The Trade and Commerce Agency is designated as the state's primary economic development entity for promoting the establishment, retention, and expansion of business, employment, and international trade in California. It promotes tourism and foreign investment as well. The agency also has been designated as the entity leading the state's efforts in defense conversion.
The budget proposes expenditures of $69.2 million from various funds ($39.6 million General Fund) for the Trade and Commerce Agency in 1996-97. This is $13.9 million, or 17 percent less, than current-year expenditures. This reduction is due mainly to a $13.1 reduction in various special funds for local economic development grant and loan projects. The agency's General Fund expenditures are proposed to increase by a net $1.8 million, or 4.7 percent, in the budget year. This includes a $3 million General Fund augmentation for the Defense Adjustment Matching Grant Program.
We recommend that the Legislature delete $3 million in General Fund expenditures for the Defense Adjustment Matching Grant Program because the agency has not justified the need for this appropriation. (Reduce Item 2920-101-001 by $3 million.)
The budget proposes $3 million in General Fund expenditures for the Defense Adjustment Matching Grant Program. The agency proposes to continue this $3 million augmentation in 1997-98 and 1998-99. This program provides grants to local agencies seeking federal funding for defense conversion planning and program implementation, as well as military base reuse planning. Federal agencies typically require that grantees provide 25 percent of the total project cost from local or other nonfederal sources.
Program Background.During 1993-94, the agency established the Defense Adjustment Matching Grant Program. The agency received permission from the U.S. Economic Development Administration (EDA) to finance the program with the monies remaining in the California Economic Development Grant and Loan Fund. This fund was established in the late 1970s with money from the EDA and was used primarily for business loans. The Trade and Commerce Agency used all available funds--$1.5 million--to approve 20 grants.
In the 1995 Budget Act, a $1 million General Fund appropriation was approved for the agency to continue its efforts in this area. In the current year, the agency has awarded five grants, totaling $468,000, to local communities. Four of these awards are "planning grants," which are intended to help communities affected by base closures in creating reuse plans "identifying specific near-term development opportunities and requirements" (such as the development of an Environmental Impact Report). The other award is an "implementation grant," which is for the "fundamental infrastructure necessary for commercial activities" on the closed base (such as investments in roads, sewers, or electrical and gas supplies). The agency expects to award the remainder of the appropriation--$532,000-- by the end of the current year.
In our Analysis of the 1995-96 Budget Bill,we recommended that the Legislature not approve General Fund support of this program because the agency had not evaluated the effectiveness of the 20 grants that had already been approved. Therefore, the benefits resulting from these state grants were uncertain.
General Fund Support Not Justified.To date, the agency still has not evaluated the effectiveness of the grants it has approved. These state grants are purportedly used to assure the receipt of federal grants for redevelopment of closed military bases. (State funding, however, is not required as a condition for receiving these federal grants.) The agency has provided no data indicating that the state grants were necessary to assure receipt of federal planning funds. In short, the agency has not demonstrated how the state grants make a difference in the redevelopment process for communities affected by base closures. Consequently, we recommend that the Legislature delete the $3 million proposed for the Defense Adjustment Matching Grant Program.
We recommend that the Legislature delete $500,000 requested for economic development marketing campaigns because this augmentation is not justified. (Reduce Item 2920-001-0001 by $500,000.)
The budget proposes $500,000 for the agency to spend on various economic activities:
Augmentation Not Justified.We believe that the agency's request for $500,000 is not justified for two main reasons. First, it is currently part of the agency's general role to market the state for increased economic development. The agency spends the bulk of its $38 million General Fund budget annually for this purpose. Thus, it is not clear why it cannot redirect some of its existing resources for the new "campaigns" proposed above. Second, the agency claims that this augmentation will result in "increased business investment and job creation in California." Yet the agency has not defined clear goals and measures for ensuring the effectiveness of these expenditures. For example, the agency states that the success of the base reuse marketing campaign will be measured by the number of companies that locate on base properties and the number of jobs these companies generate. However, the agency does not specify how many business leads it expects from the campaign or a methodology for measuring the business relocations that occur as a direct result of spending the state funds. The agency has not shown how its proposed augmentation or marketing campaigns will result in commensurate benefits to the state from these additional General Fund expenditures. Therefore, we recommend that the Legislature disapprove the $500,000 augmentation for business marketing.
We recommend that the Legislature delete $400,000 for the Regulation Review Unit because this unit duplicates current state efforts. Agency review of particular regulations, if needed, should be done within existing resources. (Reduce Item 2920-001-0001 by $400,000.)
The budget proposes $400,000 and five positions to permanently establish the Regulation Review Unit. Funding for this unit was approved in the 1995 Budget Act on a one-year limited-term basis. The unit was established in response to Ch 418/93 (SB 1082, Calderon)
which gives the agency the discretion to review and evaluate the findings by any state agency proposing regulations.
Unit Duplicates State Efforts.Current law does not require the establishment of this unit nor does it require the agency to evaluate every proposed regulation. Instead, it grants such authority. The unit has been fully staffed since mid-year and it proposes to review allproposed regulations to ensure that the agency proposing the regulations has adequately substantiated the need for the regulation. The budget proposal would continue this practice.
The unit's review of these regulations is in addition to the review given to them concurrently by the public, the Office of Administrative Law and the government agencies responsible for developing and administering proposed regulations.
Consequently, the unit's system for determining if regulatory agencies sufficiently support their proposed recommendations simply adds another layer of administrative review. If there are particular regulations that need the agency's input, there are sufficient means currently available within the administration to assure that any such regulations are directed to the agency. Any such review could be conducted with existing resources on a priority basis.
