The 2017-18 Budget

Department of General Services

The Department of General Services (DGS) provides a variety of services to state departments, such as procurement, management of state-owned and leased real estate, management of the state’s vehicle fleet, printing, administrative hearings, legal services, development of building standards, and oversight over school construction. The department generally funds its operations through fees charged to client departments. The Governor’s budget proposes $1.1 billion from various funds for support of DGS in 2017-18. This is a decrease of $29 million, or about 3 percent, from current-year estimated expenditures. (This excludes $1 billion provided in 2016-17 for state office buildings.)

This analysis includes reviews of the following budget proposals for DGS in the Governor’s 2017-18 budget plan:

• State Project Infrastructure Funding in 2017-18.

• Sacramento Region: State Printing Plant Demolition Preliminary Plans.

• Zero Emission Vehicle Project.

• Model Water Efficient Landscaping Ordinance (AB 2515).

• Building Standards Commission, Exterior Elevated Elements (SB 465).

State Project Infrastructure Funding in 2017-18

LAO Bottom Line. The Governor’s budget proposes to eliminate the $300 million transfer from the General Fund to the State Project Infrastructure Fund (SPIF) that was planned for 2017-18. This funding was expected to partially fund the new O Street Building, new Resources Building, and State Capitol Annex. We recommend the Legislature direct the administration to report at budget hearings on its plan for proceeding with these three projects in light of this proposed reduction.

Background

Legislature Established New Building Fund. In adopting the 2016-17 budget package, the Legislature established SPIF and provided $1.3 billion from the General Fund to SPIF over two years—$1 billion that was appropriated in 2016-17 and an additional $300 million in 2017-18. The fund is continuously appropriated for the renovation and construction of state buildings. The statutory language governing the fund allows the administration to establish and move forward with projects funded by the SPIF without having to receive legislative approval through the traditional state budget process, as is typically required for capital outlay projects. Instead, the language requires the administration to provide certain notifications and quarterly reports to the Legislature related to SPIF-funded projects.

First Three Sacramento-Area Projects Identified for Funding. The $1.3 billion included in the 2016-17 budget package was intended to be used for three initial building projects in the Sacramento area: a new building at the current Food and Agriculture Annex site on O Street (O Street Building), a new Resources Building at a different site, and either replacement or renovation of the State Capitol Annex. Since the passage of the 2016-17 budget, the administration has been moving forward with the O Street Building and the new Natural Resources Building, including providing a notification of its intent to spend a total of $4.9 million from the fund on the development of the cost, scope, and delivery method for the new O Street and Natural Resources Buildings. The department anticipates that the resulting information on cost, scope, and delivery method will be provided to the Legislature as a notification to the Joint Legislative Budget Committee (JLBC) in March 2017.

Administration Has Additional Construction and Renovation Projects Planned. The three initial projects proposed in 2016-17 reflect the first step of the administration’s larger regional strategy to expand and improve state office buildings in the Sacramento area over the next ten years. The strategy also proposes to construct another new state building at the existing printing plant site and renovate eight existing state buildings. We provide more information on SPIF and the three initial projects, as well as review the administration’s larger building strategy in our December 2016 report, The Administration’s Sacramento Office Building Construction Strategy: Ensuring Robust Oversight.

Governor’s Proposal

The Governor’s budget proposes to eliminate the $300 million transfer from the General Fund to SPIF that was planned for 2017-18. This funding was expected to fund some portion of the three initial projects.

LAO Assessment

Administration’s Plan Leaves Funding Gap for Three Initial Projects. It is highly unlikely that the $1 billion provided in 2016-17 will be sufficient to fund all three projects that were initially proposed. While the administration has yet to officially establish the cost of the three initial projects, its preliminary estimates place their cost at about $1.4 billion ($225 million for the O Street Building, $600 million for the new Resources Building, and $580 million for the State Capitol Annex). The administration has not yet indicated how it plans to fully fund these projects. The Legislature should have more information on the anticipated costs of the O Street Building and the new Resources Building—as well as other key project information—when the administration provides its next notification to the JLBC in March.

