Legislative Analyst's Office

Analysis of the 2001-02 Budget Bill

Department of General Services (1760)

The Department of General Services (DGS) is responsible for providing a broad range of support services to state departments and performing management and oversight activities related to these services. It provides these services through three programs: statewide support, building regulation, and real estate services.

The Governor's budget proposes total expenditures of $845 million from various funds (including $62.4 million from the General Fund) to support the activities of DGS in 2001-02. This is a General Fund decrease of $7.3 million, or 10 percent, below estimated current-year expenditures.

Building Regulation Services. Proposed budget-year expenditures for these services are $36.1 million, or $0.3 million more than the current-year level. The major change in this program budget is the addition of 11.4 personnel-years (PYs) and $0.9 million to meet workload requirements of Chapter 407, Statutes of 1998 (SB 50, Greene) in the Office of Public School Construction.

Real Estate Services. Proposed budget-year expenditures for these services are $397.4 million, or $12.1 million more than the estimated current-year level. Major increases in the budget include:

These increases were offset in part by a reduction of $5.7 million and 57 PYs in the Building and Property Management Branch as a result of not providing property management services at the new CalEPA leased facility in Sacramento.

Statewide Support Services. Expenditures for statewide support services are $386.5 million in the budget year which represents an increase of $20.7 million, or almost 6 percent, over estimated current-year expenditures. The amount includes several small program increases and reductions. The largest requested increase is $31.7 million for local assistance to enhance 911 wireless services.

Building Regulation Services

Positions in Division of State Architect (DSA) Should Be Reported in Budget

We recommend the Legislature adopt supplemental report language directing the Department of Finance to report all positions in the Division of the State Architect in the Governor's budget.

The 2000-01 Salaries and Wages Supplement (the latest one available) indicates that 17.5 positions were proposed in DSA. The DSA has informed us, however, that it currently has 163 authorized positions. The division explains that the reason it does not report approximately 140 positions is because they are funded out of the Public School Planning, Design, and Construction Review Revolving Fund from fees paid by school districts for review of plans for school building construction, and that these funds are continuously appropriated under Government Code Section 17301. It is not clear to us that the fact positions are funded from continuously appropriated funds is justification for not reporting them in the Governor's budget. The Legislature needs this information so it can understand the number of employees in each state organization and make informed decisions on budget proposals. We therefore recommend the Legislature approve supplemental report language directing the Department of Finance (DOF) to report all authorized positions each year in the Salaries and Wages Supplement to the Governor's budget.

Provision for Loan to Support DSA Is Not Needed

We recommend deletion of budget language authorizing a loan of up to $4 million from the Service Revolving Fund to the Public School Planning, Design, and Construction Review Revolving Fund for support of the Division of the State Architect because it is not needed. (Delete Item 1760-001-0066, Provision 3.)

The budget proposes authorization for the Director of DGS to loan up to $4 million from the Service Revolving Fund to the Public School Planning, Design, and Construction Review Revolving Fund ("plan review fund") to meet the cash flow needs of DSA. Revenue to the plan review fund normally comes from fees charged by DSA for checking school building plans as required by the Field Act (Education Code Sections 17281 et seq.). The fund supports the engineering and construction inspection positions in DSA that perform this oversight work. A provision similar to this proposal was approved by the 1995-96 Budget Act and has been approved by each subsequent budget act.

We question the need for this provision for two reasons. First, it has not been needed in the past. The provision was first approved when the amount of school construction was less than it is today and it was questionable whether the condition of the plan review fund was adequate for the cash flow needs of DSA. The authorization, however, has never been used. As there is now more school building construction taking place and more revenue flowing to the plan review fund, its condition is sufficient for the needs of DSA.

Second, we question the potential use of the Service Revolving Fund to support DSA's school building plan review and inspection staff. If the amount of school construction should decline in the future, staffing levels in the division should be reduced accordingly. For these reasons, we recommend that the loan provision be deleted.

