty vehicles as vehicle service equipment infrastructure at zero emission by 2030. state-owned and leased facilities. We note this Office of Sustainability Works With State funding is being proposed separately from the Agencies to Manage Electric Vehicle Charging ZEV package discussed above. Infrastructure Installation. The Office of Reduces General Fund Spending on ZEV Sustainability within DGS supports state agencies Package and Backfills with Other Funds. in sustainability initiatives, including policies, The Governor proposes to reduce General strategies, programs, and projects for state Fund spending on the ZEV package by a total of buildings. For example, the Office of Sustainability $2.5 billion, including $1.5 billion in 2023-24, and supports state agencies in installing electric vehicle proposes to backfill some of these reductions by service infrastructure to charge both fleet and using $1.4 billion from discretionary GGRF revenues workplace electric vehicles, including initial site across three years, among other things. (For more assessment, design, construction management, on this proposal, please see the “Zero-Emission and technical support for electric vehicle Vehicles” section of our report, The 2023-24 infrastructure policy development. Budget: Crafting Climate, Resources, and 2021-22 and 2022-23 Budget Acts Included Environmental Budget Solutions.) $9.9 Billion for ZEV Package. The previous two budgets committed significant funding for programs Assessment intended to promote the purchase and use of ZEVs, Proposal Seeks to Advance the State such as funding for privately owned vehicles and Towards ZEV Goals, but Creates General Fund charging stations. Funding for this ZEV package Cost Pressure. The state has set ambitious is spread across five years, including $6.5 billion goals for transitioning the state fleet to ZEVs. already provided, and $2.1 billion intended for This proposal has merit because it would install 2023-24. The majority of this funding is from the additional charging infrastructure at state General Fund ($6.3 billion), but also includes facilities as agencies are adding more electric $1.6 billion from Proposition 98 General Fund (for vehicles to their fleet. However, the Governor’s school buses), $1.3 billion from the Greenhouse proposal would commit the state to $35 million in Gas Reduction Fund or GGRF (cap-and-trade discretionary General Fund expenditures, as the auction revenues), $307 million from federal 6 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET state could choose to install fewer chargers than proposals to pay for activities that are not core proposed; delay funding for a year; and/or rely on responsibilities included in the package, such as existing state-owned, public, or private charging paying for privately owned vehicles and charging infrastructure in the near term. Importantly, the state stations. Making room for this activity within the currently is experiencing a budget problem, where existing ZEV package would necessitate making General Fund revenues already are insufficient to deeper reductions to the programs currently fund existing commitments. In this context, every funded in the package if the Legislature wants to dollar of new spending comes at the expense of avoid an additional $35 million net General Fund a commitment the Legislature deemed a priority cost. However, we think such action could be and approved funding for, as it requires finding a justified to enable the state to comply with ZEV fleet commensurate level of solution somewhere within requirements and given budget constraints, as we the budget. The Governor “makes room” for this discuss in greater detail in The 2023-24 Budget: (and other) proposed new spending by making Crafting Climate, Resources, and Environmental reductions to funds committed for other programs. Budget Solutions. We therefore think the Legislature likely will want to Recommendations apply a higher bar to its review of new General Fund spending proposals such as this proposal than it Consider Funding Through ZEV Package. might in a year in which the General Fund had more In light of the fiscal climate, we recommend that capacity to support new commitments. In our view, the Legislature consider funding the costs for this proposal does not meet that higher bar for new this proposal within the existing ZEV package General Fund expenditures, especially as other rather than as a new additional General Fund funding options might exist, as discussed below. expenditure—though this could come at the expense of other intended ZEV expenditures. Could Make Sense to Add Proposal to ZEV (Our recommendations related to the overall Package. Given the General Fund condition and ZEV package can be found in The 2023-24 Budget: the fact that overseeing the state fleet is a core Crafting Climate, Resources, and Environmental state responsibility, the Legislature may want Budget Solutions.) to consider whether it should prioritize funding for this activity within the ZEV package over the OFFICE OF ADMINISTRATIVE HEARINGS (OAH) WORKLOAD Background evidence and recording, among others. The 2022-23 Budget Act includes $53 million—largely OAH Provides Administrative Hearings from the Service Revolving Fund, which receives for State and Local Entities. OAH, within the revenue from the various fees charged—for DGS, provides administrative law judges to hear operation of OAH. administrative disputes for over 2,500 state and local agencies. These judges