Administration Has Wide Discretion to Determine Effect on Three Projects. With the continuous appropriations process that governs the SPIF, the administration has significant discretion to determine how to allocate funds among projects. For example, the administration could choose to proceed with a less ambitious version of its original plan—either downsizing or eliminating one or more of the three projects—in order to stay within the remaining $1 billion in the SPIF. In this case, the administration would likely not need to return to the Legislature for additional approvals. Instead, it would report to the Legislature about these changes through the JLBC (for the new O Street Building and new Resources Building) and Joint Committee on Rules (for the State Capitol Annex). Alternatively, the administration could return to the Legislature to seek additional funding—either through a direct appropriation or approval of lease revenue bond funding—to complete all three initial projects as originally envisioned. At this point, the administration’s plan for proceeding is unclear.

LAO Recommendation

Direct Administration to Report at Budget Hearings. We recommend the Legislature direct the administration to report at budget hearings on its plan for proceeding with the three initial projects. Consistent with a recommendation in our December 2016 report, an appropriate opportunity for such hearings would be when project costs and scopes are defined—anticipated to be in March 2017 for the new O Street and Natural Resources buildings. Such hearings would not only provide the Legislature with an opportunity to review details of those two projects, but would also provide it with a chance to seek additional information from the administration regarding how the reduction in funding will affect all three of the initial projects. Additionally, hearings would provide an opportunity for the Legislature to convey any legislative priorities regarding how to spend the $1 billion provided in 2016-17.

Sacramento Region: State Printing Plant Demolition Preliminary Plans

LAO Bottom Line. We recommend that the Legislature approve the Governor’s proposal to spend $909,000 from the General Fund for the preliminary plans phase of a project to demolish the state’s existing printing plant. However, we continue to recommend that the administration provide additional information on its regional strategy for state office buildings—which includes a project to build a new office building at the site of the existing printing plant.

Background

The Office of State Publishing (OSP) provides printing services to a range of state departments and other public sector clients. Since 1954, OSP’s main operations have occupied a building on a 17-acre state-owned site in Sacramento. The office also occupies two other state-owned parcels and four other leased properties in the Sacramento area.

As described earlier in this analysis, the administration has released a strategy to build and renovate state office buildings in the Sacramento area over the next ten years. The strategy includes the construction of a new state building at the existing printing plant site.

Governor’s Proposal

The Governor proposes moving OSP’s main printing operations to leased space within the budget year. Once OSP relocates, the Governor proposes to demolish the existing plant to avoid utility and security costs associated with maintaining a vacant building and to facilitate the reuse of the OSP site. Accordingly, the Governor’s budget includes $909,000 from the General Fund to complete preliminary plans for a project to conduct the demolition. The total cost of the demolition is estimated to be $16.4 million, and the demolition is anticipated to be completed in 2021. Once the existing printing plant is demolished, the Governor plans to develop the site into a new state office building.

LAO Assessment

Moving Printing Plant and Demolishing Building Appears to Make Sense . . . Based on the information provided by the administration at the time this analysis was prepared, it appears to make sense to move OSP operations to leased space. This is because it appears that the operating costs associated with the existing printing plant are significantly higher than the projected lease and operating costs associated with a new facility. When accounting for one-time costs associated with moving OSP and purchasing the required new equipment, total costs associated with relocation are likely to be offset by lower operating costs within about a dozen years. Furthermore, once OSP vacates the printing plant site, it is probably reasonable to demolish the existing building. This is because the existing building is unlikely to represent the highest and best use for the site and the building would require some security and utility costs if left vacant.