Real Estate Services

Cost—and Cost of Living—Should Be Considered When Locating State Offices

The cost for the state to lease office space in the Bay Area is considerably higher than elsewhere in California, as is the cost of housing for state employees. We recommend the Legislature direct the Department of General Services to relocate state offices in high-cost areas that are not needed to serve the local community to less expensive areas when the current leases can be canceled.

The state owns over 1 million gross square feet (gsf) of office space in San Francisco and leases over 300,000 gsf in privately owned buildings. Agencies occupying state-owned buildings are not affected by the local rental market but those in leased space are. Recent leases executed by DGS for office space in the Bay Area—especially San Francisco—have been at rates that are high compared to those for similar office space elsewhere in the state. When offices are needed in San Francisco to serve the public in that community or are required by law to be located there, these high costs are basically unavoidable. But if it is not necessary to have state employees working in leased space in San Francisco, the state can realize savings by locating those state offices elsewhere, or relocating them to state-owned buildings in San Francisco.

Figure 1 summarizes some recent leases in San Francisco. At the time these leases were proposed (during the first six months of 2000), the DGS estimated that comparable office space was available in San Diego, Los Angeles, and Sacramento for between $1.80 and $2.60 per net usable square foot (nusf). Thus, the state paid between 50 percent and 150 percent more to lease office space for these agencies than may have been necessary if their offices had been located in other cities.

Figure 1

Recent Office Leases in San Francisco
Executed by Department of General Services

Tenant Agency

Size of
Office a

Initial Lease Rate b

Firm Term
of Lease

Lease Rate at End of Termb

Department of Insurance





Coastal Commission





San Francisco Bay Conservation and Development Commission





a Net usable square feet (nusf).

b Dollars per nusf per month.

The department reported in December 2000 the range of market rates for office leases in different cities shown in Figure 2. The figure shows that office lease costs in San Francisco are now 50 percent to over 400 percent more than in these other cities.

Figure 2

Current Market Range for
Office Leases


Market Range
(per net usable
square foot)

San Diego

$2.20 to $2.75

Los Angeles

1.75 to 2.50


1.50 to 3.00

San Francisco

4.50 to 8.00

It may not have been necessary for the agencies shown in Figure 1 to be located in San Francisco. Specifically:

Cost of Housing for State Employees. When locating state offices, there is also the issue of living costs for state employees. Among the most important of these is the cost of housing. Figure 3 shows for major metropolitan areas the median sale prices of single family detached homes and the percentage of California families that could afford a median priced home. With San Francisco home prices two to three times higher than other urban areas, it is not surprising that many state employees find it difficult to live and work in San Francisco.

Figure 3

Housing Prices and Affordability

Metropolitan Area

Median Sale Price, Single Family Detached Home (November 2000)

Percentage of California Families That Could Afford Median-Priced Home (October 2000)

San Diego



Los Angeles






San Francisco



State Agencies Currently Leasing Office Space in San Francisco. Figure 4 shows state agencies currently leasing 10,000 nusf or more of office space in San Francisco and the date the state's firm commitments under the lease expire.

As previously discussed, DGS has recently signed long-term leases for the California Coastal Commission, DOI, and San Francisco Bay Conservation and Development Commission offices shown in Figure 4 and the state cannot relocate these agencies in the near term. In the other cases, however, the department should endeavor to relocate the state functions unless the function (1) is necessary to serve the local community or (2) is required by law to be in San Francisco.

Because of the high cost of leasing office space and the high cost of living for state employees in San Francisco, we recommend the Legislature direct DGS to:

Figure 4

State Agencies Leasing 10,000 Net Usable Square Feet
Or More of Office Space in San Francisco

Department or Agency

Space Leased

Lease Expiration Date a

California Coastal Commission


April 2010



May 2002

Employment Development

185 Berry Street


November 1998

3120 Mission Street


April 2001

1625 Van Ness Avenue


May 2006

1700 California Street


August 2001

Financial Institutions


April 1996

Habeas Resource Center


July 2003

Health Services


June 1997



April 2010



March 2003

State Public Defender


September 1999



November 1997

San Francisco Bay Conservation and Development Commission


March 2010



July 1997

a Date firm term expires, after which lease is extended but can be canceled upon giving notice as required by lease agreement.