Therefore, we recommend that the Legislature delete the $400,000 under Item 2920-001-0001 for the Regulation Review Unit.
We recommend that the Legislature delete the proposed $507,000 General Fund augmentation for the foreign trade offices because the agency has not justified this increase. We further recommend that the Legislature again this year add an item to the Budget Bill to clearly identify the amount of funds budgeted for each office. (Reduce Item 2920-001-0001 by $4.7 million and add Item 2920-012-0001 in the amount of $4.2 million.)
The budget includes a total of $4.7 million for foreign trade offices in seven countries. This request is $507,000 more than current-year appropriations for these offices. This amount includes an augmentation of $132,000 for a permanent increase in the foreign office budgets to adjust for inflation.
Augmentation for Inflation.The agency's request for $132,000 is to pay for inflationary costs at foreign offices that have occurred since January 1, 1993. Thus, the agency is requesting to make the budget for its foreign offices whole due to losses that have occurred over the last three years. Over the last year, however, these budgets have gaineda net $59,000 due to the gain in purchasing power of the U.S. dollar from foreign currency adjustments net of inflationary costs. Given that virtually all state agencies have had to absorb all inflation increases over the last three years, it is unclear why these offices should be made whole--especially in light of its windfall in the past year.
Other Budget-Year Increase Not Justified.In addition to this inflation augmentation request, the proposed budget for the seven foreign trade offices includes $375,000 more than current-year appropriations for these offices. The agency has not submitted any information to justify the need to change the budget for each foreign office from its current-year appropriations.
Accordingly, we recommend that Legislature delete $507,000 under Item 2920-001-0001. This will provide the same level of funding that the Legislature provided for the individual offices in the current year.
Funding for Offices Should Be Displayed in Budget Bill.In our Analysis of the 1995-96 Budget Bill, we discussed the fact that each office operates separately within a foreign country and that a clear distinguishable budget for the General Fund support of these offices was warranted. The Legislature concurred with this and included in the 1995 Budget Act a separate item of appropriation for the foreign offices. Despite this legislative action, the administration did not include this separate item in the 1996 Budget Bill.
We continue to believe that a clear display of the costs associated with the distinct out-of-country operations of each office should be included in the Budget Bill. Therefore, we recommend that the Legislature again this year add an item to the Budget Bill identifying the budget for each foreign office as shown in Figure 6.
We withhold recommendation on $7.3 million in General Fund expenditures proposed for the Office of Tourism pending the Legislature's receipt of the tourism marketing plan. Further, we recommend that the agency report to the Legislature, prior to budget hearings, on the status of implementing the California Tourism Marketing Act.
The budget proposes $7.3 million for the Office of Tourism. The goal of this office is to create jobs and tax revenues for California by stimulating economic activity through increased tourism expenditures. To increase tourism expenditures, the office uses various marketing strategies to promote California as a travel destination.
| Figure 6 | |||
|---|---|---|---|
| Proposed Budget Bill Item For Foreign Trade Offices | |||
| 2920-012-0001, for support of California Trade and Commerce Agency, Foreign Trade Offices $4,188,000 Schedule: | |||
| (a) Taiwan | $401,000 | ||
| (b) Africa | 369,000 | ||
| (c) Germany | 647,000 | ||
| (d) Hong Kong | 677,000 | ||
| (e) London | 346,000 | ||
| (f) Mexico City | 801,000 | ||
| (g) Japan | 947,000 | ||
Current Law Requires Tourism Report to Legislature.Current law requires the agency to report--on or before March 1 of each year--to the Legislature, a detailed tourism marketing plan for the upcoming fiscal year. This plan must include the following information:
This plan should be available to the Legislature prior to appropriating state funds so that the Legislature can assess the proposed uses and the associated benefits of spending the requested $7.3 million from the General Fund.
California Tourism Marketing Act.Chapter 871, Statutes of 1995 (SB 256, Johnston) created the California Tourism Marketing Act. This legislation establishes a (1) nonprofit corporation, the Tourism Marketing Commission--which when operative would replace the California Tourism Commission, and (2) procedures for an industry approved assessment. Chapter 871 specifies that the state is responsible for appropriating at least $7.3 million each fiscal year for the tourism program, and the industry is responsible for targeting the level of assessments for each fiscal year of at least $25 million. If either the state or the industry fails to provide this funding, the state can decide to reduce or eliminate funding or the industry can decide not to assess itself. This new tourism program should get underway in 1996-97. We recommend that the agency report to the Legislature, prior to budget hearings, on the status of implementing the Act including at a minimum the actions taken to date and the agency's schedule for implementing each aspect of the Act.
In summary, we withhold recommendation on the $7.3 million pending the receipt of the tourism marketing plan. Once the plan is submitted, we will review it and, as appropriate, make recommendations to the Legislature. Furthermore, the agency should report to the Legislature, prior to budget hearings, on the status of implementing the California Tourism Marketing Act.
The Energy Resources Conservation and Development Commission (commonly referred to as the California Energy Commission) is responsible for siting major power plants, forecasting energy supply and demands, developing and implementing energy conservation measures, and conducting energy-related research and development programs.
The budget proposes commission expenditures of $59.9 million from various state and federal funds in 1996-97. This is $12.6 million, or 17 percent, less than current-year expenditures. This reduction reflects (1) an $8.3 million reduction in grant and loan expenditures from special accounts used for local energy projects and (2) a decrease of $8.3 million for the Katz Safe School Bus Clean Fuel Efficiency Demonstration Program from the Katz School Bus Fund. This reduction is partially offset by a $6.1 million augmentation from the Petroleum Violation Escrow Account (PVEA) for various development, research, and demonstration projects.