conduct adjudicatory OAH Provides Administrative Hearings hearings, prehearing and settlement conferences, for Peace Officer Decertification Cases. and mediations. Statute requires that all OAH Chapter 409 of 2021 (SB 2, Bradford and Atkins) costs be recovered from the agencies it serves. established a process for the Commission on Peace Accordingly, OAH charges fees to state and local Officer Standards and Training (POST) to suspend agencies for the services it provides. In 2022-23, or revoke a peace officer’s basic certificate or OAH charged state and local agencies an hourly proof of eligibility for serious misconduct, such rate of $355. This rate will increase to $369 in as dishonesty related to an investigation or abuse 2023-24. In addition, OAH charges in-person or of power by intimidating witnesses. (For more virtual filing fees, as well as fees for electronic on peace officers’ basic certificate or proof of www.lao.ca.gov 7 2023-24 BUDGET eligibility, see the nearby box.) This decertification OAH Provides Administrative Hearings for temporarily (in cases of suspension) or permanently Cannabis-Related Cases. The Department of (in cases of revocation) makes a person ineligible to Cannabis Control (DCC) licenses and regulates be a peace officer in California. commercial cannabis activity, including the POST reviews allegations of serious misconduct cultivation, manufacture, sale, and transportation to determine whether decertification is warranted. of cannabis goods. DCC issues annual licenses Starting January 1, 2023, all agencies employing to applicants who have fulfilled all license peace officers must report to POST allegations requirements, including a completed application, of serious misconduct when they occur. Similarly, local permitting, and California Environmental by July 1, 2023, such agencies must report to Quality Act (CEQA) compliance. DCC also issues POST any allegations of serious misconduct that provisional licenses to certain applicants if they occurred from January 1, 2020 to January 1, 2023. have submitted a completed license application and In addition, beginning January 1, 2023, members were in the process of completing local permitting of the public can report allegations of serious processes and CEQA requirements. Under current misconduct directly to POST, including misconduct law, DCC is authorized to issue and renew certain that occurred prior to January 1, 2023. provisional licenses, with a gradual phase out until January 1, 2026, after which DCC can only issue The Peace Officer Standards and Accountability annual licenses and annual renewals going forward. Division reviews all allegations of serious As of February 6, 2023, DCC reported issuing misconduct to determine whether decertification 5,163 active annual licenses and 6,838 active is warranted. For cases in which the division provisional licenses. recommends decertification and the officer agrees with the recommendation, the case OAH is responsible for hearing four primary ends and the officer’s certificate or proof of types of cannabis-related cases: (1) an individual eligibility is suspended or revoked. If the officer appeal of a denial of an initial annual license contests a decertification recommendation, the or a renewal license, (2) discipline of an annual case is referred to the Peace Officer Standards licensee, (3) citations for unlawful activity by Accountability Advisory Board. If the board an annual licensee, and (4) administrative determines decertification is warranted, the case citations and civil penalty actions for unlicensed is referred to the POST commission, who will then activity. State law limits the ability of those who vote whether to decertify the officer. If the POST do not hold an annual license from appealing commission votes for decertification, the case is DCC decisions. For example, those denied a referred to an administrative law judge at OAH who provisional license are not entitled to a hearing will render the final decision. before OAH. The 2018-19 Budget Act included 26 permanent positions and $11.5 million from the Peace Officer Certification and Proof of Eligibility Existing state law requires peace officers (excluding certain classifications like correctional officers) to receive a basic certificate from the Commission on Peace Officer Standards and Training (POST). This certificate is issued by POST when officers have met all minimum standards and requirements, such as completing required training, passing background checks, and completing a probationary term of employment with their law enforcement agency (typically lasting 18 to 24 months after the date of hire). In addition, peace officers who do not have a basic certificate (typically officers completing their probationary terms and certain reserve officers) are required to obtain proof of eligibility (pre-certification) from POST. 8 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Service Revolving Fund on a two-year basis for the level of misconduct. Based on this research, cannabis workload at OAH. The 2020-21 Budget POST estimated that 3,500 serious misconduct Act extended the $11.5 million from the Service cases may rise to the level of decertification Revolving Fund for three years. OAH reports that annually, with approximately 300 to 350 being it spent approximately $364,000 on cannabis contested and a hearing set with OAH. Further, workload in 2021-22 and estimates it will spend POST estimates that there could be a higher $386,000 in 