Reagan Building Costs Should Be Deleted From Statewide Building Rental Rate

We recommend the Legislature approve budget bill language directing the Department of General Services to treat the Ronald Reagan Building in Los Angeles the same as other bond-funded buildings by excluding it from the statewide standard building rental rate and adjust all affected building rates accordingly.

The DGS charges state agencies that are tenants in most DGS-owned buildings a statewide "standard building rental rate" to cover the cost of operating and maintaining those buildings. In calculating the standard rate, with certain exceptions, the department totals all operation and maintenance expenses for DGS-owned buildings statewide and divides that total by the total nusf of space occupied statewide by agencies in DGS-owned buildings to arrive at a single dollars-per-nusf-per-month rate.

Excluded from this calculation are the buildings shown in Figure 5. These buildings have individual building rental rates calculated and charged to tenant agencies because, in addition to operation and maintenance costs, these buildings were constructed with funds from lease-payment bonds whose repayment must be amortized by rent payments.

Figure 5

Building Rental Rates for DGS-Owned Buildings Financed With Lease Payment Bonds


2000-01 Office Space Building Rental Rate a

Elihu Harris, Oakland


Junipero Serra, Los Angeles


Cal Tower, Riverside


Mission Valley, San Diego


Attorney General, Sacramento


Civic Center, San Francisco


a Dollars per net usable square foot per month.

b Rates not available because construction has just recently been completed.

One building financed by lease payment bonds, however, is included in calculation of the standard building rental rate. This is the Ronald Reagan Building in Los Angeles. Bond debt and insurance on the Reagan building adds almost $18 million per year to the expenses used to calculate the standard building rental rate, which increases the rent charged all state agencies in most DGS-owned buildings from about $1.52 to $1.83 per nusf per month.

We recommend that the state treat the Reagan building in the same manner as the other seven lease payment bond-financed buildings shown in Figure 5. This would result in a reduction of about 30 cents per nusf per month in the standard building rental rate charged tenant agencies in most other DGS-owned buildings.

In order to have building rental rates more accurately reflect the true cost of owning and operating state buildings we recommend the Legislature adopt budget bill language under Item 1760-001-0666 directing DGS to make the changes described above and modify Section 4.60 of the budget bill to allow the DOF to make the appropriate changes in the affected departments' budgets.

Asset Enhancement Consultant Services and General Fund Loan

We recommend deletion of a proposed $1.1 million loan from the General Fund to the Property Acquisition Law Money Account (PAL) and a one-time augmentation of $1.9 million from PAL to the Asset Planning and Enhancement Branch for property disposition studies because it is not clear there would be an economic benefit to the state that would result from the studies. (Reduce Item 1760-012-0001 by $1.1 million and Item 1760-015-0002 by $1.9 million.)

The budget proposes a $1.9 million augmentation from the PAL to the Asset Planning and Enhancement Branch and a $1.1 million loan from the General Fund (to be repaid by June 30, 2005) to the PAL to fund market, feasibility, and due diligence studies intended to result in the state receiving higher prices when it disposes of surplus state property. It is proposed that the money be spent for studies for Agnews Developmental Center, Department of Developmental Services properties, the California Institution for Men at Chino, and properties in Santa Clara and San Jose. Because of the PAL fund condition, the General Fund loan is needed to support this proposed augmentation.

We have several concerns with this proposal. First, no information is provided to indicate what benefit can reasonably be expected in return for the state's investment in these studies. The Legislature needs to have some basis for concluding these studies would be a cost-effective investment.

Second, it is not clear that these studies are appropriately undertaken by the seller (the state), rather than the buyer of the property. It would seem reasonable to expect that any serious potential buyer of property with development potential would conduct market, feasibility, and due diligence studies before making an offer to purchase.