We recommend that the Legislature delete $1 million in Petroleum Violation Escrow Account funds proposed for a residential energy-related construction program because state funding for this program is inappropriate. (Reduce Item 3360-001-0853 by $1 million.)
The budget proposes $1 million from the PVEA to establish a statewide quality assurance program for residential energy-related construction. The commission indicates that this program is intended to improve energy efficiency in new home construction. According to the commission, defects in the construction of homes, such as improperly installed insulation, lead to poor air quality within a home, causing the industry to face an increasing number of lawsuits from dissatisfied homeowners.
To address this industry problem, the commission proposes to spend the $1 million augmentation on three stages of the proposed program:
We have two main concerns with the proposed augmentation. First, an augmentation for the commission to develop protocols for governing construction to be more energy efficient is not necessary. This function is part of the commission's ongoing responsibility to develop policies and activities to improve efficiency of energy use. Therefore, if this is a priority concern, the commission can work within its current resources to develop these protocols for the construction industry. Second, the use of state funds to try to correct for substandard construction of homes on the part of the industry is inappropriate. The state has already fulfilled its responsibility in creating building energy efficiency standards. Thus the industry, not the state, should bear the responsibility and cost of problems that result when certain members of the industry fail to meet the state's building standards.
Therefore, we recommend that the Legislature delete the $1 million under Item 3360-001-0853 to establish the quality assurance program.
We recommend that the Legislature delete $1.2 million in Petroleum Violation Escrow Account expenditures to promote energy business development because the basis for this augmentation has not been justified. (Reduce Item 3360-001-0853 by $1.2 million.)
The budget proposes $1.2 million from the PVEA for the commission to implement an integrated technology development and business development program. The commission indicates that the result of the proposal would be a "comprehensive strategy for the development and delivery of certain technologies into the California economy."
No Plan for Expenditure of Requested $1.2 Million. According to the commission, the critical step in implementing this program is the development of a strategic plan that would "fund the various stages of moving development activities to businesses producing products and delivery services." The commission indicates that the plan would help it coordinate spending for technology programs according to a comprehensive strategy. The strategic plan would be prepared using current staff and budget resources, but it has not yet been developed and the commission claims it will not be completed in the current year.
Without this plan, the commission is unable to either identify how it will allocate the requested $1.2 million or quantify how the expenditure of these funds will benefit the state. Lacking this information, the Legislature should not approve this request.
Once the commission completes the strategic plan, it should be submitted to the Legislature for review. A comprehensive plan that identifies proposed expenditures and quantifies the benefits of such expenditures may warrant legislative consideration. After reviewing such a plan, the Legislature can then better determine if any funding for the purposes identified in the plan should be provided. Under the current circumstances, however, we recommend that the Legislature delete the requested $1.2 million under Item 3360-001-0853.
The Public Utilities Commission (PUC) is responsible for the regulation of privately owned "public utilities," such as gas, electric, telephone, trucking, bus, and railroad corporations. The commission's primary objective is to ensure adequate facilities and services for the public at equitable and reasonable rates, consistent with a fair return to the utility on its investment. Throughout its various regulatory decisions, the commission also promotes energy and resource conservation.
The budget proposes total expenditures for the PUC in 1996-97 of $79.7 million from various state special funds ($73.9 million), federal funds ($0.5 million), and reimbursements ($50.3 million). This is about $2.1 million, 0.3 percent, less than estimated current-year expenditures.
In January 1995, the federal government preempted the state's rate regulation of most intrastate trucking operations. This preemption affected the PUC in two ways: the PUC workload was significantly reduced and revenues to the Transportation Rate Fund decreased significantly. As a result, the PUC's 1995-96 budget was reduced by $5.7 million and 105 positions. Although the PUC no longer had responsibility for rate regulation, it still had other responsibilities--such as enforcing insurance requirements.
The 1995 Budget Act provided $4 million and 66 positions--funded by Transportation Rate Fund reserves--on a one-year limited-term basis for these remaining functions.
The Legislature approved the PUC's current-year budget for its trucking program on a one-year limited-term basis because at the time the budget was enacted, it was expected that the remaining state responsibilities would be streamlined and transferred to other state agencies before the end of 1995-96. At the time of the federal preemption (January 1995), the Governor established a task force to assess how to best handle the remaining state regulatory responsibilities. In September 1995, this task force submitted its recommendations to the Legislature and proposed to transfer the overall responsibility of the trucking regulation to the California Highway Patrol (CHP).
Also, there is pending legislation to change the governance of the state's trucking regulation. This legislation includes (1) AB 1683 (Conroy), which would transfer all trucking activities, except the regulation of household goods carriers, to the CHP no later than July 1, 1997; and (2) SB 185 (Kopp), which would transfer these functions to the Department of Motor Vehicles and the CHP.
We recommend that the Legislature reduce the Public Utilities Commission's (PUC's) budget by $463,000 and 17 positions because they are not necessary for the PUC's reduced workload in its intrastate trucking program. In addition, we withhold recommendation of $3.4 million and 49 remaining positions for this program pending the receipt of workload information from the commission. (Reduce Item 8660-001-0412 by $463,000 and 17 positions.)
The budget proposes the continuation of 66 positions and $4 million through June 30, 1997 to maintain its trucking program at the current level. However, 17 of the 66 positions are vacant. The PUC has not justified the need to fill these positions. For example, the commission has not identified any detriment to current program activities resulting from these vacancies. Furthermore, given the uncertainty of the governance of the program, there is no need to maintain these positions, especially when they are not likely to be filled on a one-year limited-term basis. Therefore, we recommend that the Legislature reduce Item 8660-001-0412 by $600,000 and 17 positions.
