The 2017-18 Budget

Department of Motor Vehicles (DMV)

DMV is responsible for registering vehicles, issuing driver licenses, and promoting safety on California’s streets and highways. Currently, there are 24 million licensed drivers and about 30 million registered vehicles in the state. Additionally, DMV licenses and regulates vehicle-related businesses such as automobile dealers and driver training schools, and collects certain fees and tax revenues for state and local agencies.

The Governor’s budget includes $1.1 billion for DMV in 2017‑18, which is about the same as the estimated level of spending in the current year. About 95 percent of all DMV expenditures are supported from the Motor Vehicle Account (MVA), which generates its revenues primarily from vehicle registration and driver license fees. The level of spending proposed for 2017‑18 supports about 8,300 positions at DMV.

AB 60 Ongoing Workload

LAO Bottom Line. The Governor proposes $8.6 million and 91 positions on an ongoing basis for Chapter 524 of 2013 (AB 60, Alejo) workload. Due to uncertainty about the number of AB 60 applicants in the future, we recommend that the Legislature withhold action on the proposal pending the receipt of updated workload information. In addition, we recommend that the Legislature require DMV to report annually on the number of field office visits for AB 60 licenses and the number of licenses issued each year.

Background

Assembly Bill 60. Assembly Bill 60 requires that DMV accept driver license applications from California residents who are unable to submit satisfactory proof of legal presence in the US (such as a social security number), provided they meet all other application requirements and provide proof of identify and residency. Assembly Bill 60 licenses look the same as other California driver licenses, except for a notation on the upper right portion of the license. California residents with an AB 60 license can use the license to operate a vehicle on California roadways and as identification for state or local purposes. Assembly Bill 60 licenses are not a valid form of identification for federal purposes, such as to verify identity in order to board a commercial air flight.

In order for DMV to implement AB 60, the Legislature has provided temporary funding and positions since 2014‑15 to the department. In the current year, these resources consist of $14.8 million and 258 positions, which are set to expire on July 1, 2017. Since the implementation of AB 60 on January 1, 2015, and through January 31, 2017, DMV has issued 836,000 AB 60 licenses. Due to pent up demand, the majority of AB 60 licenses, about 605,000, were issued in the first year alone.

Governor’s Proposal

The Governor’s budget proposes $8.6 million (MVA) and 91 positions on an ongoing basis for workload from issuing AB 60 licenses. This level is significantly less than the $18.7 million and 215 positions provided for AB 60 workload in 2016‑17 on a one-time basis. According to DMV, 62 of the requested positions would be located in DMV field offices in regions with high AB 60 workload. However, at this time, DMV has not indicated which specific field offices would receive the positions. The remaining 29 positions would be located in DMV’s headquarters office. The request also includes costs associated with producing driver license cards, printing forms and informational materials, and contracts for interpreters.

LAO Assessment

Proposal Assumes Future Workload Will Be Lower Than Current Level. The level of resources proposed in the Governor’s budget assumes that 2,000 people will visit DMV each week on an ongoing basis to apply for an AB 60 license. However, over the last few months, the average number of weekly visits to DMV from November 2016 through early February 2017 for AB 60 licenses was 2,700, or about 35 percent higher than the level assumed in the Governor’s budget. Thus, the proposal assumes that workload associated with AB 60 will decline in the spring and level off at a rate of 2,000 visits each week beginning in 2017‑18.

Impact of Federal Immigration Policy Changes on AB 60 Workload Remains Uncertain. In the coming months and years, it is uncertain how potential changes in federal immigration policies could change the size of the population of California residents who qualify for an AB 60 license. For example, an increase in federal immigration enforcement could result in fewer individuals being eligible than otherwise. On the other hand, it is possible that the population eligible for AB 60 licenses could increase, such as to the extent immigrants from other states relocate to California. It is also unclear whether federal immigration policy changes would result in more or fewer eligible California residents applying for an AB 60 license. For example, some eligible residents may be uncomfortable identifying themselves to a government agency, while others may be more motivated to apply for an AB 60 license in order to ensure that they are complying with the state’s driving laws.

LAO Recommendation

Withhold Action Pending Updated Workload Numbers This Spring. Due to uncertainty about the number of AB 60 applicants as well as the Governor’s assumption that the number of applicants will decline over the next several months, the Legislature will want to have updated information before making a decision on the level of resources to provide for DMV’s future AB 60 workload. Accordingly, we recommend that the Legislature direct DMV to report at budget hearings this spring with updated information on the actual AB 60 workload levels experienced by DMV. This information will help the Legislature assess whether the level of resources included in the Governor’s proposal is appropriate or requires modification. Accordingly, we recommend the Legislature withhold action on the Governor’s proposal pending the updated workload information.

Ensure Ongoing Reporting Has Sufficient Information on Workload. Given the potential uncertainty with AB 60 workload, we recommend that the Legislature require DMV to report annually, beginning March 1, 2018, on the number of field office visits for AB 60 licenses and the number of licenses issued each year. This information will ensure that the Legislature receives detailed information on AB 60 workload and outcomes in future years.

Field Office Replacement and Improvement

LAO Bottom Line. We recommend the Legislature consider the Governor’s proposed DMV field office replacement and renovation projects in the larger context of an MVA fund that will likely be in danger of running a shortfall over the next several years. For example, the Legislature may want to consider deferring one or more of the proposed projects.

