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Analysis of the 2008-09 Budget Bill: General Government

Vacant Positions

Statewide Vacancy Rate Consistently Has Been About 14 Percent

According to State Controller’s Office (SCO) records, about 14 percent of authorized full–time equivalent employee positions are vacant in the executive branch—excluding positions in the university systems. Our review of SCO records shows that statewide vacancies in recent years have been consistently at about this level and vacancy rates vary substantially between departments. State departments will always have some level of vacancies, but vacancies at this high a level are considerably greater than assumed during the budget process.

Substantial Numbers of Authorized Positions Are Consistently Vacant. In our Analysis of the 2003–04 Budget Bill (see page F–19), we discussed some of the past efforts to address vacancies in authorized employee positions in state departments. Despite multiple efforts by the Legislature to reduce the number of vacancies, SCO data and other reports indicate that they remain widespread across state government. As of the end of September 2007, SCO records indicate that 14 percent of authorized full–time equivalent executive branch positions were vacant (not including positions in the university systems). We have monitored this statistic on a regular basis since 2006, and the statewide vacancy rate has been about 13 percent or 14 percent at the end of each calendar quarter. The vacancy rate, however, varies significantly by department, as shown in Figure 1. As we discuss below, there are several reasons for the wide variations in departments’ vacancy rates.

 

Figure 1

Vacancy Rates Vary
Substantially by Departmenta

 

Mental Health

28%

Corrections and Rehabilitation
(Juvenile Justice)

23

Child Support Services

21

Health Services

19

Public Health

17

Fish and Game

14

Statewide Average

14

Veterans Affairs

14

Corrections and Rehabilitation (Adult)

14

Social Services

13

Franchise Tax Board

11

California Highway Patrol

10

Motor Vehicles

9

 

a  Compiled from State Controller's Office established and vacant positions statewide database as of Sept. 28, 2007.

 

 

Budget Process Is Premised on a Lower Level of Vacancies. Vacancies in authorized employee positions are a normal part of human resources management in both the public and private sectors. When employees move to other jobs or retire, it takes time to fill their positions, and when new positions are authorized, it takes time to fill them as well. Since 1943, the state budget has included provisions for “salary savings” to account for the fact that departments cannot fill 100 percent of their positions all of the time. When a department requests funding for new positions in a budget change proposal, its request for funds to cover salaries and related costs generally is reduced by 5 percent. (There are some exceptions to this rule, such as budgets for correctional officers’ salaries, which generally include no assumed salary savings.) In subsequent years, augmentations to departments to cover the increasing costs of employee salaries also generally are reduced to take account of the 5 percent salary savings factor. In short, the state budget process assumes that around 5 percent of authorized positions will be vacant at any given time during the year due to normal turnover and hiring delays. The current level of position vacancies across the executive branch—14 percent—is much higher than the assumed 5 percent level.

What Level of Vacancies Is Reasonable to Expect? Individual circumstances of departments affect the number of departmental position vacancies at any given time. Control Section 4.11 of the annual budget act requires that all new positions approved in the budget be established effective July 1 (the first day of the fiscal year), unless otherwise approved by the Department of Finance. Accordingly, in fiscal years when the Legislature authorizes significant expansions in the number of authorized personnel in a department, it is reasonable to assume that departments will need some time to fill those positions. Therefore, vacancy rates will increase temporarily in line with the authorized staffing increase. (In some cases, the budget takes account of this fact, assuming a higher–than–usual level of salary savings during the initial year of an authorized staffing increase.) Vacancy rates also can rise when departments have an unusually large number of employees retiring at the same time. As more and more “baby boomers” reach the average age of state employee retirements (around age 60 for members of the California Public Employees’ Retirement System, excluding peace officers), some departments may experience elevated vacancy rates. Finally, as discussed below, tough budget years can increase vacancies as departments seek ways to reach budget savings targets. During typical periods, however, we think it is reasonable to assume that most departments should be able to keep all but 5 percent to 10 percent of their authorized positions filled at any given time.

Salary Levels Often Are Not the Main Reason For High Vacancy Rates

Compensation levels sometimes are one factor that makes it difficult for departments to fill positions. Our experience, however, is that other factors often are much more significant in driving high vacancy levels. These factors include: (1) antiquated and inefficient hiring processes throughout the state’s civil service system, (2) departments’ usage of budgeted personnel funds to support other expenses that have not been accurately accounted for during the budget process, and (3) departmental responses to cost reduction measures enacted during tough budget years.