Need for Remaining Positions Uncertain. At the time this analysis was prepared, the PUC did not provide information that substantiates the need for the 49 filled positions in the PUC's trucking regulation program. For example, it has not provided workload measures that show the level of annual work by activity or workload standards that provide productivity or "work" rates for this staff. Lacking this information, the Legislature cannot determine an appropriate level of staffing for the program. Further, in view of the federal preemption of the state's economic regulation of intrastate trucking and the pending legislation to change the governance of the remaining state responsibilities in this area, the need for the PUC to maintain these positions is highly questionable.
Therefore we withhold recommendation on $3.4 million and the associated 49 positions, pending receipt of this workload information. When this information is available, we will review it and make recommendations to the Legislature as appropriate.
The mission of the Department of Industrial Relations (DIR) is to protect the workforce of California, improve working conditions, and advance opportunities for profitable employment. These responsibilities are carried out through three major programs: the adjudication of workers' compensation disputes; the prevention of industrial injuries and deaths; and the enforcement of laws relating to wages, hours, and working conditions.
In addition, the department (1) regulates self-insured workers' compensation plans, (2) provides workers' compensation payments to injured workers of uninsured employers and other special categories of employees, (3) offers conciliation services in labor disputes, and (4) conducts and disseminates labor force research.
The budget proposes expenditures totaling $218 million for the department in 1996-97, a 0.7 percent increase over estimated current-year expenditures. The request includes $138 million from the General Fund, a 2 percent increase.
We recommend that the Legislature delete $1,266,000 to implement a substantive change in prevailing wage methodology because this policy proposal and associated costs should be considered in prevailing wage legislation rather than the Budget Bill. (Reduce Item 8350-001-0001 by $1,266,000.)
The budget adds $1,266,000 from the General Fund and 19 personnel-years for the Division of Labor Statistics and Research to implement a change in the methodology of computing prevailing wages for public works. Existing law requires that workers employed on public works projects be paid not less than the generally prevailing rate of wages for work of a similar character in the locality in which the public work is performed. The DIR is responsible for determining these prevailing rates. Under current regulations, the DIR deems the most-frequently occurring single wage rate for each craft and locality--the "modal" rate--as the prevailing rate. Wage rates set by collective bargaining agreements tend to be the most frequently occurring single rates in most crafts and localities, even where a minority of workers in a local
craft are being paid these rates, because nonunion wage rates tend to vary highly from firm to firm and project to project.
According to the DIR, of the 32 states with prevailing wage laws, California is one of three that use a modal rate as the prevailing wage standard. The other 29 states use some form of weighted average methodology--in some cases the same methodology used by the federal government for federally funded public works--or leave the determination of prevailing rate to the individual agency letting the public works contract.
Under proposed regulation changes, the DIR instead would set prevailing wages at (1) the single rate occurring at least 50 percent of the time in a given local craft, or (2) in the absence of such a rate, at the weighted average wage rate. To implement this methodology change, the budget proposes to add 19 personnel-years to the DIR, at an annual General Fund cost of $1.3 million, to conduct annual surveys for more than 4,000 job classifications in each of the 58 counties.
The proposed methodology change would tend to lower the calculated prevailing wages because nonunion wage rates would figure more prominently in many of the calculations. The DIR estimates that the resulting savings to the state and local governments from lowered public works costs would be about 20 percent of construction labor cost. (The projected costs for the budget's various capital outlay requests, however, have notbeen reduced to reflect these expected savings.) Our analysis indicates that, while there would be savings resulting from the proposed change, the DIR estimate overstates the magnitude of the potential savings because it extrapolates from data for three rural counties (surveys conducted in 1987 in Nevada, Amador, and Tulare Counties). The construction sectors in these counties are far less unionized than in the state's urban areas. Therefore, the higher relative savings to be expected in these counties under the proposed new methodology would not be representative of the savings to be expected on a statewide basis.
Proposal Should Be Considered Through Legislation. This budget proposal involves a major policy choice for the Legislature. The Legislature is currently considering ABX2 35 (Goldsmith), which would place the proposed methodology change in the state's prevailing wage law and make other substantive changes. We believe that this bill, or similar legislation, is the appropriate venue for consideration of the appropriation request included in the budget in order to ensure that methodology changes are made in a manner consistent with legislative policy. Accordingly, we recommend deletion of the spending request from the Budget Bill. (Reduce Item 8350-001-0001 by $1,266,000.) If the Legislature agrees to the proposed methodology change, some augmentation to the DIR's budget and staff would be needed to conduct necessary wage surveys. We believe, however, that the DIR could substantially reduce the cost by dividing the state, for survey purposes, into a reasonable number of construction labor market areas rather than all 58 counties as currently proposed. Accordingly, the department should reexamine its proposed survey strategy and advise the Legislature as to the feasibility and merits of reducing these costs.
We recommend that the Legislature delete $274,000 to implement a substantive change in overtime pay standards because the policy proposal and associated costs should be considered in legislation other than the Budget Bill, and because the costs appear to be absorbable in the department's budget. (Reduce Item 8350-001-0001 by $274,000.)
The budget adds $274,000 from the General Fund and 3.5 positions for the Industrial Welfare Commission to revise 14 industry wage orders that currently require overtime wages for time worked in excess of eight hours daily, whether or not hours worked per week exceed 40. These orders apply to most private sector employers and employees in the state. The current orders permit employers to institute four-day work weeks of ten hours per day without overtime payment through written agreements consented to by at least two-thirds of the affected employees. The overtime pay provisions of the orders also can be superceded by collective bargaining agreements. The administration intends to hold public hearings and revise the orders to require overtime payments only when weekly work exceeds 40 hours. (California is one of four states that have a daily eight-hour standard for overtime.)
