Legislative Analyst's Office

Analysis of the 2001-02 Budget Bill

Department of General Services (1760)

The budget includes $131 million for the Department of General Services (DGS) capital outlay program. This amount includes $0.8 million in general obligation bonds for continued management of projects to improve the earthquake safety of state buildings, and $130 million from the General Fund for:

24 seismic retrofit projects at prisons and state hospitals ($28 million, including project administration).
Food and Agriculture Building renovation, 1220 N Street, Sacramento ($21 million).
Food and Agriculture Annex renovation, 1215 O Street, Sacramento ($2 million).
Partial acquisition of the Capitol East End Complex in Sacramento ($22 million).
Office Building 8 renovation, 714 P Street, Sacramento ($2 million).
Office Building 10 renovation, 721 Capitol Mall, Sacramento ($2 million).
Acquisition of the Mission Valley State Office Building in San Diego ($40 million).
Bonderson Building renovation ($13 million).

State Building Seismic Retrofit Program

The DGS administers the state's seismic retrofit program in order to decrease the risk to life resulting from major earthquakes by rehabilitating state-owned buildings. In June 1990, the voters passed Proposition 122—the Earthquake Safety and Public Buildings Rehabilitation Bond Act—that provided $300 million in general obligation bonds for the purpose of earthquake safety improvements. The act allocated $250 million for state buildings (excluding higher education programs) and $50 million for matching grants for local government buildings. Provisions of the bond act specify purposes for which the proceeds can be used, including the retrofit, reconstruction, repair, replacement, and relocation of state and local buildings found seismically deficient.

The budget includes requests totaling $28 million from the General Fund and $823,000 from the seismic bonds for 24 seismic retrofit projects of various state-owned facilities and administrative costs for the department. This represents a decrease of almost $15.3 million from the current year for the program. The current-year funding, however, is from the bonds, not the General Fund. The budget includes the following proposals:

$16.6 million for various phases of design and construction of eleven projects to retrofit buildings at four institutions for the Department of Mental Health.
$6.7 million for various phases of design and construction of nine projects to retrofit buildings at six prisons for the Department of Corrections.
$3.4 million for various phases of design and construction of three projects to retrofit buildings at two centers for the Department of Developmental Services.
$540,000 to retrofit the Administration building at the Yountville Veterans' Home.
$1.6 million for administration of the program.

Existing General Obligation Bonds Should Be Used to Fund Projects

We recommend the Legislature fund seismic retrofit projects using existing general obligation bonds rather than the General Fund.

The budget proposes to fund all 24 seismic retrofit projects from the General Fund at a cost of $27.3 million even though around $29.5 million of the general obligation bonds are still available. These bonds can only be used to improve the earthquake safety of state buildings. Thus, we recommend the Legislature use bonds to finance the highest priority projects and the General Fund for remaining high priority seismic retrofit projects and other statewide capital outlay needs. This combination of using available bonds and the General Fund will maximize the state's available resources.

Recommended Reserve for Currently Authorized Projects. Because of the nature of the seismic retrofit projects, we believe it is prudent to reserve a portion of the bonds to fund potential project cost increases. These increases can occur because of such things as higher construction bids or unexpected conditions in the building to be retrofitted. To cover this potential, we recommend setting aside 10 percent of the amount appropriated for projects which have not been bid. Based on available information, this would mean setting aside $2.8 million, leaving $26.7 million to appropriate for projects.

Bond Funding for Previously Approved Projects

We withhold recommendation on eight proposed projects totaling $13.3 million pending receipt of preliminary plans. If the plans are received, we recommend the Legislature shift the funding from the General Fund to general obligation bonds.

The budget includes $13.3 million from the General Fund for eight projects, as detailed in Figure 1. These are projects the Legislature has previously approved and appropriated bond funds for design of the retrofit work. These projects should proceed if preliminary plans have been completed and are available for legislative review. There are sufficient bond funds to complete these projects. Therefore, pending receipt of the preliminary plans, we recommend the Legislature fund these projects—but using bonds rather than the General Fund.

Figure 1
State Building Seismic Retrofit Program Preliminary Plans Not Completed
(In Thousands)
Item 1760-301-0001	Project Description	Phase ^a	Budget Amount
(8)	Metropolitan State Hospital—main kitchen	W; C	$3,721
(9)	Yountville Veterans' Home— administration building	W; C	540
(10)	Metropolitan State Hospital—laundry	W; C	1,392
(11)	Napa State Hospital—Building 199 Unit 2	W; C	2,351
(13)	Correctional Treatment Facility— hospital Wing Q	W; C	2,288
(14)	California Men's Colony—administration Building A	W; C	874
(15)	Deuel Vocational Institution— hospital building	W; C	804
(16)	California Correctional Institution— Dorms E1, E2, E3, E4	W; C	1,378
	Total		$13,348
^aW= working drawings and C = construction.