Third, much of the information the proposal suggests is needed may be available without cost to the state from commercial real estate brokers who are in the business of providing this information as a way to generate successful property transactions from which they benefit.

Finally, it is not clear why the department is seeking additional funding for studies at two properties for which studies were previously funded. The budget proposes a total of $1.2 million for studies at Agnews Developmental Center and the California Institution for Men, Chino. The department, however, was appropriated $600,000 by the 1996-97 Budget Act for property disposition studies at the same two facilities. The budget proposals do not explain why the information developed earlier is now inadequate and why more studies of the same facilities are needed. Also, several of the proposed studies are on sites the Legislature has not declared surplus to the state's needs.

Based on the above issues, we recommend the Legislature deny the proposed $1.9 million augmentation to the Asset Planning and Enhancement Branch and the accompanying $1.1 million General Fund loan to the PAL.

Need to Eliminate Deferred Maintenance

We withhold recommend on a $2.7 million augmentation proposed for special repair projects pending receipt of information from the Department of General Services detailing (1) the total deferred maintenance backlog, (2) a plan to eliminate the backlog, (3) annual funding need for proper maintenance of state buildings, and (4) necessary adjustment to state building rental rates.

As discussed above, DGS establishes a statewide "standard building rental rate" that it charges departments occupying state office space. Included in the determination of this rental rate is an amount to cover the cost of "special repairs and deferred maintenance." Special repairs are costs to periodically repair and replace major building features and equipment, such as reroofing or replacing air conditioning equipment. Deferred maintenance, in part, includes these special repairs that DGS did not accomplish when the work was needed. When this deferral occurs, the cost ultimately to undertake the repairs may be substantially more costly.

The amount included in the standard rental rate for special repairs and deferred maintenance totals $5.6 million ($2.9 million for special repairs and $2.7 million for deferred maintenance). The department indicates this is insufficient to take care of all needed special repairs, and the budget proposes a one-time augmentation of $2.7 million. It is not clear whether this action addresses their complete special repairs needs or how it affects their deferred maintenance problem. (The DGS has advised us that the deferred maintenance problem in state office buildings totals $20 million.)

We concur with DGS's attempt to modify rental rates in order to fund maintenance and special repairs in a timely manner. Proper maintenance of buildings should ensure that these items are properly accomplished and not deferred. As a result, DGS needs to obtain sufficient rental income to maintain buildings in a timely manner and eliminate deferred maintenance.

Consequently, we withhold recommendation on this proposal pending receipt of information from the department identifying (1) total deferred maintenance backlog, (2) a plan to eliminate the backlog, (3) the annual amount necessary to properly maintain buildings and undertake special repairs, and (4) the necessary adjustment to the building rental rates to accomplish these goals.

Statewide Support Services

Report on State's Telecommunications Contract Not Received

We recommend that the Legislature not take action on the proposal to decrease the Department of General Services' telecommunications expenditure authority by $12.1 million until the department provides a report to the Legislature, due January 1, 2001, which describes the actions of the state and the contractor to address problems in the state's telecommunications network.

The budget proposes a $12.1 million reduction in DGS expenditure authority due to the replacement of the state's telecommunications operations with the California Integrated Information Network (CIIN) contract.

The CALNET System. In 1996, DGS began the divestiture of the state's telecommunications operations, known as CALNET, and the procurement of telecommunications services from another firm. The CALNET, which was developed in the early 1990s, was never fully accepted by state departments as DGS had planned. As a result, it did not generate the anticipated revenues and, in fact, experienced losses over several years. Because CALNET was losing money, the state decided to sell off its hardware and purchase these services from a private vendor. In January 1997, DGS released its strategic plan for providing statewide telecommunications services, known as the CIIN Strategic Plan. The plan proposed moving to a privately owned and operated network, via a contract with a vendor which could cost up to $500 million over five years.