Causes of Vacancies Vary by Department and Can Be Difficult to Evaluate. Employee groups often attribute high vacancy rates to state salaries being lower than those for comparable jobs. In response to legislative inquiries, we have examined several departments with major vacancy problems in recent years. The reasons for departmental vacancies vary considerably from department to department, and these reasons often are complex to evaluate and understand. In some cases, uncompetitive state employee compensation levels may be one of several contributing factors to employee vacancies. In most cases, however, we have found that state salary levels are not the main cause of high vacancy rates.

Antiquated, Inefficient Civil Service Hiring Processes Are One Cause. In our experience, departments with high vacancies tend to be ones with other systemic problems affecting their hiring processes. Throughout state government, civil service hiring processes take many months to fill a vacant position. The sheer length and complexity of the civil service hiring process creates a large burden not just for applicants but also for departments seeking to keep positions filled. In some cases, human resources (HR) functions—staffing levels of HR personnel, HR technology resources, training budgets, and resources available to conduct criminal and health background checks—have been kept lean through difficult budget years, resulting in departments having limited capabilities to hire and train personnel quickly and efficiently. In May 2007, for example, we reported to the Legislature that the 14 percent vacancy rate among warden positions in the Department of Fish and Game appeared largely attributable to systemic problems in the department’s hiring process.

Use of Budgeted Personnel Funds for Other Purposes Is One Cause. In some cases, departments use budgeted personnel funds in one program to (1) keep positions filled or pay other unbudgeted expenses in another program or (2) cover expenses within the same program that end up being more than budgeted. For example, a 2002 Bureau of State Audits (BSA) report found that the majority of savings from vacant positions in five departments was used to cover higher–than–budgeted costs for filled positions.

Tough Budget Years Can Lead to Higher Vacancies. A tight fiscal situation—especially if it persists over several years—contributes to higher vacancy rates. During these times, state budgets often include actions such as elimination of price increases for operating expenses and across–the–board reductions to state operations costs. In response, departments often are forced to intentionally hold positions open or otherwise achieve salary savings above the 5 percent budgeted level in order to stay within their budgets. For example, the Office of the State Public Defender—acting in reaction to the Governor’s budget plans due to the fiscal emergency—held open six budgeted attorney positions in late 2007 despite having qualified applicants to fill the slots. By doing this, the office sought to minimize the need to lay off either these new hires or current employees. Consequently, the department reduced its ability to process new appellate death penalty cases. Should the Legislature move forward with the Governor’s proposed across–the–board budget cuts for 2008–09, we expect that vacancy rates will climb as other departments hold positions open in order to minimize layoffs and mitigate other programmatic impacts.

Recommend Repealing Ineffective Law on Abolishing Vacant Positions

An existing state law purports to abolish positions that are vacant for six consecutive months. The law, however, eliminates only a small number of vacant positions and generates significant paperwork in order for departments either to (1) correct SCO vacant position records or (2) claim one of the many specified exemptions in the law and avoid the abolition of positions. The law does not reduce departments’ budgets for the small number of vacant positions eliminated. Due to its ineffectiveness, we recommend the law be repealed.

Government Code Abolishes Certain Vacant Positions. Amended several times in budget trailer bills in recent years, Section 12439 of the Government Code requires SCO to abolish certain authorized positions in departments that are vacant for six consecutive months. Departments are prohibited from executing any personnel transactions for the purpose of circumventing the provisions of the law. The law, however, contains 14 categories of exemptions—in other words, reasons that a department can cite for avoiding the abolition of positions, even though they may have been vacant for six consecutive months. Figure 2 lists these 14 exemption categories. While the law requires SCO to abolish vacant positions, it contains no provision to reduce departments’ budgets in conjunction with these actions. In order for such reductions to take place, the Legislature would need to specifically reduce each department’s budget in the annual budget act.

 

Figure 2

Exemptions From Abolishing Vacant Positions
Under Current Law

 

Government Code Section 12439 provides for abolishing positions that have been
vacant for six consecutive months. The law, however, provides for exemptions for positions:

·   That were vacant during a period when a hiring freeze was in effect.

·   That the department has diligently attempted to fill.

·   Designated as managerial in nature and held vacant pending appointment of a departmental executive.

·   In a classification that is determined to be hard to fill.

·   Held open due to late enactment of the budget.

·   Necessary for providing 24-hour care in a state institution.

·   Necessary to satisfy local, state, or federal licensure or regulatory requirements.