Proposed Expenditure of Remaining Bonds

We withhold recommendation on 15 additional projects until the department revises the project priorities.

The state is divided into two areas of seismic activity—Seismic Zone 3 (lower risk of seismic activity) and Seismic Zone 4 (greater risk of seismic activity). Areas within Zone 3 include much of the Central Valley and northern half of the state. Zone 4 consists of all other areas, including the San Francisco Bay Area, most of the coastal region, and significant portions of Southern California. The Governor's budget proposes to fund projects in Zone 4 only, while other buildings with larger occupancies located in Zone 3 would remain unfunded. The state has funded buildings with a seismic risk level V or VI, as determined by the DGS, in both zones based on relative priority. Given program spending to date, the state has funded all risk level VI buildings.

In the past, the DGS has set priorities for retrofitting buildings using code occupancy (that is, the maximum number of people allowed by building regulations), rather than actual occupancy. Given the limited amount of remaining bond funds, we believe the past method for setting priorities should be refined. This would help ensure that those buildings posing the highest risk to life will be addressed. To accomplish this, DGS should establish a priority list based on the actual number of people who use the building and on the amount of time those individuals are in the building, rather than the code occupancy. The priority list should include all unfunded seismic risk level V buildings (see Figure 2), including the 15 proposed in the budget and the 11 not included in the budget. This will give the Legislature the relative priority of all risk level V buildings with the greatest actual threat to life in both Zone 3 and Zone 4. The remaining bond funds could then be used for the highest priority projects for which design and construction can be completely funded under the bond program. The Legislature could also consider which of the remaining projects should be funded from the General Fund. Consequently, we withhold recommendation on the 15 projects in the budget pending receipt of the refined priority list.

Figure 2
State Building Seismic Retrofit Program Level V Buildings in Zones 3 and 4
(In Thousands)
Item 1760-301-0001	Project Description	Phase ^a	Budget Amount	Total Cost
Funded in Budget
(18)	Lanterman State Hospital—Building B50	S; P	$852	$18,400
(19)	Patton State Hospital—Building 30 A-E	S; P	336	5,063
(20)	Patton State Hospital—Building 70 A-E	S; P	336	5,063
(21)	Patton State Hospital—Building N Residence Hall	P; W; C	7,665	16,520
(22)	California Medical Facility—Administration Building A	S; P	219	3,179
(23)	San Quentin State Prison—Building 43	S; P	324	4,872
(24)	Metropolitan State Hospital—Vocational Rehabilitation Building	P; W	389	2,560
(25)	California Correctional Institution—Dorms F5, F6, F7, F8	S; P	286	1,488
(26)	California Medical Facility—Housing Wing U	S; P	284	1,476
(27)	Sonoma Developmental Center—Multi Purpose Complex	P; W	165	578
(28)	Correctional Treatment Facility—South Dorm C, D, E	S; P	221	1,122
(29)	Metropolitan State Hospital—Ward 306	P; W	101	839
(30)	Metropolitan State Hospital—Volunteer Center	S; P	169	828
(31)	Atascadero State Hospital—East-West Corridor	S; P	74	295
(32)	Metropolitan State Hospital—Ward 313/315	S; P	113	515
Unfunded
(—)	General Services—Office Building 9	—	—	$9,000
(—)	General Services—Office Building 8	—	—	9,000
(—)	Military—Stockton Armory	—	—	1,884
(—)	California Conservation Center—Vocational Building F	—	—	1,791
(—)	General Services—Fresno State Office Building	—	—	2,000
(—)	Correctional Treatment Facility—Vocational Building VS 1	—	—	1,260
(—)	Sierra Conservation Center—Dining	—	—	720
(—)	General Services—Stockton Office Building	—	—	2,828
(—)	Sierra Conservation Center—Hospital/Education Building E	—	—	1,512
(—)	Sierra Conservation Center—Dining Rooms Building F	—	—	1,530
(—)	Sierra Conservation Center—Gymnasium/Canteen	—	—	954
	Totals		$11,534	$95,277
^aS = study; P = preliminary plans; W= working drawings; and C = construction.

Program Administration Fees Should Be Reduced

We recommend the Legislature reduce the amount of funding provided for program management by $823,000 because the department has not substantiated a need for increased funding. (Delete Item 1760-301-0768 [1].)

The budget includes a total of $1.6 million for management of the seismic retrofit program, which includes $27.3 million of project funding. In contrast, the department received $818,000 in the 2000-01 Budget Act in order to administer $43.3 million of funding for the program. The department has provided no information to substantiate the increase in funding. It is not clear why the cost to administer fewer projects would cost nearly twice as much in the budget year. Consequently, we recommend the Legislature delete $823,000 under Item 1760-301-0768 (1).

