Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Vacant Positions

Recently, the Legislature has taken various steps, through budget control sections, to reduce the number of vacant positions in state government. In our review, we found that the Department of Finance (DOF) has provided most of the information requested. In some cases, however, the submittal was incomplete. Consequently, we recommend that DOF provide updated information on the various control sections. We also recommend the deletion of Control Section 31.75 from the 2003-04 Budget Bill, as it is unnecessary.

The 2002-03 budget provided for the elimination throughout state government of 6,000 vacant positions in the current year and 1,000 additional positions in the budget year. Below, we update the status of this process and provide recommendations that ensure the requirements of the control sections are met.

Background

How the Problem Started. For many years, most state departments absorbed a number of costs without receiving corresponding changes to their budgets. These include (1) inflationary cost increases for operating expenses and equipment, (2) merit salary adjustments that departments must provide to eligible employees every year, and (3) "unallocated reductions" (where departmental budgets are reduced, but no accompanying changes are made to modify or reduce workload or program responsibilities). One strategy used by departments to cover such costs is to deliberately hold positions vacant in order to generate "salary savings."

Past Efforts to Address Vacancies and Underfunding. Responding to legislative concern over the number of vacancies in departments, the Department of Finance (DOF) has taken some steps in recent years to address the inflated vacancy rate and underfunding issues. For example, the administration reports that over 6,500 vacant positions were eliminated in 2000-01 and 2001-02. In addition, DOF has allowed departments to budget new positions at the midstep instead of the first step of classifications where appropriate. Previously, departments were provided funding for the lowest salary in a classification. If the department, therefore, filled the position at a higher salary, the department was underfunded for the position and had to generate savings elsewhere to make up the difference. Recently, the administration also has funded department costs for various salary adjustments resulting from collective bargaining agreements.

These steps should have reduced pressure on some departments to leave positions vacant for budget balancing purposes. We would note, however, that these steps were selectively applied, making it difficult for the Legislature to ascertain how much "forced" salary savings for budgetary purposes remained statewide.

Finance Directed to Address Vacant Positions

Over 6,000 Vacant Positions Abolished in Current Year. Despite these past efforts, many vacancies remained. Control Section 31.60 of the 2002-03 Budget Act requires DOF to abolish a minimum of 6,000 vacant positions and delete $300 million (all funds) from departments' budgets during 2002-03 (see Figure 1). The control section requires the eliminated positions to come from positions that were vacant on June 30, 2002. The control section also requires that DOF report the abolished positions and any programmatic impacts as a result of the position and funding reductions. As shown in Figure 2 (see page 22), DOF reports that 6,130 vacant positions were abolished and $300 million associated with these positions ($103 million General Fund, $95 million special funds, and $102 million other funds) was deleted from the current-year budget.

A portion of these positions were eliminated pursuant to existing law. As required by Section 12439 of the Government Code, the State Controller abolished 890 positions that were vacant for six consecutive monthly pay periods during 2001-02. Control Section 31.60 permitted these positions to be counted toward the required 6,000 abolished positions.

Partial Augmentations Allowed. Control Section 31.70 of the 2002-03 Budget Act authorizes the DOF to augment any appropriation reduced pursuant to Control Section 31.60. The section requires that the total augmentation for any fund cannot exceed 50 percent of the total amount deleted for that fund. According to instructions sent to departments, DOF only considered augmentations that (1) would restore the state's ability to collect revenue or (2) were needed to ensure public safety or 24-hour care. The eliminated positions, however, are not restored with the augmentations.

The control section requires that DOF report to the Legislature the necessity of any augmentations within 30 days after approval. In a January 17, 2003 report, DOF reported $36 million in augmentations had been made pursuant to Control Section 31.70 (see Figure 3). Of this amount, $33 million is attributable to General Fund augmentations. 

Most of these General Fund augmentations have occurred within the California Department of Corrections (CDC). As part of CDC's Control Section 31.60 reductions, a significant number of vacant correctional officer positions were abolished for a General Fund savings of over $23 million. All of that funding, but not the positions, was restored through Control Section 31.70.

Additional 1,000 Positions to Be Abolished by the End of the Budget Year. Chapter 1023, Statutes of 2002 (AB 593, Oropeza), requires DOF to identify an additional 1,000 positions proposed for elimination. These positions are to be abolished by the end of 2003-04. Chapter 1023 requires that DOF:

• Not abolish positions that directly provide 24-hour care, public safety, and critical services to the state.
• Give priority to the elimination of positions that are vacant.
• Give priority to the elimination of administrative and managerial positions that do not provide direct services to the public.

Chapter 1023 requires DOF to notify the Legislature at least 90 days prior to the elimination of the positions. Furthermore, DOF is required to report to the Legislature by July 1, 2004 all positions that were eliminated.

The proposed budget includes 1,900 positions to be eliminated as part of specific program reductions. The administration estimates that only 400 of these positions are currently vacant.

Administration's Reports to the Legislature. In reviewing the control section reports submitted by DOF, the administration has provided most of the information requested. We, however, did find several areas where the information was incomplete. For instance, the submitted report for Control Section 31.70 does not include all of the augmentations included in the proposed budget.

Recommend Updated Information. The reports required by the control sections are helpful to the Legislature in assessing the appropriateness of the budget adjustments made by DOF. To help meet this goal, we recommend DOF provide updated reports this spring that accurately reflect, by fund, all Control Section 31.60 position and funding reductions and Control Section 31.70 augmentations. Also, as additional information is submitted pursuant to Chapter 1023, DOF should categorize the positions proposed to be eliminated by the criteria set forth in the statute.

Administration Requests Authority to Reverse Control Section 31.60 Reductions

New Control Section Included in Budget. The Governor's budget includes a new control section, 31.75, that would authorize DOF to augment department budgets up to the same amount provided in the current year pursuant to Control Section 31.70. In other words, this would allow DOF to double the augmentations made through Control Section 31.70. In the case of CDC described above, the proposed control section would give DOF the authority to adjust the budget by over $23 million more than the Legislature's enacted budget. Unlike the current-year control sections, Control Section 31.75 requires no legislative notification of augmentations.

Based on current Control Section 31.70 augmentations, Control Section 31.75 would give DOF the authority to augment the 2003-04 budget by $36 million. The DOF, however, can continue to augment departments' budgets using the Control Section 31.70 authority until the end of 2002-03. The full impact of Control Section 31.75, therefore, would not be known until the end of 2002-03.

Proposed Control Section Unnecessary. To the extent that DOF determines additional augmentations are necessary, the department can use the standard budget change proposal process. In fact, DOF is already using this process for such augmentations. For example, the Secretary of State submitted a request for a budget-year augmentation above the 50 percent limit set by Control Section 31.70 (please see our discussion of this specific proposal under the Secretary of State's budget, Item 0890).

Recommend Deletion of Control Section 31.75. Given the above, we do not see a need to grant DOF the authority to augment departmental budgets. Therefore, we recommend the deletion of Control Section 31.75 from the budget bill.