. . . But Project Is Part of Larger Strategy That Lacks Key Information. While demolishing the printing plant appears to make sense on its own merit, the Legislature should be aware that this project is the first step in the administration’s plan to build a new office building on the site, consistent with its regional strategy. As we point out in our December 2016 report, The Administration’s Sacramento Office Building Construction Strategy: Ensuring Robust Oversight, the projects in that strategy are closely interrelated. Also, as we point out in that report, the administration’s strategy lacks basic information necessary to determine its merits. This includes the strategy’s costs, benefits, and potential alternative approaches—such as addressing a different mix of buildings than are proposed or leasing rather than constructing new space. It is important for the Legislature to have information on the strategy as a whole before making decisions on individual projects because of the interrelated nature of the projects.

We also note that, while the administration’s proposal does not include information on the costs of the construction of a new office building at the printing plant site, a conceptual cost estimate prepared at the direction of the administration estimates the project cost at over $950 million (about $700 per square foot).

LAO Recommendation

Approve Printing Plant Demolition Preliminary Plan Funding. We recommend that the Legislature approve the proposed $909,000 to complete preliminary plans for a project to demolish the existing printing plant because the demolition appears justified based on the information provided by the department—regardless of the ultimate use of the site.

Seek Additional Information From Administration. We continue to recommend that the administration provide additional information on its strategy for state buildings in the Sacramento area—including information on the new building at the printing plant site as well as other proposed projects. This information should include any updates to the strategy currently planned by the administration, as well as an evaluation of the strategy’s costs, benefits, and potential alternative approaches. The Legislature will want to have this information prior to authorizing any additional funding for construction of projects in the strategy, such as construction of a new building at the printing plant site.

Zero Emission Vehicle Project

LAO Bottom Line. The Governor proposes $6.7 million on an ongoing basis to support charging stations for Zero Emission Vehicles (ZEVs) in state government consistent with an administration expansion plan. If the Legislature finds that this expansion is consistent with its priorities, we recommend limiting any funding provided to 2017-18 given uncertainties about the future plan for state government ZEVs. We also recommend directing the department to report at budget hearings on other funding sources that could be available and its efforts to secure these sources.

Background

The Governor’s 2016 Zero Emission Vehicle Action Plan (Action Plan) establishes the goal that 50 percent of the state’s annual light-duty fleet purchases be ZEVs by 2025. It also establishes a goal of creating charging availability in at least 5 percent of workplace parking spaces by that date. Currently, DGS is in the process of surveying departments to gather information on their current state fleet, parking facilities, and charging stations. The survey also requests information from departments on their plans to purchase additional ZEVs and meet state targets. DGS expects to receive survey responses from departments in early 2017. After providing DGS with survey responses, departments are responsible for coordinating with DGS to perform facility assessments that will examine electrical infrastructure and other site conditions and identify appropriate locations for charging stations.

Governor’s Proposal

The Governor’s budget proposes an ongoing augmentation of $6.7 million from the Service Revolving Fund (SRF) and three positions for DGS to support charging stations for ZEVs. About half of this funding—$3.3 million—is proposed to come from the General Fund. In 2017-18, DGS anticipates that $2.6 million of the proposed funding would be used to complete 4,000 facility assessments, and $4.1 million would be used to design and install 230 charging stations to support the state’s fleet.

The Governor’s budget also proposes budget bill language that requires DGS to certify that it has maximized nonstate sources of funding prior to expending state funds. The language also allows the Department of Finance to augment non-General Fund appropriations in other departments’ budgets by an amount sufficient to reimburse DGS for ZEV activities.

LAO Assessment

Proposal Driven by Administration’s Plan. This proposal is driven by the administration’s policies, including its ZEV Action Plan. The Legislature will want to determine whether it concurs with the Action Plan’s goals to expand the state’s fleet of ZEVs and increase the number of charging stations available to state employees, particularly in light of its priorities for limited state funding. We note that the administration has not provided an assessment to demonstrate that its targets for the state fleet and state employee ZEV adoption are the most cost-effective way to achieve the state’s larger environmental goals. Accordingly, it is not clear if there are other ways that the state could meet those goals at lower cost.