Retrofit of Developmental Centers

We withhold recommendation on $2.4 million to retrofit one building and recommend that, before authorizing funds to retrofit any buildings at the developmental centers, the Legislature determine whether the state-owned facilities will continue to be occupied and if a state-operated acute care hospital should continue to be operated.

The budget includes $3.4 million from the General Fund for three projects at state-owned developmental centers. First, a request for $2.4 million is included for working drawings and construction to retrofit the Porter Administration Building at the Sonoma Developmental Center. The Legislature appropriated funds for preliminary plans for this project in the 2000-01 Budget Act, and this project should proceed only if preliminary plans have been completed to validate the construction cost. Second, a total of $852,000 is requested for a study and preliminary plans to retrofit the hospital building B50, an acute care hospital, at the Lanterman Developmental Center. Finally, the budget includes $165,000 for preliminary plans and working drawings for the Multi-Purpose Complex at the Sonoma Developmental Center. The estimated future costs for these projects are $17.5 million (hospital building B50) and $413,000 (Multi-Purpose Complex).

In response to legislative action, the Department of Developmental Services (DDS) is currently considering restructuring its service delivery and potentially closing the developmental centers. The department has been directed to report to the Legislature on this issue by March 2001. (We discuss this further under the DDS capital outlay program, in this Analysis.) Prior to funding retrofit projects for the developmental centers, the Legislature should determine if the centers will remain in operation and if the buildings will continue to be occupied.

Also, as part of the developmental center restructuring, the Legislature should determine whether hospital building B50 at the Lanterman Developmental Center will continue to be operated. Continued operation of acute care hospitals at the centers is costly, especially as the client population is reduced. The high operational cost, coupled with the cost to seismically retrofit an acute care hospital, specifically warrant legislative review.

Given the uncertainty of whether the centers will remain open, we withhold recommendation pending resolution of the developmental center restructuring process.

Other Issues

Food and Agriculture Building Renovations

We recommend deletion of $20.8 million for the Food and Agriculture Building Renovation, 1220 N Street in Sacramento and $2 million for the Food and Agriculture Annex Renovation, 1215 O Street in Sacramento because of several unanswered questions. (Delete $20.8 million from Item 1760-301-0001 [1] and $2 million from Item 1760-301-0001 [4].)

The budget proposes (1) $20.8 million from the General Fund for construction to renovate the 127,000 gross square feet (gsf), four-story (plus basement) Food and Agriculture Building at 1220 N Street in Sacramento and (2)a$2 million from the General Fund for preliminary plans and working drawings to renovate the 113,000 gsf four-story Food and Agriculture Annex at 1215 O Street in Sacramento (future construction cost of $15.4 million). Approximately one third of the 1220 N Street building is currently vacant.

In November 2000, DGS notified the Chair of the Joint Legislative Budget Committee of its intent to vacate both buildings and relocate the Department of Food and Agriculture (DFA) to a leased office building at 2020 L Street for 7 to 12 years at a cost of $3.2 million annually. The Chair did not agree with the proposal and advised the administration that the proposed $38 million renovation projects be considered through the budget process.

The proposed renovations raise a number of issues that need to be addressed by the administration before the Legislature appropriates funds for these projects. For example:

Governor's Permanent Residence Site. The Legislature delayed funding to renovate the 1220 N Street building because of the potential to locate a Governor's permanent residence on the site. This issue needs to be resolved before spending $45 million to renovate these buildings.
Need to Relocate the Department. About 30 percent of the 1220 N Street building is vacant. The original plan for alterations of this building did not include relocating the department during alterations. It is not clear why the administration now proposes to relocate the department to lease space for a period of 7 to 12 years.
Food and Agriculture Annex. This building is owned by the DFA and alterations of the building should be funded by the Agricultural Fund not the General Fund.
Uncertain Renovation Work in Annex Building. The DGS has not prepared a definitive scope of work nor a cost estimate for renovating the annex. The DGS should detail the proposed scope of work and an associated cost estimate.
Coordination of Proposed Renovations. The DGS has not described how these renovation projects will be undertaken and how the work in the adjoining buildings will be coordinated. The entire renovation plan for the two buildings should be available to ensure that the final renovations will result in efficient use of the buildings for the departments that ultimately occupy them.
Future Use of Renovated Buildings. The DGS has not provided any information on the planned use of these buildings after the proposed renovations. Prior to spending tens of millions of dollars in renovations, the department should advise the Legislature of the planned occupants, how the renovations will accommodate these occupants and where these occupants are currently located, and if there are other costs associated with relocating them to these buildings.