·   Directly involved in services for public health, public safety, or homeland security.

·   Held vacant because a previous incumbent is eligible to exercise a right of return from a leave of absence.

·   Held vacant because a previous incumbent has been granted a permissive leave of absence authorized under law.

·   That, if eliminated, would directly reduce state revenues by more than would be saved by their elimination.

·   That directly respond to unforeseen agricultural circumstances and are funded under a specific section of state law.

·   That are exempt from the civil service.

·   For the California State University that are instructional or instruction-related.

 

In 2006–07, the Law Eliminated Only About One of Every 63 Vacant Positions. During 2006–07, the law resulted in the abolition of just 452 authorized positions. This constituted about one of every 63 vacant positions. The law resulted in the abolition of a higher number of vacant positions—1,958—during 2005–06, about one of every 14 positions that were vacant as of the end of that fiscal year. We believe that the wide variety of exemptions in the law, as well as an undetermined amount of departmental actions to evade its requirements, are the likely reasons for so few positions being eliminated.

Recommend Repealing the Law. We conclude that this law is ineffective and provides only the appearance of a solution to the widespread vacancy problem. Moreover, the law does not result in budgetary savings. For these reasons, we recommend that the law be repealed.

Options for the Legislature to Address Vacant Positions

Departments should be held accountable when they do not fill positions that were authorized and funded by the Legislature. In developing a new process for this purpose, the Legislature has several options. In our view, an effective accountability process probably would be labor–intensive for the Legislature, the administration, or other state entities.

Members of the Legislature have repeatedly expressed concerns about departmental vacancy problems. When the Legislature authorizes and funds an employee position in the budget act, it does so with the expectation that a department will fill the position and provide the public services associated with it. When departments are unable to fill positions—particularly when their vacancy rates far exceed the assumed level of salary savings in their budget—this means that the Legislature’s expectations are not being met. In our view, departments should be held accountable when this occurs. Accordingly, the Legislature should develop a process to allow for regular review of departments with significant vacancy problems. The Legislature has several options in this regard. As discussed above, we have found that the existing vacancy law is ineffective in addressing vacancy problems. A downside of the other options we discuss below is that they may prove to be labor–intensive for the Legislature, the administration, or other state entities. Each department’s vacancy issues tend to be unique, making a uniform statewide solution difficult to implement effectively.

Regular Examination of Departments’ Vacancies During the Annual Budget Process. During the annual budget process, the Legislature has the opportunity to question departmental officials on many aspects of state operations, including their success in filling authorized positions. One option for the Legislature is to make such reviews a more formulated part of the budget process. The Legislature could decide to undertake detailed reviews of vacant positions in a set number of departments each year—perhaps, rotating among departments so that they are the focus of this review during the budget process every few years. (The Legislature could start such detailed reviews by examining departments with the highest vacancy rates.) We believe that such reviews should involve questioning departments to understand the precise reasons for vacancies. In the nearby box, we list key questions that legislators may wish to ask departments when considering these issues.

Requesting Audits of Departments With Vacancy Problems. The Bureau of State Audits (BSA) previously has conducted several reviews of departments’ vacant position problems. Given the Legislature’s concern about these issues, it may wish to request that the Joint Legislative Audit Committee (JLAC) dedicate a portion of BSA’s time and resources to reviewing vacancy issues in departments. These reviews could be managed in a number of ways, similar to the options discussed above. The committee could direct BSA to review vacancy issues in a set number of departments each year—rotating among major departments so that they are audited every few years. Alternatively, JLAC could periodically request that BSA review departments with the most significant vacancy problems. In our view, BSA’s review of vacancy problems should consider the same sorts of issues discussed in the nearby box. In addition to JLAC’s review of BSA’s findings and recommendations about vacant positions, we also would suggest that the BSA’s reports be considered by relevant policy and fiscal committees. If the Legislature pursued this approach, it may need to (1) scale back requests for BSA to review other matters and/or (2) increase BSA’s budgeted resources.

Suggested Questions for the Legislature To Ask Departments About Vacant Positions

When considering departments’ vacant positions, the Legislature should first determine if the vacant positions are necessary to ensure delivery of high–priority public services. If the answer is “yes,” the Legislature then might pose the following questions to departments:

  • Are funds available to fill the vacant positions?
  • Would filling the positions result in the need to divert resources from other programs? (If the Legislature determines that a diversion of resources from the other programs is an acceptable consequence of filling the high–priority positions, it could instruct the department to reduce funding for the lower–priority programs. Otherwise, additional appropriations to the department might be needed for the department to fill the positions.)
  • Are improvements in the departments’ hiring process needed to fill positions quickly and efficiently? What would these improvements cost?
  • If the hiring process is working smoothly and positions still cannot be filled, are compensation levels adequate? Should the administration propose increases in compensation during discussions with employee unions?

