2009-10 Budget Analysis Series: Resources
The CCC provides young people between the ages of 18 and 23 work experience and educational opportunities. The program participants, referred to as corpsmembers, work on projects that conserve and improve the environment, such as tree planting, trail building, and brush clearance. Corpsmembers also provide assistance during natural disasters, such as filling sandbags during floods. Work projects are sponsored by various governmental and nongovernmental agencies that reimburse CCC for the work performed by corpsmembers.
The CCC receives the majority of its funding from the General Fund (about 60 percent in the current year), with most of the balance coming from reimbursement revenues. When CCC corpsmembers work on projects for other public agencies or private entities, CCC is reimbursed for the labor provided. This reimbursement revenue is used to support the corpsmembers’ salaries and benefits as well as department–wide administrative and operational costs. The CCC sets a statewide reimbursement rate target (currently $18.77 per hour for corpsmember labor) and staff in the field use this target rate when negotiating contracts with client agencies.
The CCC estimates about 4,000 men and women (the equivalent of about 1,200 full–time positions) will participate in the program during the current year. Corpsmembers earn minimum wage and are assigned to work approximately 40 hours per week. On average, corpsmembers stay in the program for a little over seven months. The current annual cost of the program per corpsmember is in the range of $40,000 to $45,000 per full–time equivalent. The current–year budget provides funding for seven residential and 15 nonresidential facilities throughout the state.
Governor Proposes to Eliminate Corps, Shifts Some Funds to Locals
Budget Reflects Phase–Out of CCC Beginning in 2009–10. The budget requests about $44.6 million in total spending for CCC in 2009–10, of which $17.9 million is for state operations and $26.7 million is for capital outlay. This is a reduction of about $64 million—or 59 percent—below expenditures in the current year. The budget–year spending amount reflects the budget’s proposal to begin phasing out CCC in 2009–10, with its complete elimination in 2010–11, at which time some CCC activities would be realigned to the local level. Reflecting the proposed realignment, the CCC’s proposed state operations budget for 2009–10 includes $7 million for personnel and operating expenses as operations are wound down, $5.9 million for lease–revenue bond debt expenditures, and $5 million for a new grant program to local nonprofit conservation corps.
Proposed Corps Realignment Intended to Create General Fund Savings. The budget proposes to eliminate CCC and redirect a portion of the Corps’ funding to 12 Local Conservation Corps (LCC) programs. This proposal creates net budget–year savings of $17 million to the General Fund and $26.4 million to other funds (mostly the Collins–Dugan Reimbursement Account). The net General Fund savings would increase to $24 million annually beginning in 2010–11 when the CCC would be completely eliminated. Under the proposed realignment, the Natural Resources Agency would assume responsibility for specified ongoing CCC obligations, including bond grant administration. The agency would also administer a proposed grant program to LCCs of $10 million annually beginning in 2010–11. The budget proposes a related $5 million grant program in the budget year, administered by agency.
Budget Reflects Continuing Capital Outlay Expenditures. The budget proposes $26.7 million (Public Buildings Construction Fund) for capital outlay expenditures in 2009–10 for construction of the Delta Service Center, a facility to include dormitories, and education and recreation buildings. While design and working drawings have been completed, construction has not begun on the site.
Evaluation of Governor’s Proposal
In evaluating the Governor’s proposal to eliminate CCC, the Legislature should consider various issues. These include (1) the CCC’s current capacity to meet its statutory mission, (2) the impact that the CCC’s elimination may have on other state agencies that utilize corpsmember labor, (3) the administration’s plans to divest the CCC of its capital projects and pay off related debt, and (4) the details of the proposed grant program. We discuss each of these in turn.
CCC Mission Erosion. One of the key legislative goals for CCC is to provide work training and education for corpsmembers. Over the years, this mission has been addressed by education–focused activities, including direct schooling through the certified charter high school, and through work training such as backcountry trail construction, emergency response assistance, and job preparedness guidance sessions. In recent years, this primary mission has eroded, with significant reductions in the amount of time spent on training and the number of corpsmembers receiving their high school graduation equivalent. General Fund reductions have shifted the focus of CCC to those activities generating reimbursement revenues, many of which are not education– or training–oriented.
Increasing Reliance on Reimbursable Work Projects. As part of CCC training, corpsmembers conduct reimbursable work for public and private sector entities. The $33.9 million in activities supported from the General Fund in the current year are matched by about $30 million in reimbursable activities from such agencies as the Department of Transportation ($4.7 million), CalFire ($4.1 million), DPR ($1.7 million), and DWR ($1.2 million). Approximately 55 public and private–sector entities contracted with CCC for as little as $1,000 and as much as $5 million. The activities range from picking up trash on highways to staffing fire camps during emergencies.