In view of the number of issues the administration needs to address, we recommend the Legislature delete the proposed funding for these projects. If these uncertainties are resolved, renovation proposals may warrant legislative consideration.

Capitol Area East End Project

We recommend deletion of $22.2 million (General Fund) for buyout of the private-use portion of the project and recommend the buyout be funded in separate legislation that also reduces the total authorized cost of the project by $22.2 million. (Delete $22.2 million from Item 1760-301-0001 [2].)

Chapter 761, Statutes of 1997 (SB 1270, Johnston), authorized construction of the East End project at a cost not to exceed $392 million, to be financed by the sale of lease-payment bonds. The department has since determined that the tax-exempt status of the lease-payment bonds may be jeopardized because the project parking garage may be used for private purposes after normal business hours and such use could result in the project exceeding the amount of private use of the facilities permitted by Internal Revenue Service regulations. To address this concern, the budget proposes to purchase the garage portion of the project with a General Fund appropriation of $22.2 million.

Our concern with this proposal is that it does not provide a reduction in the amount of lease-payment bonds that could be issued to finance the project to correspond to the amount proposed to be paid from the General Fund. In order to be consistent with the requirement of Chapter 761 that the cost of the project cost not exceed $392 million, we recommend legislation be enacted limiting the amount of lease-payment bonds that may be issued to finance the project to $369.8 million. We recommend the budget proposal of $22.2 million General Fund be deleted, and separate legislation be enacted appropriating $22.2 million General Fund for the project and reducing the amount of lease-payment bonds that may be issued to $369.8 million.

Also, Chapter 761 gives the administration the authority to augment the $392 million by up to 10 percent. Since DGS has awarded the contracts for these buildings there should no longer be a need to increase the costs. Therefore, we recommend the Legislature eliminate the authority to administratively augment the East End project.

In addition, we recommend the Legislature consider funding the $369.8 million balance from the General Fund rather than with lease-payment bonds.

Projects With Inadequate Cost Estimates

We recommend deletion of $1.9 million for renovation of Office Building 8, 714 P Street in Sacramento and $2.2 million for renovation of Office Building 10, 721 Capitol Mall in Sacramento because the proposals are based on both inadequate project information and cost estimates. (Delete $1.9 million from Item 1760-301-0001 [5] and delete $2.2 million from Item 1760-301-0001 [6].)

The Governor's budget includes $1.9 million from the General Fund for preliminary plans to renovate the state office building located at 714 P Street (Office Building 8) currently occupied by the Department of Health Services. The budget also includes $2.2 million for preliminary plans and working drawings to renovate the state office building located at 721 Capitol Mall (Office Building 10) currently occupied by the Department of Education. The DGS estimates future costs to renovate these buildings at $50.3 million and $25.1 million, respectively.

The Departments of Health Services and Education are scheduled to vacate these buildings and occupy new buildings in the complex referred to as the "East End Project" that are under construction. Thus, these buildings may need to be renovated to some degree for new occupants. It is our understanding that DGS has completed an evaluation of Office Building 10 and is in the process of evaluating Office Building 8, but the actual renovation work to be undertaken and associated costs are not available. For example, DGS has not provided information on (1) the extent of or justification for planned renovations, (2) a cost estimate for the proposed renovations, or (3) the departments planned for future occupancy of these buildings and any costs that may be associated with relocating departments to these buildings. Because of the lack of information the amount proposed in the budget as well as the estimated future costs of renovation are based on "conceptual" estimates.

In view of the lack of this basic information on the proposed renovation projects , we recommend the Legislature delete a total of $4.1 million requested for these projects.

Bonderson Building Preliminary Plans Not Complete

We recommend deletion of $13.2 million for construction to renovate the Bonderson office building in Sacramento because preliminary plans are not complete and there is no basis for verifying if the project is within scope and budget. (Delete $13.2 million from Item 1760-301-0001 [3].)

The budget proposes $13.2 million from the General Fund for construction to renovate the 140,000 gsf, four-story Bonderson office building in Sacramento. Renovation includes reroofing, repairs, architectural improvements, fire and life safety, handicapped accessibility corrections, and tenant improvements. The 2000-01 Budget Act includes $841,000 for preliminary plans and working drawings for the project. We recommend the Legislature not appropriate funds for construction until preliminary plans are complete and it can be verified the project is within legislatively approved scope and budget. Preliminary plans have not been completed for this project and according to DGS's project schedule the plans will not be completed until June. Thus, the plans will not be available for the Legislature. In addition, the schedule shows that working drawings will not be completed until April 2002—four months behind DGS's schedule last year. In view of the lack of information for legislative review and the status of the project, we recommend the Legislature delete the $13.2 million request for construction.

Return to Capital Outlay Table of Contents, 2001-02 Budget Analysis