2022-23. caseload in the first year given that law enforcement agencies are initially required to report allegations Governor’s Proposal of serious misconduct that have occurred since Funding for Peace Officer Decertification January 1, 2020. By the end of January 2023, Workload. The Governor’s budget for 2023-24 POST reported receiving approximately proposes $650,000 annually from the Service 1,200 cases from law enforcement agencies and Revolving Fund and five permanent positions 6 public complaints. The Peace Officer Standards for workload associated with peace officer and Accountability Division was in the process of decertification hearings. (The Governor also reviewing these cases, prioritizing them based on proposes funding for POST to pay for peace officer public safety considerations, and processing them decertification cases filed with OAH. As OAH for serious misconduct actions. charges POST for its services, the proposed funds Several factors make it difficult to predict how will be deposited into the Service Revolving Fund. many cases will actually reach OAH because there For our analysis of this proposal, please see The are multiple points in the decertification process 2023-24 Budget: Commission on Peace Officer where a case may not proceed. For example, the Standards and Training—Office of Administrative officer may choose to voluntarily surrender their Hearing Costs.) certificate when the Peace Officer Standards Provisional Language Authorizing Increase Accountability Division finds that their case rises to in Budget for Peace Officer Decertification and the level of revocation or suspension. Further, in the Cannabis-Related Workload. The Governor also event that the officer requests a hearing, either the proposes provisional budget language authorizing Peace Officer Standards Accountability Advisory the Director of the Department of Finance (DOF) Board or the POST commission could decide to to increase OAH’s budget authority by up to reject the division’s decertification decision after $11.5 million from the Service Revolving Fund reviewing the facts and circumstances of the case. for three years for increased workload in OAH, In addition, it is difficult to predict what the including peace officer decertification hearings and trends in cases will be over time, especially in the cannabis administrative hearings. OAH indicates early years. POST’s expectation of an influx of that it is difficult to predict when the workload for cases in the first year because law enforcement these hearings might materialize, so the provisional agencies are required to report serious misconduct language would allow OAH to staff and scale its cases that have occurred since January 1, 2020 is capacity, as needed. reasonable, but it is difficult to estimate how large this influx will be. Conversely, it is reasonable to Assessment expect that POST could observe a reduction in Number of Decertification Cases That Will cases over time if suspensions and revocations Be Referred to OAH Is Uncertain. POST took through the decertification process change several steps to estimate the number of cases that behavior in peace officers and thus reduce the will reach OAH, including reviewing the number of number of serious misconduct cases. Again, complaints received by the California Department however, the precise size of the reduction is also of Justice on peace officer misconduct and difficult to estimate. surveying law enforcement agencies to estimate the number of investigations that might rise to www.lao.ca.gov 9 2023-24 BUDGET POST Is Still Building Its Capacity to Recommendations Process Cases. The 2022-23 Budget Act roughly Approve Positions and Funding on a doubled POST’s staffing to implement SB 2, and Limited-Term Basis for Peace Officer POST is still in the process of filling many of the Decertification Hearings. We recommend that the positions responsible for reviewing and investigating Legislature approve the five positions and $650,000 misconduct cases. As of January 2023, POST had from the Service Revolving Fund for these positions filled roughly one-third of its 16 positions in the on a three-year basis (rather than on an ongoing Intake and Disposition bureau, which is responsible basis as proposed by the Governor). Given the for analyzing and evaluating complaints received recent implementation of the decertification from the public and serious misconduct allegations process and POST’s ongoing efforts to build its received from law enforcement agencies. Further, staffing capacity, this will give POST and OAH more as of January 2023, POST had filled nearly half of time to process cases and track actual caseload the 51 positions across its four Decertification Unit data that can better inform future funding decisions. bureaus that are responsible for conducting the The administration can then submit a request for decertification investigations, prosecutions, and ongoing funding for legislative consideration as part administrative proceedings against peace officers. of the 2026-27 budget process. Providing these Given this, POST’s limited staffing could initially resources on a limited-term basis would also make reduce the number of cases reaching OAH until them expire at the same time as the provisional POST fills more of its positions. language proposed by the administration allowing Additional Workload May Materialize for augmentations for peace officer decertification Cannabis-Related Hearings. It is reasonable hearing workload. This