In a Spring Finance Letter, the Governor proposes using remaining funds from a 2009 settlement agreement to provide the Secretary of State a three-year funding increase of $463,000 per year and three positions to support the agency's activities related to the implementation of SB 450. We recommend that the Legislature (1) use this proposal and the implementation of SB 450 to reconsider the state's role in paying for elections administration and (2) consider the appropriate level, duration, and source of funding to support the Secretary of State's SB 450 activities.

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Nick Schroeder

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Budget and Policy Post
April 25, 2017

The 2017-18 Budget

Secretary of State Spring Finance Letter


Background

Recent LAO Report on Elections Administration. Counties administer most elections in California and bear the cost of administering state and federal elections. The Secretary of State is the state’s chief elections official and oversees the administration of elections across the state, including certifying voting equipment that may be used in California elections. In a report that our office released in March 2017, we (1) concluded that the state’s current level of financial support for the administration of elections does not reflect the benefit the state receives from counties administering elections and (2) recommended that the Legislature develop a new financial relationship between the counties and state to fund elections.

New Model of Voting in California. SB 450 (Chapter 832 of 2016) has the potential to dramatically change how most Californians vote. Under SB 450, counties may replace the current precinct model of voting with a new “vote center” model. However, there is no requirement that counties implement the vote center model. The law allows 14 counties—accounting for about one-fifth of California’s registered voters—to implement the new voting model in 2018 and the remaining counties to implement the model in 2020. As counties implement the vote center model of voting, the Secretary of State will be overseeing two very different voting models across the state. When the Legislature was considering SB 450, Secretary of State estimated the annual cost to its agency resulting from the legislation to be $280,000 for three positions.

Voting Equipment Across California Need to Be Updated. As we discuss in our report, most counties in the state use antiquated voting equipment that raise concerns over security and the potential for a catastrophic failure of a voting system in an election year. In the past, the state and federal governments have provided funding to counties to modernize voting equipment.

2009 Settlement Agreement. In 2007, the Secretary of State sued a vendor for selling to counties voting systems with modifications not yet authorized by the Secretary of State. In 2009, the state and a vendor reached a settlement agreement whereby the vendor provided the state $3.25 million. The settlement agreement imposed restrictions on how the Secretary of State could use the money. Pursuant to these restrictions, $2.9 million is available “for the purposes of voting systems review, approval, security measures and election administration.”

Proposal

Appropriate Funds to Secretary of State Through June 30, 2020. The administration requests a three-year funding increase of $463,000 per year for the Secretary of State and three positions to support the agency’s activities related to the implementation of SB 450. The administration identifies the 2009 settlement agreement as the funding source for this request. Under the administration’s proposal, there would be about $1.5 million of the settlement money remaining when the funding authorization ends on June 30, 2020.

LAO Comments and Recommendations

No Proposal to Alter State’s Financial Relationship With Counties. As we discuss in detail in our report, the state currently owes counties about $71 million for outstanding elections mandates incurred in prior years. Despite these mandates being suspended, counties continue the activities associated with the suspended laws—costing counties roughly $30 million in general election years. In addition, the Secretary of State estimates the total costs to replace counties’ voting equipment to be around $400 million. To date, the administration has made no proposal to provide state money for these costs or for any costs counties might incur to implement SB 450.

Broaden Discussion Beyond Proposal. We think the Legislature should establish a new financial relationship between the state and county elections officials that allows the state to (1) direct statewide elections policy and (2) provide to counties a reasonable and reliable level of financial support that reflects the benefits to the state of county elections administration. Specifically in our report, we recommend that the Legislature structure ongoing support for elections as a block grant to participating counties. The pending implementation of SB 450 and this budget proposal give the Legislature an opportunity to consider how to structure a new financial relationship to ensure consistency across counties as well as address other elections issues that we discuss in our report.

Consider Appropriate Level, Duration, and Source of Funding for Secretary of State. As we indicate in our report, it is reasonable to assume that the Secretary of State will need additional resources to oversee the implementation of SB 450. When considering the proposal now before the Legislature, we think the budget committees should consider four key questions:

  • Why Are Estimated Secretary of State Costs Higher Than Estimated in August 2016? The requested annual appropriation to the Secretary of State to support SB 450-related activities is 65 percent higher than the estimated costs that Secretary of State provided the Legislature when it was considering SB 450. The Secretary of State indicates that the increase is due to (1) bill changes toward the end of session and (2) discussions with county elections officials since the enactment of the legislation. The budget committees should seek to understand why the Secretary of State now thinks it will incur significantly higher costs resulting from this legislation.
  • Should This Funding End Five Months Before 2020 General Election? Proper administration of elections is essential for the democratic process. Administering elections—especially in presidential election years—is a logistical feat with many opportunities for highly visible errors and disruptions. Under SB 450, most counties first have the opportunity to implement the new voting model in the 2020 election cycle—a presidential election year. This means that potentially more than 15 million registered voters in the state will be using the vote center model for the first time when they cast their ballots in the June 2020 primary or November 2020 general elections. Under the administration’s proposal, the Secretary of State’s funding for overseeing the rollout of this new voting model would end June 30, 2020. Although many problems with the new voting model likely will be identified and resolved following the 2018 elections and the 2020 primary election, it seems potentially unwise to defund the entity responsible for overseeing the rollout of the new voting model before the system has been in place for a majority of counties in a presidential general election. In addition to not disrupting the oversight Secretary of State provides leading up the November 2020 election, extending the appropriation through 2020-21 could allow the Secretary of State to assess the successes and shortcomings of the new voting model. The Legislature could formally require the Secretary of State to report its findings and recommend possible improvements to SB 450 following the state’s experience with the new voting model.
  • How Should The State Use the Remaining 2009 Settlement Funds? The administration’s request appears to be an appropriate use of the settlement funds as it (1) funds the Secretary of State’s elections administration—one of the possible uses of the money under the terms of settlement agreement—and (2) uses one-time funds to pay for limited-term activities. That being said, California needs to invest more money into its elections administration—for example, most voting equipment across the state needs to be replaced. Even if the Legislature were to extend the requested appropriation through 2020-21, there would be more than $1 million of the settlement funds remaining at the end of the period. It is not clear if the administration has plans for how to use these remaining funds. The Legislature could explore possible uses for this money, including combining it with other funds to help pay the state’s share of purchasing new voting equipment.
  • Could Secretary of State Need Ongoing Funding for SB 450-Related Activities? A number of counties have indicated that they plan on implementing the new voting model allowed under SB 450. To the extent that other counties do not implement the new voting model, the Secretary of State will need to provide continued oversight of two very different voting models. It is possible that Secretary of State will need some level of ongoing funding beyond 2020-21 to support these activities. Money from the General Fund—rather than one-time settlement money—likely will need to be the funding source for any ongoing oversight activities in the future.