If, on the other hand, the vacant positions are determined not to be of a high priority:

  • Should the department’s authority for the vacant, lower–priority positions be eliminated?
  • If the Legislature eliminates departmental position authority, should the department’s budgetary authority be reduced by a like amount? In considering this issue, the Legislature should ask departments how they are spending existing budgeted funds for the vacant positions. Would such a budgetary reduction affect the delivery of other high–priority public services? 

Periodic Zero–Based Budgeting for Departments With Vacancy Problems. Another option for the Legislature to hold departments accountable for vacancy problems would be to initiate periodic, zero–based budgeting requirements for those departments. Typically, the departmental budgeting process begins with its preparation of a “workload budget”: the estimated funding and personnel resource requirements for departments to provide the level of public services specified under current law in the next fiscal year. In general, the workload budget takes the current amount of departmental funding and expands it due to rising enrollment, caseload, and population, as well as inflation and any new statutory requirements for a program. (Offsets are made for one–time activities.) In this process, the workload budget basically assumes that the department received the “right amount” of funding to deliver services during the prior year. By contrast, a zero–based budget makes no such assumption. Instead, a zero–based budget builds a departmental budget from the ground up. Zero–based budgeting involves a fresh review of the personnel needed to perform every service within a department or a part of a department. This process could hold departments accountable for vacant positions by determining whether they are actually needed or not.

There are two major downsides to zero–based budgeting. First, the process is very labor–intensive—not just for departments that must administer the process, but also for the Legislature. The administration would have to prepare and the Legislature would need to review extensive amounts of paperwork likely to be generated from such a process to justify each category of departmental expense. Second, it is possible that zero–based budgeting for some departments with vacancy problems would reveal a need to appropriate more funding to departments so that positions can be filled and desired levels of public services can be delivered. This could lead to even more pressure on the state’s already–strained budget. Given these concerns, we would suggest that any such zero–based review be done on a very targeted, selective basis.

LAO Bottom Line. The Legislature needs to have processes that can hold departments accountable for not filling authorized and funded positions. As noted above, there are a number of options for the Legislature to consider in this regard. Each of the options, however, entails considerable time and energy to implement.

Broad Legislative Efforts Needed to Simplify, Expedite State Hiring Processes

The administration has proposed its Human Resources Modernization (HR–MOD) Project to reduce the number of classifications in state government, simplify hiring processes, increase the use of Web–based technology for hiring and personnel management across departments, and tie a larger amount of pay increases to objective evaluations of employees’ performance on the job. We agree in broad terms with the goals of HR–MOD, but await more information from the administration on specific plans and outyear costs. We recommend that the Legislature consider broad, systemic civil service reforms like those envisioned by HR–MOD, which should help departments minimize vacancy problems in the future.

2007–08 Seed Money for Administration’s Civil Service Reform Project. The 2007–08 Budget Act includes $3 million for the Department of Personnel Administration (DPA) and the State Personnel Board to further develop their proposed civil service reform project, HR–MOD. The HR–MOD project attempts to address various systemic problems with the existing civil service system, particularly prolonged delays for departments to hire applicants. Another goal is to position the state to cope with the large number of expected baby boomer retirements from its workforce during the coming years. The initial blueprint for the project—which would require up to eight years to be fully implemented—envisions major changes in state hiring processes, the civil service classification system, employee evaluations, and processes for determining merit–based salary adjustments for state employees. Additional information on the status of the project and any additional funding requests to advance the project in 2008–09 are expected to be submitted to the Legislature in the coming months. Over the next decade, the overall costs of HR–MOD would be substantial—perhaps in the hundreds of millions of dollars over the period.

Broad, Systemic Civil Service Reform Is Needed. We await more information on the administration’s specific plans for HR–MOD. Nevertheless, we agree with the administration’s general goal of implementing major reforms to the civil service system. Such reforms should seek to tie compensation to employee performance to a greater degree and modernize state hiring processes—for example, by reducing the time it takes a department to hire an employee from months or even years (as it is now) to days. We recommend that the Legislature consider such broad, systemic civil service reforms in the coming years, in part due to the need to address departmental vacancy problems.  


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