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Other Budget Issues

Last Updated: 5/1/2012
Budget Issue: Restructuring of Second-Level Appeals
Program: California Unemployment Insurance Appeals Board (CUIAB)
Finding or Recommendation: Modify the Governor's proposal to restructure second-level appeals by maintaining the current board structure while reducing Board membership from seven to five and modifying Board member qualifications, for annual savings of $430,000 ($215,000 in BY). Also, eliminate four vacant positions within the CUIAB in recognition of declining workload, for annual savings of $710,000 ($354,000 in BY).
Further Detail


The CUIAB is an independent administrative judicial agency that provides due process for workers and employers who wish to appeal determinations made by the Employment Development Department (EDD) on unemployment insurance (UI) and disability insurance benefits and payroll taxes, as well as state personal income tax withholdings.

CUIAB Provides Two Levels of Administrative Appeals. Current law provides workers and employers two levels of  administrative appeal from these EDD determinations prior to a case being appealed to the courts. The first level is an appeal to an Administrative Law Judge (ALJ) in CUIAB field offices throughout the state. The second level is an appeal of the decision made by first-level ALJ and is decided by members of CUIAB’s seven-member board (Board). The Board consists of five Governor’s appointees—who must be confirmed by the Legislature—and two legislative appointees. Prior to review of a second-level appeal by the Board members, an ALJ reviews the case and prepares a proposed decision for adoption by the Board. Two Board members then review the proposed decision and determine whether it should be adopted. If the two Board members agree, the decision is issued. Otherwise a third member is assigned to cast a deciding vote. If claimants are dissatisfied with the Board’s final decision on the second-level appeal, they may appeal the decision to the Superior Court.

CUIAB Board Has Other Responsibilities in Addition to Deciding Second-Level Appeals. In addition to deciding second-level appeals, the Board also has the responsibility of designating decisions as precedent decisions, establishing regulations governing CUIAB operations, and approving CUIAB’s operating budget.

Minimum Qualifications for CUIAB Board Members and ALJs. Under current law, two of the seven Board members must be attorneys, while no requirements exist for the remaining five Board members. In general, CUIAB ALJs are required, at minimum, to be an attorney and have one year of experience in conducting judicial hearings or five years of experience in the practice of law.

CUIAB Funding. The Governor’s proposed 2012-13 budget includes $102 million and 918 personnel years in support of the CUIAB. The majority of this funding is federal funds ($92.7 million) and special funds ($9 million), while a small portion comes from the General Fund ($265,000).

Governor’s Proposal

As part of the 2012-13 budget, the Governor proposes to eliminate the seven-member Board which heads the CUIAB and restructure the second-level appeals process. Under the Governor’s proposal, decisions on second-level appeals would be issued by an ALJ from among the group of ALJs who currently serve as authors of Board decisions. A new four-member panel of presiding ALJs (PALJs) would review a random sample of second-level appeal decisions for quality control. In addition, a new Bureau Director—appointed by the Governor—would assume the remainder of the Board’s current responsibilities (with the exception of establishing precedent decisions, which would be done by a Precedent Decisions Committee consisting of CUIAB upper-level management and headed by the Bureau Director). Beginning in 2013-14, these changes to restructure the second-level appeals process would result in the reduction of seven Board member positions (3.5 positions in the budget year) and the establishment of five new positions (2.5 positions in the budget year), consisting of one new Bureau Director and four new PALJs. On net, the restructuring changes ultimately result in a reduction of two positions (one position in the budget year), for a savings of about $491,000 (about $245,000 in the budget year). In addition to restructuring the second-level appeals process, the Governor also proposes to eliminate four vacant ALJ positions (two positions in the budget year) due to declining workload for a savings of about $354,000 in the budget year and $710,000 in the out years. (These savings arise independent of the Legislature’s action on the Governor’s restructuring proposal.)

