Analysis of the 2007-08 Budget Bill: General Government

Employment Development Department (7100)

The Employment Development Department (EDD) is responsible for administering the Unemployment Insurance (UI) and Disability Insurance (DI) programs. The department collects from employers (1) their UI contributions, (2) the Employment Training Tax, and (3) employee contributions for DI. It also collects personal income tax withholding. In addition, it pays UI and DI benefits to eligible claimants.

The department also, with the assistance of the state Workforce Investment Board (WIB), administers the federal Workforce Investment Act (WIA) program, which provides employment and training services. Local area WIBs partner with EDD’s Job Services program to provide job matching and training services to job seekers and employers.

The budget proposes expenditures totaling $10.8 billion from all funds for support of EDD in 2007-08. This is a decrease of $332 million, or 3 percent, below current-year estimated expenditures. The decrease is primarily the result of lower estimates of UI and DI benefits for the budget year. The budget also proposes $44.4 million from the General Fund in 2007-08, which is an increase of $13.4 million (43 percent) compared to the current year. This increase is primarily the result of realigning some shared costs for EDD’s tax collection functions from special and federal funds to the General Fund.

Budget Proposes Reduction in Job Services Program

The Governor’s budget proposes to decrease the Job Services program by $27 million. We withhold recommendation on this proposal because the department was unable to provide supporting information at the time this analysis was prepared.

Background. The general purpose of the Job Services program is to link job seekers and employers. In addition to CalJOBS, which is an internet labor exchange system, the program provides a number of specialized services for job seekers who require special assistance, such as individuals with disabilities, veterans, California Work Opportunity and Responsibility to Kids (CalWORKs) recipients, parolees, and youth.

Funding. The Job Services program is funded primarily with federal Job Service Grants (also known as Wagner-Peyser Act funds). In 2006-07, the state used $90 million in federal funds, and $27 million from the EDD’s Contingent Fund, to support the Job Services program. The Contingent Fund is comprised of penalties and interest levied against employers for insufficient tax or UI withholding for employees. Any excess Contingent Fund at the close of the fiscal year is transferred to the General Fund.

Governor’s Proposal. The Governor’s budget proposes to remove $27 million in Contingent Fund from the Job Services program, resulting in an identical General Fund savings. The initial proposal provides no details regarding the impact of this reduction on the provision of employment and training services, though EDD has stated that it plans to issue a budget change proposal with more information. Accordingly, we withhold recommendation at this time, pending the receipt of additional information.

WIA Discretionary Funds

The 2007-08 Budget Bill schedules the proposed expenditure of federal Workforce Investment Act (WIA) discretionary funds within broad categories. We provide a comparison of proposed expenditures within the categories to the prior year and recommend the redirection of $3.4 million in WIA funds proposed for new regional collaboratives to instead offset General Fund costs in the existing parolee employment programs. We further recommend the adoption of budget bill language to allocate funds for these specific purposes.

Background. The federal WIA of 1998 replaced the Job Training Partnership Act, which provided employment and training services to unemployed and disadvantaged workers. The goal of WIA is to strengthen coordination among various employment, education, and training programs. Pursuant to federal law, 85 percent of the state’s total WIA funds (an estimated $413 million in 2007-08) are allocated to local WIBs. The remaining 15 percent of WIA funds ($62 million in 2007-08) is available for state discretionary purposes such as administration, statewide initiatives, and competitive grants for employment and training programs. The federal law states that all WIA funds “shall be subject to appropriation by the state Legislature.”

Proposal for Discretionary Funds. Based on information provided by EDD, Figure 1 shows the Governor’s expenditure plan for state discretionary WIA funds. As the figure shows, administration and program services total $27.6 million for 2007-08. These are for ongoing administration of all WIA programs (such as oversight, financial management, and labor market information services). The remaining $34.4 million is proposed for discretionary grants in three program categories scheduled in the budget bill: Growth Industries, Industries with a Statewide Need, and Removing Barriers for Special Needs Populations.

Changes From Current Year. The administration’s proposal for the three program categories contains significant changes. The administration’s proposal reduces the amount of funds directed specifically to training of Nurses and other Health Care Providers, from $8 million in 2006-07 to $4.9 million in 2007-08. Moreover, this funding would be used to train construction and logistics workers as well as those in nursing and healthcare. The budget proposal adds an additional $1 million in Youth Grants, and decreases the Governor’s Veterans’ Grants by $2 million. (Though not shown in this display, the Governor’s budget also proposes to supplement this category of Veterans’ grants with an additional $1 million from WIA Rapid Response funds to assist in reemployment of returning veterans.)

Regional Collaboratives. One new funding initiative proposed for 2007-08 is a total of $4 million for regional collaboratives, a sub-category in each of the three schedules. According to EDD, this program would fund training projects identified by regional collaboratives of business, labor, private foundations, and other public agencies. Similar projects, called Collaborative Regional Initiatives, were developed in the mid-1990s in a number of regions around the state. An evaluation found that although the projects were moderately successful at building networks in the region, they mostly fell short in the key area of meeting their job placement goals. Generally, the evaluation found that the collaboratives showed no significant advantage over other established workforce development entities in providing effective workforce services. Given this weak evaluation, we believe there is insufficient justification for the $4 million proposed for regional collaboratives.

Reduction in Funds for Parolee Programs. The administration also proposes to reduce the funds provided for programs operated by the Department of Corrections and Rehabilitation (CDCR) that serve female offenders and parolees. The budget proposes to use General Fund support to backfill a $3.4 million decrease in WIA funds. In the “Judicial and Criminal Justice” chapter of our analysis, we find that these programs have value in reducing recidivism for parolees. Given that the proposal to add $4 million for regional collaboratives is not justified, we recommend redirecting $3.4 million of the regional collaborative funding to continue the funding of the parolee employment programs in CDCR (Item 5225). This redirection will result in an identical amount of General Fund savings in that item.

Legislative Changes to Discretionary Funds. Although the amounts for the three WIA programs: Growth Industries, Industries with a Statewide Need, and Removing Barriers for Special Needs Populations tie to the budget bill appropriations, the Governor is not bound to the specific projects within the schedule categories that are displayed in Figure 1. To the extent that the Legislature wishes to adopt the recommendation to redirect funds as described above, or to identify other specific projects or priorities, it will be necessary to adopt budget bill language specifying such allocations from the specific appropriation amounts. Therefore, we recommend that the Legislature adopt budget bill language specifying that of the WIA funds available, $8 million be allocated for parolee services and $1.7 million for the Female Offenders’ Treatment and Employment Program in 2007-08.

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