The CIIN Contract. In December, 1998 the administration signed a contract with Pacific Bell (PacBell)/MCI to provide voice and data communication services to state and local entities. This annual amount of the CIIN contract is estimated to be about $100 million.

State agencies began to utilize the new telecommunications service in January 1999. Conversion of voice communications has been completed and very few problems experienced.

Frame-Relay Network Experienced Major Problems in 1999. The second component to be converted to the CIIN contract was the state's "frame-relay" network which provides data communications for the state's information technology systems. The DGS started this conversion in January 1999 but halted it in April 1999 due to the severity of outage problems reported by several departments throughout the state.

The DGS took a number of actions to remedy these problems including working directly with the contractor. The frame-relay conversions have been restarted and DGS expects to complete them in 2002.

The DGS Needs to Submit Required Report to Legislature. The Legislature requested that DGS provide an update of its CIIN contract activities and steps taken by the state and the contractor to reduce future frame-relay problems. This report was to be submitted by January 1, 2001. At the time this analysis was prepared, the Legislature had not received this report.

Legislature Should Review Information Before Taking Action on Request. It is important for the Legislature to be able to review this report to ensure DGS actions are adequate to reduce or eliminate future telecommunications problems and minimize disruption of critical state services. For this reason, we recommend that the Legislature not take action on the proposed reduction in expenditure authority until it has received the report and had an opportunity to review it.

State's 911 Surcharge May Be Too High

We recommend that the Legislature direct the Department of General Services to (1) identify an appropriate reserve for the State Emergency Telephone Number Account (911) and (2) identify appropriate adjustments to the 911 surcharge to bring that reserve to the identified level.

The budget proposes an increase in expenditure authority of $31.7 million to the State Emergency Telephone Number Account (911) to begin local government implementation of enhanced 911 service for wireless or "cellular phone" subscribers. The request is the first of a three-year enhancement effort with a projected total start-up cost of $114 million and an ongoing cost of $20 million.

Background. The DGS is responsible for administering the State Emergency Telephone Number Account. This account is funded through a 911 surcharge that is placed on monthly phone bills, including cellular phone service. Local agencies are responsible for providing 911 services and then requesting funds from this account as necessary to maintain 911 operations.

Current Cellular 911 Service Does Not Include Full Services. Current 911 service does not include the same capabilities for cellular phones as for land-based phones. For example, local 911 agencies are not able to pinpoint the exact location of a cellular call as they can with a land-based call. The department's proposal would allow implementation of technical changes to upgrade the response capabilities for cellular subscribers.

The 911 Local Assistance Account Has High Reserve. According to DGS, the 911 local assistance account has been growing at a higher than expected rate due to an increase in the number of cellular phone accounts. Over a period of years, the reserve has ranged from $60 million to $80 million a year. According to the proposal, even with the costs of implementing enhanced 911 wireless service, the account is expected to have a reserve of between $30 million to $50 million depending on the cost of the enhanced 911 service and the number of cellular phone accounts.

The DGS Should Examine Surcharge Amount. Based on information provided by the department concerning the future funding requirements for 911 service, we see no reason to maintain such a high reserve and, therefore, recommend that the Legislature direct DGS to reexamine the surcharge amount. In preparing its report, DGS should take into account any possible revisions in the cost of implementing 911 wireless services. We recommend adoption of the following supplemental report language:

The Department of General Services shall, by March 1, 2002, provide a report to the chairs of the budget committees in each house and the Chair of the Joint Legislative Budget Committee which analyzes the appropriateness of 911 surcharges to California phone subscribers. This analysis shall take into consideration the growing number of cellular phone subscribers, the need to maintain current 911 operations and enhance 911 wireless services, and the need to maintain an adequate reserve in the State Emergency Telephone Number Account. The report shall identify an appropriate reserve for the State Emergency Telephone Number Account and recommend rate adjustments to the surcharge to achieve the recommended reserve level.