As is the case for the prevailing wage change discussed above, this proposal involves a major policy choice that should be considered by the Legislature through legislation. The Legislature is currently considering AB 398 (Aguiar), which would implement the administration's proposed change. We believe that this bill, or similar legislation, is the appropriate venue for consideration of the appropriation request included in the budget. Accordingly, we recommend that the Legislature delete the $274,000 General Fund request. We further note that the department already has begun to implement this proposal, without legislative assent, using $133,000 in its current-year budget. This calls into further question the need for the requested budget-year augmentation since the department evidently is able to absorb the effort within its existing budget.
We withhold recommendation on $4,050,000 requested to restore baseline funding for operating expense and equipment (OE & E), pending clarification of the Department of Industrial Relations' personal services and OE & E needs. We recommend that the Legislature delete $1 million requested for additional OE & E expenditures, for which justification is entirely lacking. (Reduce Item 8350-001-0001 by $800,000 and reduce Item 8350-001-0223 by $200,000.)
The budget includes $5,050,000 to "realign" the budget of the Division of Workers' Compensation (DWC). This amount consists of $4,040,000 from the General Fund and $1,010,000 from the Workers' Compensation Administration Revolving Fund.
Background. This budget change proposal is the department's response to direction given by the Legislature in the 1995 Budget Act. In the Analysis of the 1995-96 Budget Bill,we called attention to the fact that the department was holding vacant 93 DWC positions so that it could redirect the funds budgeted for those positions to cover OE & E expenditures. We recommended deletion of the excess positions and $4.5 million in associated salaries. We further recommended that the department justify any funding augmentation that it might need for OE & E purposes. The Legislature deleted the positions but allowed the department to retain $4,050,000 for the 1995-96 fiscal year only. The Budget Act included language requiring the DIR to submit a budget change proposal for 1996-97 that would "realign" expenditures for personal services (salaries and benefits) and OE & E to accurately reflect the DWC's 1996-97 needs. The language also required the DIR to report, by January 1, 1996, on the efficiencies it has undertaken to minimize OE & E expenditures.
Concerns. The department's response to legislative direction on this issue raises several concerns. First, the realignment proposal does not provide a compelling case for continuation of the $4,050,000 the Legislature allowed the DIR to retain on a one-year basis, pending submittal of this proposal. Among its shortcomings in this regard are failures to (1) examine funding needs from a department-wide perspective and (2) identify efficiencies to be undertaken to minimize expenditures. (At the time this analysis was prepared, the department had not provided to the Legislature the report on these efficiencies required by the Budget Act language.) It also is not clear that the proposal has succeeded in "realigning" the DIR's personal services and OE & E needs. The basic purpose of the realignment was to reduce the personal services budget and increase the OE & E budget, in order to conform the budget with reality. The Governor's Budget, however, projects OE & E expenditures for 1996-97 that are $3.1 million lessthan estimated 1995-96 expenditures and $7 million lessthan actual 1994-95 expenditures, as shown in Figure 7. The same document shows a $4.7 million salaries and wages expenditure increase above 1995-96, an inexplicable $139,000 per net position added.
| Figure 7 | ||||
|---|---|---|---|---|
| Department of Industrial Relations Personal Services and Operating Expenses and Equipment 1994-95 Through 1996-97 (In Thousands) | ||||
| Actual 1994-95 | Estimated 1995-96 | Budgeted 1996-97 |
||
| Personal services | $133,710 | $151,935 | $157,150 | |
| Operating expenses and equipment | 42,874 | 38,995 | 35,884 | |
Despite the above shortcomings, the budget proposal not only requests continuation in 1996-97 of the provisionally available funds (the $4,050,000), but requests an additional$1 million. According to the Governor's Budget, the combined amount of $5,050,000 is needed to ". . . restore baseline funding for operating expenses, and to fund increases in facilities costs." We do not know how to reconcile this statement with the declining OE & E expenditures just discussed and shown in Figure 7.
For several years the DIR has consistently overbudgeted personal services and underbudgeted OE & E. Each year the DIR has redirected "surplus" personal services monies to finance its OE & E "deficits," as shown in Figure 8. (We define personal services surplus as the extent to which actual salary/benefit savings exceed estimated salary/benefit savings.) In 1991-92 the personal services surplus was not enough to meet the OE & E deficit. The DIR made up the balance through a deficiency appropriation. In every other fiscal year from 1990-91 through 1994-95, the personal services surpluses easily covered the OE & E deficits. In 1994-95, the last fiscal year for which actual data are available, the personal services surplus was almost $20 million, whereas the OE & E deficit was $5 million.