Proposal Provides Only Partial Funding Toward Implementing Ambitious Plan. The proposal—while multiyear—would only fund a portion of the charging stations identified as part of the administration’s plan to increase ZEVs in state government. The department’s current plan is to incrementally increase the number of charging stations installed to support a growing number of ZEV purchases by state departments and employees each year until reaching the Action Plan goal in 2025. The current plan identifies that this approach will cost a total of $110 million over the next five years through 2021-22 and would install roughly 6,100 electric charging stations. However, this proposal would fund only about one-third of those estimated costs—$34 million—over this same five-year period. The administration has not identified how it proposes to make up this funding gap.

Unclear How Requested Funds Will Be Spent in Future Years. Furthermore, DGS has not identified how it proposes to spend the requested funding in out-years. Specifically, the department has not specified how much of the funding in future years will go towards assessments, workplace charging stations for employees, and fleet charging stations.

Other Funding Sources Might Be Available. The Governor’s proposal would provide $6.7 million annually towards ZEVs, with about half coming from the General Fund and half coming from various special funds through reimbursements from departments to SRF. However, there are other funding sources that potentially could fund this program. For example, the California Energy Commission’s Renewable Fuel and Vehicle Technology Program provides grants to deploy technologies that shift California's fuel and vehicle types to help attain the state's climate change policies. This program has provided funding to DGS to install charging stations in the past. Some other potential funding sources include the Greenhouse Gas Reduction Fund, court settlements with Volkswagen and NRG Energy, as well as various utility ZEV programs. In many cases, using these other funding sources could create some trade-offs, particularly reducing the funds available for other eligible projects. However, given other demands on the General Fund, it is worth fully exploring the feasibility of these and other funding sources before committing General Fund.

The department indicates that it has been exploring the use of other funding sources, and its proposed budget bill language is intended to ensure that nonstate funding sources have been maximized prior to expending state funds. However, some alternative state funding sources might only be available if the Legislature makes the necessary appropriation in the budget.

LAO Recommendation

Ensure Consistency With Legislative Priorities. We recommend that the Legislature determine whether the administration’s goals for state fleet and state employee ZEVs in the administration’s Action Plan are consistent with its policy and funding priorities prior to taking action on the Governor’s proposal.

Limit Funding to 2017-18. If the Legislature is comfortable with the administration’s goals, we recommend that the Legislature approve the proposal on a one-year limited-term basis in 2017-18. Funding for future years is not justified at this time because it is unclear whether the proposed funding amount is the appropriate level for future years. The department has not identified how out-year funding for state government ZEVs will be allocated—to assessments, fleet charging stations, and workplace charging stations. The approach of approving funding on a one-time rather than ongoing basis would also have the advantage of facilitating oversight and providing the Legislature with an opportunity to hear from the department about what it has learned during the first year of implementation—including its surveys and facility assessments—prior to making any future funding commitments.

Direct DGS to Report on Other Funding Sources. Prior to approving the proposal, we recommend that the Legislature consider other funding sources besides the General Fund for state government ZEVs and direct DGS to report at budget hearings about other funding sources it has considered and provide an update on its efforts to identify other potential sources of funding.

Model Water Efficient Landscaping Ordinance

LAO Bottom Line. We recommend that the Legislature reject the Governor’s proposal to provide one permanent position and $208,000 from the Building Standards Special Revolving Fund to implement Chapter 576 of 2016 (AB 2515, Weber). We find that the department has not provided adequate workload justification for the position at this time.

Background

California Building Standards Commission (CBSC) Approves Building Standards. Established in 1953, CBSC reviews and approves all building standards proposed or adopted by state agencies. These building codes are included in a separate title of the California Code of Regulations known as Title 24 and are required to be updated every three years.