would allow the Legislature to expect that OAH workload related to DCC to simultaneously reconsider the total level of will increase as more provisional licenses are funding necessary for this workload at that time. transitioned into annual licenses, as annual Require Legislative Notification of licensees have the ability to appeal DCC decisions Augmentations for Peace Officer Decertification to OAH. In addition, workload for cannabis and Cannabis-Related Hearings. We recommend administrative hearings could increase based on that the Legislature modify the proposed provisional the outcome of litigation currently filed in the trial language to require the Director of DOF to notify courts. Specifically, OAH indicates there is currently the Joint Legislative Budget Committee (JLBC) no a court case that is challenging the alleged lack later than 30 days before any funds are allocated of due process afforded those who are denied a to OAH under the language. We recognize that the provisional license as they currently have no right intent of this provisional language is to offer the to appeal this denial. If this case is decided in favor administration flexibility given the uncertain POST of those denied a provisional license, more people and cannabis administrative hearing workload. would have standing at OAH, which could result in However, requiring notification to the JLBC will additional workload. allow the Legislature to remain up to date on the Provisional Language Does Not Include augmentations of OAH’s budget and exercise Notification to Legislature. The proposed greater legislative oversight of OAH, POST, provisional language allows the Director of DOF to and DCC. increase OAH’s budget to fund increased workload but does not require notification be provided to the Legislature before these augmentations take place. This is problematic as it limits legislative oversight of OAH expenditures, the POST’s peace officer decertification process, and DCC’s decisions. 10 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET PROCUREMENT DIVISION DISPARITY STUDY Background Assessment DGS Oversees Statewide Procurement. Actual Costs Are Unknown, but Proposed DGS sets state procurement policies and promotes Funding Appears Notably High. To determine the small and disabled veteran business participation in level of funding requested in the Governor’s budget state contracting through outreach, certification, and for the disparity study, DGS reported reviewing costs education. Businesses that meet certain eligibility of disparity studies conducted by the California requirements, such as being a manufacturer with Department of Transportation and other states. fewer than 100 employees, can be certified as a The department estimated that the statewide small business. In addition, businesses that meet disparity study called for in AB 2019 would cost certain eligibility requirements, such as 51 percent of significantly more than the studies reviewed because ownership belonging to a disabled veteran, can be it includes a larger contracting and procurement certified as disabled veteran business enterprises. universe and statewide pool of vendors. Chapter 730 of 2022 (AB 2019, Petrie-Norris) The department also noted that California having a Requires DGS to Conduct a Disparity Study. much larger economy than other states also factored Assembly Bill 2019 requires DGS to contract for a into the cost difference. While a comparative analysis statewide procurement and contracting disparity can be helpful in determining estimated costs, it is study in order to guide outreach strategies, reasonable to assume that some costs are fixed state government program development, and and may not proportionally scale with increases improvements to contracting policies. The legislation in the contracting and procurement universe, the also requires the department to post a report with number of statewide vendors, and California’s the results of the study and implementation actions economy. Further, at the time AB 2019 was being taken in response to it by January 1, 2025. considered by the Legislature, the fiscal estimate of the bill indicated that it had an unknown fiscal impact Governor’s Proposal ranging in the hundreds of thousands of dollars for Funding for Statewide Procurement Disparity DGS to comply with the bill, including conducting Study. The Governor’s budget proposes $4.1 million the disparity study. For the above reasons, the one-time General Fund in 2023-24 for DGS to $4.1 million proposed in the Governor’s budget for conduct a statewide procurement disparity study as the study appears notably high. Appropriating more required by AB 2019. The department indicates that money to DGS than actually needed would make this funding would be used for contracting services it possible for the department to redirect funds not dedicated to conduct a statewide procurement and needed for the contract to other activities that may contracting disparity study and an analysis of total not be a priority for the Legislature. However, the dollars of state-funded contracts received by women actual costs of the study will not be known until DGS and minority-owned businesses. receives bids from contractors. Funding and Positions for Policy Development, Proposed Policy Development, Outreach, Outreach, and Application Processing. The and Application Processing Activities Appear Governor’s budget also proposes $425,000 from Reasonable. The proposed activities to develop the Service