| Figure 8 Department of Industrial Relations Personal Services and Operating Expenses and Equipment 1990-91 Through 1994-95 (In Thousands) |
|||||
|---|---|---|---|---|---|
| 1990-91 | 1991-92 | 1992-93 | 1993-94 | 1994-95 | |
| Estimated personal services | $129,364 | $125,184 | $117,090 | $131,080 | $153,371 |
| Actual personal services | 115,027 | 121,777 | 111,947 | 119,150 | 133,710 |
| Surplus | $14,337 | $3,407 | $5,143 | $11,930 | $19,661 |
| Estimated operating expenses and equipment | $29,812 | $29,298 | $33,223 | $38,756 | $37,881 |
| Actual operating expenses and equipment | 34,646 | 34,035 | 37,085 | 43,106 | 42,874 |
| Deficit | -$4,834 | -$4,737 | -$3,862 | -$4,350 | -$4,993 |
Recommendation. The Legislature's redirection, in the 1995 Budget Act, of $4,050,000 to OE & E should have addressed the imbalance in that category for 1995-96. The Legislature's deletion, in the 1995 Budget Act, of 93 vacant DWC positions and 62 other DIR positions lacking workload justification should reduce the size of any future personal services surpluses, but might not eliminate them. Thus, it is unclear at this time to what extent continuation of the $4,050,000 redirection is justified. We therefore withhold recommendation on this portion of the DIR proposal, pending clarification of its personal services and OE & E needs. (This clarification should include fiscal year-to-date actual expenditures for personal services and OE & E, identification of the department's vacant positions, and a justification for the retention of these positions.) Our review indicates that justification for the additional $1 million is entirely lacking. We therefore recommend the Legislature delete this amount.
With regard to the Targeted Industries Partnership Program, we recommend that the Department of Industrial Relations report to the budget committees prior to budget hearings on (1) current program accomplishments and expected program outcomes and (2) full accounting of expected collections from assessments and the feasibility of funding part of the program from these collections. Pending review of these reports, we withhold recommendation on $1,737,000 requested for a major expansion of the program.
The budget includes $1,737,000 to expand the Targeted Industries Partnership Program (TIPP). The proposal represents a major expansion of the TIPP, under which the DIR and other state and federal agencies conduct joint labor law enforcement activities in apparel manufacturing and in agriculture. The budget proposal would add 24 positions to its current 15-position TIPP staff, primarily to conduct more inspections and related enforcement actions. The DIR's budget for this program would increase to $2,650,000 compared to its current allotment of $913,000 from the Industrial Relations Unpaid Wage Fund. The proposed source of funds for the expansion is a reimbursement from the Employment Development Department (EDD), drawing upon the Benefit Audit Fund.
Based on our ongoing review of the TIPP, we agree that increased efforts are needed to address the serious and widespread labor law violations in apparel manufacturing and agriculture. In order that the Legislature can judge the contribution that this expansion would make to ongoing program effectiveness, however, the Legislature needs detailed and up-to-date information on current program success and expected program outcomes. We therefore recommend that the DIR provide detailed information on program implementation and outcomes to the budget committees prior to budget hearings. This information should address the following, at a minimum:
In addition, we have concerns about projected revenues from the TIPP enforcement activities and the proposed means of funding the TIPP expansion. According to the DIR, the expanded TIPP effort will generate $1.8 million in collections from assessments for various employment and tax law violations. We believe consideration should be given to introducing a partially self-financing aspect to the program by funding at least part of the TIPP through some or all of these collections. The DIR should report to the Legislature on the feasibility of this approach. This report should include an accounting of expected assessments and collections related to laws administered by the DIR (the $1.8 million accounts only for collections related to laws administered by the EDD) and a discussion of the feasibility of improving the rate of collections (the $1.8 million projection assumes that only 59 percent of assessments would be collected).
Pending review of the reports discussed above, we withhold recommendation on the $1,737,000 request.
The Department of Food and Agriculture (DFA) promotes and protects the state's agriculture industry, develops California's agricultural policies, and assures accurate weights and measures in commerce. The department also supervises county agricultural commissioners and county sealers of weights and measures.
The budget requests $194 million for the DFA in 1996-97, a decrease of $1.4 million, 3.8 percent, from estimated current-year expenditures. The budget total includes General Fund expenditures of $64 million, a 3.8 percent decrease from estimated current-year General Fund expenditures, mainly due to the discontinuation of the Mediterranean Fruit Fly (Medfly) aerial spraying program in southern California.
According to the DFA, pests, such as the Medfly and the Oriental Fruit Fly, are increasingly making their way into the state via air, road, and ship traffic. These pests pose a threat to agriculture due to crop loss and potential international and domestic embargoes on California plants and produce. In an effort to address this problem, the budget proposes $11.1 million in General Fund and $1.1 million in special fund monies to augment the department's activities in the following areas:
We recommend that the Legislature approve the $7.7 million General Fund augmentation for the Medfly program, but that this amount not be made part of the Department of Food and Agriculture's (DFA's) ongoing base budget. We further recommend that the DFA submit a report to the Legislature, by November 1 of each year for the next five years, evaluating the program and the progress of scientific research to control the Medfly.
Background. The department has been waging a continuous campaign against the Medfly since 1975, the first year the pest was detected in California. The DFA has used aerial and ground spraying, and sterile Medfly releases to fight the pest. The intensity of eradication and control efforts has fluctuated over the intervening years, depending on the degree of infestation. Figure 9 shows the number of Medflies that have been caught in the DFA's traps since 1975.