Special Funds Should Help Support eBusiness Center

We recommend that the Department of General Services submit to the Legislature, prior to budget hearings, a revised funding proposal for the "eBusiness Center" which reflects reimbursements for on-line activities of those departments which are supported by special funds.

The budget proposes a $3 million General Fund augmentation ($2.7 million one-time and $300,000 ongoing) for the California eBusiness Center which conducts studies of e-government services to California businesses. Last year the 2000-01 Budget Act provided five personnel-years and $4.4 million from the General Fund ($2.4 million one-time and $2 million ongoing) to start the eBusiness Center. In addition, the Supplemental Report of the 2000-01 Budget Act directed DGS to report to the Legislature, by April 1, 2001, on the expected benefits of the eBusiness Center. Figure 6 summaries the key components to be included in this report.

Figure 6

Key Components of eBusiness Center
Supplemental Report Due to Legislature April 1, 2001

Describe eBusiness Center project’s accomplishments

Assess statewide needs of business community’s top priorities for e-government

Conduct business process reviews for those top priorities

Examine alternative and/or private sector financing for the eBusiness Center portal

Provide information in the areas of professional licensing, competitive bid processing, procurement expansion, environmental regulation, and job posting and recruitment which:

  • Analyzes the impact of processing e-government transactions on current automation system.

  • Identifies potential project risk areas.

  • Reports results from customer surveys.

  • Identifies areas for potential business processes reengineering.

General Fund Being Used to Support Special Fund Programs. Our review of current- and budget-year activities indicates that a number of the eBusiness Center activities support special funds programs. For example, General Fund support is being used for an on-line bidding project which allows the California Department of Transportation (Caltrans) to post construction project proposals and conduct bidding on-line, even though most of Caltrans' activities are funded through special funds.

Administration Should Revise Proposal to Include Special Funds. We believe that services provided by the eBusiness Center to departments that are funded by special funds should be supported by special funds. Therefore, we recommend that DGS submit a revised funding proposal to the Legislature prior to budget hearings which reflects the use of not only the General Fund, but also special funds to support the eBusiness Center.

Method for Funding California Enterprise Project Is Inequitable

We recommend that the Department of General Services submit a revised funding proposal for the ongoing support and operation of the state's home page and the Governor's Office computer network which (1) distributes costs of these projects among special funds in addition to the General Fund and (2) provides adequate funding for ongoing modifications to California's home page.

The budget proposes an ongoing augmentation of $1.7 million from the General Fund for the state's home page and a one-time augmentation of $1.5 million from the General Fund to upgrade the Governor's Office computer network and E-mail system.

Background. The 2000-01 Budget Act appropriated $5.1 million to DGS to redesign the California home page, enhance the citizen E-mail system, and upgrade the Governor's Office network. The department completed these activities in January 2001.

Current Funding Method Inequitable. It is our understanding that these various automation efforts provide support for all state programs even though they have been entirely funded from the General Fund. For example, all departments will use the enhanced E-mail system and will have access for their Web sites through the redesigned home page. We believe the ongoing costs for these systems should be shared by the General Fund as well as special funds through the use of a pro rata model or direct billing for usage.

Home Page Maintenance and Support Costs Seem Low. It is our understanding that the $1.7 million home page proposal contains $1.4 million for staff and hardware/software costs which leaves $300,000 available for ongoing modifications. Our review of similarly sized projects indicates that between $400,000 to $800,000 is needed annually for ongoing modifications. Therefore, the proposal's amount for ongoing modifications seems low considering the magnitude of usage and complexity of the redesigned home page.

Administration Should Examine Cost Sharing Models and Sufficiency of Request. Given the inequities of the current funding method as well as the potential shortfall of funding to provide ongoing support of the home page, we recommend that DGS submit a revised funding proposal which (1) distributes the costs of these projects among special funds as well as the General Fund and (2) provides adequate funding for support of ongoing modifications to California's home page.

Return to General Government Table of Contents, 2001-02 Budget Analysis