Background

Plan to Replace DMV Field Offices Initiated in 2015-16. DMV operates 313 facilities, which include customer service field offices, telephone service centers, commercial licensing facilities, headquarters, and driver safety and investigations offices. Over half of DMV facilities are customer service field offices. According to DMV, most of its field offices are programmatically deficient. For example, the department reports that many customer service field offices were built in the 1960s and 1970s and are not sufficiently sized to accommodate the number of customers who currently use the offices. This is primarily because of population increases in the areas served by the offices. In addition, DMV reports that certain customer service field offices are seismically deficient, which creates safety risks.

Beginning in 2015‑16, the administration initiated a plan to replace a couple of DMV field offices each year for the next several years. As part of this plan, the Legislature approved $4.7 million in 2015‑16 to initiate the replacement of DMV field offices in Inglewood, Santa Maria, and Delano and another $4.3 million in 2016‑17 for the design phase of these offices. In addition, in 2016‑17 the Legislature approved $1.3 million for preliminary plans to initiate a fourth DMV field office replacement in San Diego.

Vehicle Registration Fee Increase Intended to Stabilize MVA. As part of the Governor’s 2016-17 budget proposal, the administration estimated an MVA shortfall of about $310 million in 2016‑17 (assuming no new revenue or expenditures), with this amount increasing in future years. If left unaddressed, the ongoing shortfalls would result in MVA becoming insolvent in 2017‑18. In response, the 2016‑17 budget package included trailer legislation (1) increasing the base vehicle registration fee by $10 (from $46 to $56) beginning April 1, 2017 and (2) indexing the fee to automatically increase with inflation. In addition to DMV, the MVA also provides funding to the California Highway Patrol and the Air Resources Board.

Governor’s Proposal

DMV Field Office Replacements and Improvements. The Governor’s budget provides about $26 million from the MVA to initiate or continue several DMV field office replacement and renovation projects as well as the construction of perimeter fencing at nine existing DMV field offices. Specifically the budget includes:

• $2.2 million to fund the acquisition phase of the Reedley DMV field office replacement. The proposed facility would be 13,701 square feet, or more than three times larger than the existing 4,030 square foot leased facility that is currently used for the Reedley DMV field office. The total estimated cost of the facility is $18.4 million.

• $418,000 to fund preliminary plans for the renovation and reconfiguration of the existing 11,421 square foot Oxnard DMV field office. The total estimated cost of the renovation and reconfiguration project is $5.8 million.

• $15.1 million for the construction phase of the 15,644 square foot Inglewood DMV field office replacement. The construction cost is about $2 million higher than estimated when the project was initially approved. The project is estimated to cost a total of $17.2 million.

• $2.4 million in 2017-18 and $400,000 ongoing in support costs for leased space associated with the Inglewood DMV field office replacement project. This amount would fund the lease for a temporary field office that will operate while the existing Inglewood DMV office is torn down and rebuilt on the same site. The ongoing costs are associated with the permanent relocation of the investigations unit that is currently colocated with the Inglewood DMV field office to a new leased space.

• $1.5 million for working drawings for the onsite replacement of the San Diego Normal Street DMV field office. The proposed facility would be 18,500 square feet, which is somewhat larger than the existing 15,467 square foot facility. The total estimated project cost is $22 million, which is $2.8 million higher than initially estimated.

• $4 million for the design and construction of perimeter fences at nine existing state-owned DMV field offices. DMV reports that these field offices have experienced significant levels of vandalism and safety concerns for state staff.

Statewide Planning and Site Identification. The budget also includes $750,000 from the MVA to identify suitable parcels for replacing up to two additional field offices and three reconfiguration or renovation projects. The proposal also includes provisional language to allow augmentations of up to $1 million for the purpose of entering into purchase options.

Five-Year Infrastructure Plan for Replacement of DMV Offices. The administration’s recent Five-Year Infrastructure Plan—which proposes state spending on infrastructure projects in all areas of state government through 2021-22—includes ongoing projections of DMV’s office replacement needs. Specifically the plan proposes a total of $657 million over the next five years. Figure 1 summarizes the planned spending by project and by year.

LAO Assessment

We recognize that many of DMV’s existing field offices have deficiencies that merit their replacement or improvement in the near future. However, we note that the Governor’s proposal to replace and renovate additional DMV offices—as well as other proposals to increase MVA expenditures—would impact the condition of the MVA. As indicated earlier, the Legislature increased the vehicle registration fee as part of the 2016-17 budget package to prevent the MVA from becoming insolvent. The Department of Finance’s five-year projections (2017‑18 through 2021‑22) estimate there will be sufficient funding available in the MVA to pay for projected expenditures, including DMV field office replacements and renovations. However, over the next few years, the MVA would be barely balanced and likely face a modest operational shortfall in certain years.

LAO Recommendation

In view of the above, we recommend that the Legislature consider the proposed DMV field office replacement and renovation projects in the context of the MVA fund condition and its other MVA expenditure priorities. As such, the Legislature may want to consider deferring one or more of the projects proposed for funding in 2017‑18. The Legislature may also want to consider reducing the proposed funding for advanced planning and site selection as a way to limit the number of additional replacement and renovation projects (and the associated costs to complete the projects) that are allowed to proceed.