CCC Labor Not Necessarily Low–Cost. The loss of CCC as staffing for CalFire camps has been raised as an example of a potential loss of a low–cost source of labor to the state, and thus a potential cost of the Governor’s proposal that needs to be weighed when it is evaluated. However, CalFire estimates that it may be able to reduce its costs for labor formerly provided by CCC corpsmembers by shifting to local labor contractors. For example, each corpsmember is reimbursed at $18.77 per hour (with no payment for overtime), and each supervisor is reimbursed at $18.77 per hour or at a rate of $34.84 for overtime. (Overtime is generally necessary for staffing fire camps.) CalFire estimates that shifting to a local labor contractor would cost between $8 and $10 for normal working hours, and $12 to $15 for overtime. The rates for supervisors range from $12 for normal working hours to $20 for overtime. A second option involves contracting with local governments using an existing contract at a flat reimbursement rate of $11.14 per hour. Therefore, options clearly exist which are significantly less expensive than using CCC labor.
Budget Proposal Includes Minimal Plans for Divestment of Capital Assets. The CCC currently maintains 22 facilities, of which 5 are owned by the state and the remainder are leased. There are also four capital projects which are in various stages of development: three in the design phase (including the Delta Service Center project referenced earlier) and one in the construction phase (the Camarillo Satellite Relocation project, scheduled for completion in June 2009). The administration budget proposal to phase out CCC includes few details on the administration’s plans to divest this operation of its capital assets. As regards the Camarillo Satellite project, the budget assumes that this facility will be transferred to another state agency (not yet identified) in order that revenue bonds can be issued to pay off $18 million of interim financing on this project. However, there is no specific plan for such a transfer.
New Local Grant Program Proposal Lacks Definition. In order to offset the programmatic impact of the CCC elimination, the administration has proposed legislation to start a new program to provide grants to LCCs. The proposal appropriates $5 million in the budget year and $10 million in subsequent years (General Fund) to the Natural Resources Agency for a yet–to–be–defined grant program to LCCs. The administration proposal claims LCCs will be able to use the funds to absorb corpsmembers who would otherwise have joined the state CCC. It is not clear, however, that LCCs actually have the capacity to do so. The budget plan broadly proposes to direct the grant funding to education, operations, job training and emergency response, though it does not have specific details as to which of these would be the highest priority, nor how the grants would be distributed.
Proposed Grant Program Proposal Raises Issues for Legislative Consideration. While the Governor’s proposal to create a new local grant program may have merit, we think that the proposal raises significant policy issues that should be addressed to ensure a smooth transition from the state–operated CCC to a local grant program. The proposal, which is intended to mitigate the elimination of CCC programs, does not include details about how the funds would be disbursed. The proposal is also a substantial increase in General Fund support of the LCCs—from $337,000 in the current year, to $5 million in the budget year and ultimately $10 million in future years. We are concerned that the LCCs may not have the capacity to absorb so many additional corpsmembers, and they may not consider the administration’s proposal to shift CCC activities to them as a fit with their current program priorities.
Recommend CCC Elimination, but Deny Grant Program. In light of the significant General Fund budget shortfall, and the ongoing erosion of CCC’s core activities over time, we recommend approval of the proposal to eliminate CCC. However, we propose some modifications to the Governor’s budget plan as described below.
In particular, we think that the Governor’s proposed realignment of CCC functions to the local level warrants further legislative policy review. We therefore recommend that the Legislature not proceed with this component of the Governor’s proposal at this time to achieve $5 million in General Fund savings of this amount in 2009–10.
Capital Projects Should Be Halted. Our review found several capital outlay projects in process. These include the Delta Service Center, the Sierra–Placer Water Connection, and the Tahoe Base Center relocation project, all currently in the design phase. We recommend that work be halted on these projects that are in the early stages of development. If the Legislature approves the proposed phase–out of CCC operations, we see no reason why the Delta Service Center project should advance to the construction phase and be funded for such construction in the budget year. We therefore recommend reducing the CCC’s capital outlay appropriation by $26.7 million to reflect the halt of this project.
Capital Asset Divestment Plan Required. We recommend the administration prepare a specific plan for the divestment of CCC’s existing and developing capital projects, and submit this plan to the Legislature for its review at budget hearings. We are concerned that the $5.9 million from the General Fund proposed to be set aside to retire existing lease–revenue bond debt on CCC facilities—including those under development—may not be enough to pay down these debts. In addition, we are concerned about the budget’s assumption that the nearly constructed Camarillo project will be transferred to another state agency so that revenue bonds can be issued to repay interim financing costs of $18 million. There is no plan currently in place, however, that guarantees this result, meaning that there could be additional one–time General Fund costs in the budget year because the General Fund, rather than revenue bonds, would be called upon to pay off this interim financing.
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