The DFA shares Medfly program costs and responsibilities with the United States Department of Food and Agriculture (USDA) through a cooperative funding agreement. The USDA has committed to a dollar-for-dollar expenditure match with the DFA. Figure 10 shows expenditures from all sources for fighting Medfly infestations since 1980. As the figure shows, the DFA has spent $72.8 million from the General Fund since 1987 and expects to spend another $21.7 million from the General Fund in the current and budget years combined. Total costs from all fund sources through the budget year will be nearly $310 million.
| Figure 10 Historical Medfly Expenditures (In Thousands) |
||||
|---|---|---|---|---|
| State Funds | ||||
| Fiscal Year | Gas Tax | General Fund | USDA | Total |
| 1980-86a | -- | -- | -- | $100,000 |
| 1987-88 | $756 | $294 | $1,050 | 2,100 |
| 1988-89 | 757 | 922 | 1,679 | 3,358 |
| 1989-90 | 563 | 19,999 | 21,336 | 41,898 |
| 1990-91 | 599 | 9,659 | 9,484 | 19,742 |
| 1991-92 | 428 | 2,429 | 3,606 | 6,463 |
| 1992-93 | 1,002 | 12,324 | 19,458 | 32,784 |
| 1993-94 | 1,459 | 12,933 | 19,180 | 33,572 |
| 1994-95 | 600 | 14,229 | 17,000 | 31,829 |
| Subtotals | ($6,164) | ($72,789) | ($92,793) | ($271,746) |
| 1995-96 (estimated) | -- | 14,000 | 8,400 | 22,400 |
| 1996-97 (proposed) | -- | 7,687 | 7,687 | 15,374 |
| Totals | $6,164 | $94,476 | $108,880 | $309,520 |
| a The only cost data available prior to 1987 show that the Santa Clara infestation was eradicated between 1980-82 and cost $100 million. The source of these funds was not identified. | ||||
The last two major Medfly infestations covered a contiguous area of 1,500 square miles in Los Angeles, Orange, Riverside, and San Bernardino Counties. Beginning in 1993, the DFA controlled the Medfly problem in this area primarily through sterile fly release and localized ground spraying. In addition, the department conducted aerial sprayings in limited areas of Riverside County (February through May 1994). There was also a relatively small infestation in Ventura County (October 1994 through May 1995) for which the DFA used aerial spraying. The department reports that no other Medflies have been found in traps in the Los Angeles Basin or anywhere else in the state for over a year and a half. Although the Medfly appears to be under control for now, the DFA believes that the state will never be completely free of the Medfly.
Proposal for Control of Medfly. To reduce the threat of Medfly infestation in the state, the DFA proposes to use $7.7 million annually from the General Fund to continue the sterile Medfly release program over a 2,100 square mile area of the Los Angeles Basin, bordered by Sylmar, San Bernardino, Irvine, and the Pacific Ocean. This program calls for the twice weekly aerial release of 125,000 sterile Medflies over each square mile. The department believes that these releases will be necessary for at least the next five years while scientists attempt to develop less expensive alternatives. Over the five-year period, the state would spend around $40 million for this program. The USDA would spend about the same amount.
Provide Annual Medfly Appropriation. The DFA claims that an established Medfly population would imperil future crop yields and close foreign and domestic markets to California-grown fruits and vegetables. The DFA believes that the proposed program will reduce this threat.
There are, however, several reasons why the annual level of funding for this program and the department's needed response could vary significantly from year to year:
The Department of Food and Agriculture (DFA) shall provide the Legislature an annual report over a five-year period beginning November 1, 1996, on the Mediterranean Fruit Fly (Medfly) sterile release program. The report shall, at a minimum, identify (1) the number of Medflies found in the DFA traps throughout the state, (2) any infestations that required aerial spraying and the location and cost of these aerial sprayings, (3) scientific progress in developing more effective, less costly methods of Medfly control, and (4) the department's plan to incorporate these new methods into its Medfly program.
We recommend that the Legislature enact trailer bill legislation authorizing the Department of Food and Agriculture to assess the agricultural industry for 50 percent of the state's cost of the Medfly program. Accordingly, we recommend that the Legislature structure 50 percent of the $7.7 million General Fund appropriation in Item 8570-001-0001 as a loan, repayable January 1, 1997.
The State and Industry Should Share Costs. The proposed program to continually release sterile Medflies is an effort to control the Medfly rather than eradicate an infestation. This distinction of control or eradication has importance for who bears the costs. The DFA's policy has been that the state finances eradication programs and the agricultural industry pays for control programs. In the case of the Medfly a significant state cost can be justified on the basis of the threat that the pest poses to the California economy. On the other hand, the agricultural industry also has a huge stake in Medfly control, and the state has already picked up at least $100 million in expenses over the last 15 years. There is no "right" answer to what share of the costs the state should bear. We believe, however, that based on past state expenditures and the control aspect of the proposed program, it would be reasonable for the state and industry to share equally in future costs.
Legal Authority to Assess Industry. The statute allowing the DFA to enter into its current cooperative agreement with the USDA, also permits the department to enter into similar agreements with the agricultural industry to finance pest control programs. Federal statutes confer similar flexibility for the USDA to enter into cooperative agreements with any group that feels compelled, by self-interest or the law, to participate in pest control programs. In other words, existing law provides the state complete flexibility in deciding how Medfly program spending should be financed. In order to assess the industry for its share of these costs the Legislature should enact legislation authorizing the DFA to make the appropriate assessments.
Analyst's Recommendation. Based on the above discussion, we recommend the enactment of legislation, effective July 1, 1996, authorizing the DFA to begin assessing the agricultural industry for 50 percent of the Medfly program funding beginning in 1996-97. To implement this in the budget year, we further recommend that the Legislature structure half of the $7.7 million appropriation requested in the budget year as a loan to be repaid from the Agriculture Fund by January 1, 1997. Adoption of this recommendation would result in General Fund savings of about $3.8 million in 1996-97 and a total of $19 million over five years.
We recommend that the Legislature delete $1.4 million in General Fund expenditures and 53 positions requested for the expansion of the agricultural inspection stations program because the department has not justified the need for staffing all stations on a 24-hour basis. (Reduce Item 8570-001-0001 by $1.4 million.)
The Governor's Budget includes $1.9 million from the General Fund to provide 24-hour operation of all border agricultural stations and to make various repairs to the stations. This proposal would result in an ongoing annual cost of $2.8 million in 1997-98 and thereafter.