Revolving Fund (decreasing to $162,000 policies and training materials, expand outreach, annually in 2025-26) to support one permanent and increase capacity to process small business and position, one position for two years, and a one-time disabled veteran business enterprise applications retired annuitant. These positions would develop appear reasonable to implement the requirements procurement policy and training materials, expand in AB 2019. outreach efforts to certain small businesses and disabled veteran business enterprises, and process additional certification applications. www.lao.ca.gov 11 2023-24 BUDGET Recommendations the actual costs are not yet known and that the proposed level of funding appears notably high, we Approve Proposal but Include Provisional recommend that the Legislature adopt provisional Language to Revert Unspent Funds. Conducting language specifying that the $4.1 million shall only a procurement and contracting disparity study is in be used to conduct the disparity study and that any line with the Legislature’s expectations expressed unspent funds shall revert to the General Fund and in AB 2019. Accordingly, we do not raise concerns be available for other state priorities. with the proposed funding. However, given that OFFICE OF STATE PUBLISHING (OSP) NEW WAREHOUSE LEASE AND OPERATIONS Background the Service Revolving Fund for OSP to lease ($1.1 million) and operate ($164,000) its new OSP Provides Printing, Communication, and warehouse facility located in West Sacramento. Document Management Services. OSP provides printing, marketing, and document management Assessment services to state agencies, cities, counties, and Ongoing Need for Lease Is Uncertain. schools. For example, state agencies can request The lease for the new warehouse facility began mass printing and mailing of outreach items, such on July 1, 2022, with the option to continue or as letters and postcards. To fulfill its printing service terminate the lease after 2025-26. According to requirements, OSP purchases and maintains a OSP, paper suppliers estimate that ongoing market stock of paper and related printing supplies. disruptions will continue for at least the next two OSP Started a Lease for a New Warehouse to three years. However, it is unclear if paper in July 2022 Prior to Requesting Budget supply chain issues will continue after this time and Authority. Starting in July 2022, OSP leased therefore if there will be a continued need for this approximately 82,000 square feet of warehouse additional warehouse space. OSP plans to monitor space in West Sacramento to store additional the paper supply market, and if OSP determines paper commodities and related materials, such as that returning to a just-in-time ordering model is pallets of paper and ink. Previously, OSP operated sustainable by the end of the lease term, then under a “just-in-time” ordering model whereby OSP OSP indicates it will terminate the remainder of the received most paper deliveries directly from the lease and vacate the facility. supplier within two to four weeks from ordering. DGS Did Not Notify Legislature Prior to However, over the past few years, OSP reports that Entering Into Lease. Under existing state law, paper supply industry consolidations, COVID-19 DGS is required to notify the JLBC at least 30 days pandemic supply chain issues, and geopolitical before entering into a lease agreement between events increased lead times for placing orders the state and another public or private entity with suppliers. As a result, OSP began making if a state agency will be the occupant and the advanced supply orders to ensure adequate paper proposed lease would require an increase in a and printing materials were available for printing department or agency’s support budget. We are services, which required additional warehouse not aware of DGS providing any such notification space for storage. to the JLBC prior to entering the lease for the new Governor’s Proposal warehouse on July 1, 2022. This significantly limits the Legislature’s discretion, particularly since Funding for Lease and Operation of New the lease agreement that DGS entered into now Warehouse Facility. The Governor’s budget requires an increase in OSP’s budget. for 2023-24 proposes $1.3 million annually from 12 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET Recommendations request for resources for legislative consideration as part of the 2026-27 budget process, if needed. Approve Funding on a Limited-Term Basis. We also recommend the Legislature require We recommend that the Legislature approve the DGS report at spring budget hearings on why funding on a three-year basis (rather than on an notification was not provided to the JLBC prior to ongoing basis as proposed by the Governor). the department entering into the lease for the new The ongoing need to store an increased supply warehouse. Going forward, it is important for the of printing materials is uncertain and OSP has department to adhere to this statutory requirement the option to terminate the lease after 2025-26. to ensure sufficient legislative oversight. The administration can reassess the ongoing need for the warehouse space at that time and submit a www.lao.ca.gov 13 2023-24 BUDGET 14 LEGISLATIVE ANALYST’S OFFICE 2023-24 BUDGET www.lao.ca.gov 15 2023-24 BUDGET LAO PUBLICATIONS This report was prepared by Jared Sippel, and reviewed by Drew Soderborg and Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 16 LEGISLATIVE ANALYST’S OFFICE