LAO Analysis

Fiscal Benefit to the State Would Be Limited. The Governor’s proposals would reduce CUIAB’s budget by a total of $600,000 in 2012-13 and $1.2 million in the out years. However, the majority of these reductions involve federal funds. Only $3,000 in General Fund savings would be realized in 2012-13 and $6,000 in the out years. Over time, the reduced uptake of federal funds resulting from this proposal would likely result in an equivalent decrease in the state’s federal Unemployment Insurance administrative grant which is the primary source of funding for the administration of the state’s UI program.

Change in Review Process for Second-Level Appeals Involves Tradeoffs. A primary component of the Governor’s proposal is the reduction in the level of review for second-level appeals. Under current law, a second-level appeal is reviewed first by one ALJ and then by a minimum of two Board members. Under the Governor’s proposal, all second-level appeals are only reviewed by one ALJ, with a portion of cases being additionally reviewed by one PALJ. This proposed change has both advantages and disadvantages. On the one hand, the administration estimates that this change would reduce the processing time of claims not randomly selected for quality control review by one to two days as well as reduce the overall workload associated with second-level appeals. On the other hand, a reduced level of review may decrease the quality of decisions on second-level appeals. This could increase the number of cases appealed to the Superior Court system. However, as the Board members currently only call for substantive changes to a small percentage (about 3.5 percent) of ALJ proposed decisions, the impact on second-level appeal decision quality and the workload of Superior Courts is likely to be limited.

Elimination of Appointed Board Would Reduce Legislative Oversight. Under current law, all seven members of the Board are either appointed by the Legislature or subject to legislative confirmation. While the Governor’s proposal would transfer some Board responsibilities to a Bureau Director who would be subject to legislative confirmation, some of the Board’s current responsibilities—such as review of second-level appeals and selection of precedent decisions—would be transferred to individuals who are neither appointed by the Legislature nor subject to legislative confirmation. This reduces the Legislature’s oversight of CUIAB operations.

LAO Alternative

We recommend the Legislature take two actions. First, we recommend the Legislature eliminate two vacant ALJ positions in the budget year and four vacant ALJ positions in 2013-14—as proposed by the Governor—for a savings of $354,000 in the budget year and $710,000 in the out years. These reductions are appropriate given declining ALJ workload.

Second, we recommend the Legislature adopt a modified version of the Governor’s proposal which would achieve an equivalent level of budgetary savings, by eliminating two Board member positions, while maintaining a greater level of legislative oversight of the CUIAB. The elements of our alternative are described below.

  • As Proposed by the Governor, Transfer the Responsibility for Issuing Decisions on Second-Level Appeals to ALJs. Similar to the Governor, we recognize the opportunity to increase efficiency and reduce processing time for appeals by transferring the responsibility of issuing second-level appeals decisions to the ALJs that currently serve as the authors of Board decisions. As mentioned above, under the current system a vast majority of proposed decisions written by ALJs are adopted by the Board without substantial changes. Therefore, we recommend transferring the responsibility for issuing second-level appeal decisions to ALJs.
  • Maintain the Board, But Reduce Its Size From Seven to Five Members and Modify Board Member Qualifications. To maintain legislative oversight of CUIAB operations, we recommend maintaining the board structure with appointed members. However, we recommend two modifications to the current structure. First, we recommend reducing the size of the Board from seven to five members, with the Legislature retaining its authority to appoint two Board members and the Governor having authority to appoint the remaining three members, subject to legislative confirmation. This change can be made without creating undue workload for the retained Board members because of the shift in responsibility to ALJs recommended above. Also, we note that the Board has operated with five members (due to two vacancies) since October 2011. Second, we recommend that the compensation and required qualifications of the Board members be aligned with those of ALJs. This would reduce the annual salary of Board members from $128,112 to about $114,000. Taken together, these changes—reducing the size of the Board and decreasing Board member compensation—would result in annual savings of about $430,000.
  • Subject Second-Level Appeal Decisions Issued by ALJs to Random Quality Control Review by Board Members. Similar to the Governor, we recommend that second-level appeal decisions issued by ALJs be randomly reviewed for quality control. However, unlike the Governor, we recommend that the responsibility of reviewing second-level appeal decisions be given to the Board. Establishing a quality control process will help maintain the current level of quality in second-level appeal decisions.