The state's 17 border agricultural stations are located on major highways entering California. Figure 11 shows the location and operating hours of the border stations. As shown in the figure, the majority of border stations already operate on a full-time basis. Of the remaining stations, seven are open during peak travel times (usually 8 . to 10 .) and one (Woodfords) has been closed since 1994-95. Vehicles entering the state through these stations are subject to possible inspection for certain agricultural products. If prohibited products are found, the department may confiscate quarantined material and may refer offenders to local jurisdictions for citations and fines.
Of the amount requested, $1.4 million ($2.2 million in future years) would be spent to staff all stations on a 24-hour basis. The remaining $500,000 in the budget year is for one-time costs associated with building repairs such as replacing roofs, upgrading electrical systems, and resurfacing truck lanes. The DFA's proposal is to include $600,000 for similar one-time costs in its annual base budget in the future.
The DFA indicates that 24-hour operation of all 17 stations is needed because:
The DFA indicates that with full-time staffing of all stations, most high-risk vehicles will be stopped for inspection, and smuggling will be reduced because access routes will be closed.
The DFA, however, has not provided any current data to substantiate the benefit of spending over $2 million annually to open allstations on a 24-hour basis. The only specific data provided by the department was a pre-1992 traffic and inspection report on seven of the eight stations proposed for 24-hour operation. These data reveal that at that time there was relatively little traffic and very limited inspection at these stations during the time period of 10 . and 8 . (the hours these stations are now closed). In fact, it was at that time that the DFA decided to operate these stations for less than 24 hours per day.
The DFA has not identified the currenttraffic flow or problems occurring at each of these stations during off hours. Without this information, there is no basis to conclude that there is a problem at these eight stations or that opening the stations on a 24-hour basis will solve a problem. Therefore, we recommend that the Legislature delete $1.4 million and 53 positions included in the budget for expansion of the program to 24-hour operations at all stations.
We recommend that the Legislature delete $730,000 by approving 15 of the requested 31 positions for a domestic parcels inspection program. We further recommend that the Legislature approve positions for this program on a limited-term basis until the department can demonstrate the benefits of a year-round program. (Reduce Item 8570-001-0001 by $730,000.)
The DFA is requesting $1.5 million from the General Fund to inspect parcels delivered by the United States Postal Service (USPS) and other couriers, such as United Parcel Service and Federal Express. Currently, county agricultural commissioners inspect domestic parcels for pests. The county inspections occur at airport terminals and are, for the most part, limited to commercial shipments easily identified or marked as carrying plant or produce material. According to the DFA, these shipments make up less than 1 percent of all parcels entering the state.
Dog Teams. The DFA proposes to initiate a state program to inspect domestic parcels. This program would include ten inspection teams comprised of DFA biologists and agricultural inspectors. Accompanied by trained dogs, three member teams would rotate among 38 courier facilities (at airports and processing centers) in the high-risk areas of the Los Angeles Basin (seven teams), San Diego (one team), and the Bay Area (two teams). These areas are considered high-risk because of their history of pest infestations and the volume of parcels going through these areas. The dogs will be used to identify parcels containing agricultural commodities. The DFA indicates that a positive identification of plant or produce material by the dogs establishes probable cause to open and inspect parcels. The establishment of probable cause is required by some carriers, in particular the USPS, to allow inspections of parcels that are not marked as containing agricultural commodities.
Experimental Program. The DFA's proposal is modeled on a test project conducted by the USDA and the USPS in Hawaii that targeted parcels bound for California. Although this project was successful in intercepting parcels infested with pests, it was a limited experiment in terms of scope in that it was conducted at the point of origin for parcel shipments, rather than at destination points which is the DFA's proposal. Furthermore, the results of the Hawaiian project indicate that the pest threat is greatest during the spring and summer months only. As such, it is not clear that a permanent, year-round inspection program is needed. Due to the experimental nature of the program and the uncertainty of its effectiveness, we recommend that the Legislature approve 15 positions on a one-year, limited-term basis. This level of staffing would provide three teams for the Los Angeles area, and one team each for San Diego and the Bay Area. This will give the DFA and the Legislature an opportunity to evaluate the project and determine if it should be continued as a year-round program and if so at what level of staffing and state cost. We therefore recommend that the Legislature delete $730,000 by eliminating the remaining 16 positions.
We recommend that the Legislature eliminate $1.1 million in Agriculture Fund expenditures and 17 positions for the state component of the Airport Maritime Inspection Program because state collection of fees used to support this program has been ruled unconstitutional. (Reduce Item 8570-001-1111 by $1.1 million.)
The budget proposes $1.1 million from the Airport Maritime Inspection Program (AMIP) fund for the international inspection program. The federal government would provide an additional $2 million for this program. This program would use teams of biologists to conduct random inspections and pest evaluations at airports and maritime ports. The AMIP fund consists of fees levied on international carriers and
shippers bringing agricultural goods into California from foreign countries.
Court Ruling. A recent California State Supreme Court ruling (December 1995) ruled that the state AMIP fees are unconstitutional because they are not levied on domestic shipments, thereby unfairly discriminating against carriers hauling foreign goods. Consequently, the department has suspended fee collection. When this analysis was written, the DFA had not made a decision on appealing the ruling. Based on the State Supreme Court ruling, however, we recommend that the DFA discontinue all state activity funded from AMIP fees. Accordingly, we recommend that the Legislature delete $1.1 million and 17 positions from the state's AMIP for proposed activities in 1996-97. (The inspection program financed by the USDA would not be affected by this reduction.)
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