Development of Model Water Efficient Landscaping Ordinance (MWELO). In 1992, pursuant to Chapter 1125 of 1990 (AB 325, Clute), the Department of Water Resources (DWR) developed a MWELO, which included various requirements aimed at reducing the amount of water used to irrigate landscaping. For example, the ordinance required that landscaping associated with certain construction projects stay within a prescribed amount of water use. Initially, adoption of the MWELO by local jurisdictions was not required. Subsequent legislation, Chapter 559 of 2006 (AB 1881, Laird), required local governments to adopt the MWELO or a local ordinance at least as effective at conserving water. Chapter 559 also required DWR to update the MWELO no later than January 2009 if funds were appropriated to the department for this purpose. DWR completed this update in September 2010. In July 2015, DWR completed another update to the MWELO, consistent with the Governor’s Executive Order B-29-15 related to the drought.

Recent Legislation Requires DWR to Consider Updates to MWELO. Chapter 576 requires DWR on or before January 1, 2020, and every three years thereafter, to either update the MWELO or make a finding that an update is not a useful or necessary. Chapter 576 also requires DWR to submit updates, if any, to the CBSC during the Title 24 triennial update process.

Governor’s Proposal

The Governor’s budget proposes one permanent position and $208,000 from the Building Standards Special Revolving Fund (funded through a fee on building permits) to implement Chapter 576. The position would continuously monitor DWR’s future updates to MWELO, if any, and coordinate with DWR on the integration of those updates into Title 24 if necessary.

LAO Assessment

Insufficient Workload Justification. Chapter 576 does not require CBSC to conduct any specific monitoring activities associated with the MWELO, and we expect any additional monitoring activities undertaken by CBSC would be negligible. If DWR decides to update the MWELO, we expect that there could potentially be some additional workload for CBSC to incorporate revisions into Title 24 during the triennial update process. However, it is premature to provide staff for this purpose because it is not clear when or if DWR will propose an update to the MWELO. We note that DWR has not requested additional funding to undertake an update to the MWELO at this point. Furthermore, Chapter 576 does not require DWR to consider updates until January 2020. Accordingly, there is no indication that there will be workload for CBSC in 2017-18 related to updating Title 24 to incorporate DWR’s proposed changes to the MWELO, if any.

LAO Recommendation

Reject Request. We recommend that the Legislature reject the Governor’s proposal because the department has not provided adequate workload justification for the position at this time. Should DWR move forward with an update of the MWELO, CBSC could request staff to support DWR’s update at that time based on its projected workload.

Exterior Elevated Elements

LAO Bottom Line. We recommend that the Legislature modify the Governor’s proposal to approve one position and $208,000 from the to develop regulations for exterior elevated elements on a two-year limited-term rather than an ongoing basis. We find that the department has not provided adequate workload justification for the ongoing nature of the requested position at this time.

Background

Chapter 372 of 2016 (SB 465, Hill) requires CBSC to convene a working group to investigate recent exterior elevated element (balcony) failures in the state and requires the working group to submit a report to the Legislature containing findings and possible recommendations for statutory changes to Title 24 by January 1, 2018. In April 2016, CBSC convened the working group required under Chapter 372. In December 2016, the working group provided CBSC with an update of its work. In January 2017, CBSC voted to approve emergency regulations for exterior elevated elements.

Governor’s Proposal

The Governor’s budget proposes one permanent position and $208,000 ongoing from the SRF to implement Chapter 372. The position would provide staff support for the development of new building standards related to exterior elevated elements.

LAO Assessment

Workload Largely Temporary. The workload associated with developing new standards under the emergency regulations is temporary and most likely will be completed within a couple of years. We anticipate that there might be some workload associated with future updates to Title 24, but the level of this workload is uncertain and not likely to be sufficient to justify a permanent staff position.

LAO Recommendation

Given the temporary nature of the workload associated with implementing building standards consistent with the requirements of Chapter 372, we recommend approving the funding for the requested position on a two-year limited-term basis.