Departmental Issues

Office of Emergency Services (0690)

Headquarters and State Operations Center

We recommend a reduction of $2.2 million for working drawings and construction of the headquarters facility because a proposed cost increase for the project is not justified. We also recommend that increased General Fund revenues be used to fund construction from the General Fund instead of lease-payment bonds in order to avoid future debt-service costs. (Increase Item 0690-301-0001 by $23,638,000 and delete $25,841,000 under Item 0690-301-0660.)

The budget includes $1.2 million from the General Fund for working drawings and $25.8 million in lease-payment bonds for construction of a 111,000 gross square foot (gsf) headquarters facility for the Office of Emergency Services (OES). The estimated future costs for furniture and equipment is $7.6 million. The project consists of an emergency operations center, an office building, and associated site development.

Background. In the 1996-97 Budget Act, the Legislature appropriated $5,348,000 for land acquisition ($3,414,000), preliminary plans ($813,000), and working drawings ($1,121,000) for the project. (The size of the project was based on a consultant's study completed in 1991.) In 1997, the state acquired a site at the former Mather Air Force Base near Sacramento.

The 1997-98 Governor's Budget initially proposed $22.8 million in funding for construction of the headquarters. In March 1997, the administration proposed a change in the project scope and a construction cost increase. Figure 13 compares the original project scope with the changes proposed in 1997.

The proposed size of the administration building and the state emergency operations center increased because of growth in department personnel. Also, there was no longer a need for a warehouse and shop because fire trucks previously stored and serviced by the OES will instead be stored and serviced by the County of Sacramento. According to the OES, the project cost increased by about $2.2 million because the original budget did not provide for the cost of certain fixed equipment, such as display consoles in the emergency operations center, and for data and telecommunications systems in the buildings.
Figure 13
Office of Emergency Services Headquarters

Comparison of Original and Proposed Scope

(Gross Square Feet)
StateOperationsCenter AdministrationBuilding Warehouseand Shop TotalProject
Original, 1996-97 Budget Act 54,467 39,689 32,160 126,316
Proposed, March 1997 67,622 43,051 -- 110,673
Difference 13,155 3,362 -32,160 -15,643

1997-98 Budget Actions. During its deliberations on the budget, the Legislature considered shifting several of OES's responsibilities to other state agencies. These changes could have reduced the number of personnel that would work in the new headquarters and hence required changes to the project scope. Though no major shifts of responsibility were adopted, the Legislature enacted a budget trailer bill--Chapter 338, Statutes of 1997 (SB 959, Kopp)--which directed the OES to do the following:

The Legislature did not approve any funding for the headquarters in 1997-98 and funds appropriated in 1996-97 for working drawings were reverted. The Legislature adopted supplemental report language stating its intent that the scope of the headquarters project and the project's preliminary plans be modified to be consistent with the plan required by Chapter 338.

Office of Emergency Services Plan. In developing a plan pursuant to the requirements of Chapter 338, the OES assessed the feasibility of transferring its disaster claims processing function to one of three state agencies--the Board of Control, the Department of General Services, and the State Controller's Office. The OES concluded that all three agencies have the ability to perform the claims processing functions, but that any marginal efficiencies in processing time would be offset by increased time for coordination between another agency, the OES, and the Federal Emergency Management Agency (FEMA). The report indicates that OES will therefore retain the disaster claims and grants processing services. In general, we concur with this conclusion and thus believe that the proposed scope of the headquarters facility is appropriate.

Cost Increase Not Warranted. We do not believe, however, that the department has justified a $2 million cost increase for this project. When compared to the original project budget (as adjusted for inflation), the cost of the administration building has remained at about $130 per gsf. In contrast, the estimated cost of the emergency operations center has increased from $162 per gsf to $216 per gsf--a 33 percent increase.

In reviewing the schematic design and the cost estimate for the project, we believe that the costs could be brought back in line with the original budget. The department could reduce costs, for example, by (1) eliminating a glass-enclosed atrium linking the two buildings, (2) reducing site development costs (currently estimated at $4 million), and (3) reducing the size and costs of the state operations center.

We therefore recommend reductions of $94,000 in the amount budgeted for working drawings and $2,109,000 in the amount budgeted for construction. This would budget the project at an amount consistent with that originally proposed in the 1997-98 Governor's Budget with an adjustment for inflation.

Recommended Funding Shift. In addition, as discussed in our Crosscutting Issue, "Financing Priority Capital Outlay Projects," we recommend that the Legislature take advantage of increased General Fund revenues to finance a greater portion of capital outlay on a "pay-as-you-go" basis rather than use additional bond financing. We therefore recommend that the Legislature fund construction of the OES headquarters from the General Fund instead of from lease-payment bonds. This will eliminate the state's future burden to pay debt-service costs for this project. We estimate that the state would avoid about $24 million in total interest costs that it would otherwise incur with bond financing. The net effect of our recommendations would be to increase Item 0690-301-0001 by $23,638,000 and delete $25,841,000 from Item 0690-301-0660.

Department of Justice (0820)

The Department of Justice (DOJ) operates ten regional criminalistic laboratories throughout the state. The laboratories provide analysis of all types of physical evidence and controlled substances and, when requested, assist local law enforcement agencies in processing and analyzing crime scenes (including clandestine drug laboratories). The department also operates a state DNA analysis laboratory in Berkeley. The department's Hawkins Data Center operates the Criminal Justice Information System and the California Law Enforcement Telecommunications System.

The 1998-99 Governor's Budget proposes $5.6 million from the General Fund for the following five projects:

Crime Laboratory Replacement

We recommend approval of the amounts proposed for preliminary plans for the Fresno and Santa Rosa laboratories, but recommend that supplemental report language recognize reductions of $116,000 and $674,000, respectively, for the future costs of working drawings and construction so that these projects will be budgeted consistent with budgets for the other laboratory projects. (Estimated future savings of $790,000.) We also recommend a reduction of $871,000 to acquire property for the Fresno laboratory because the department is planning to locate the laboratory on the campus of California State University at Fresno. (Reduce Item 0820-0301-0001 [3] by $871,000.)

The budget proposes continuation of the DOJ's efforts to replace six of its regional crime laboratories. In the 1996-97 and 1997-98 Budget Acts, the Legislature provided a total of $19.3 million to acquire property, design, and construct new laboratories in the Central Valley (near Modesto) and in Riverside County. For 1998-99 the budget includes funding for three more laboratory projects, as shown in Figure 14. The department indicates that it intends to request funding for the sixth laboratory replacement project (located in Redding) in 1999-00.
Figure 14
Department of Justice

Laboratory Replacement Projects

(Dollars in Thousands)
Location BuildingSize a 1998-99Cost b Future Cost c
Fresno 36,007 $1,268 $9,907
Santa Barbara 13,804 646 3,733
Santa Rosa 14,646 542 4,593
Totals -- $2,456 $18,233
aGross square feet.
bFor land acquisition and preliminary plans.
cFor working drawings and construction.

In March 1997, the department released needs assessments for each of the six laboratories to be replaced. As part of these assessments, the size of each new laboratory building was determined based on the staffing levels and laboratory operations to be housed at each site. The scope of the three projects proposed in the budget is consistent with the needs assessments.

The state does not have any cost guidelines specifically for crime laboratory buildings. To establish a construction budget for the first two laboratory projects--Central Valley and Riverside County--the Legislature assumed building costs (on a square foot basis) for laboratory and office space equal to those for recently funded California State University laboratory and office building projects. We recommend that the Legislature continue this practice for the three projects proposed in the budget. The building cost for Santa Barbara laboratory is consistent with this approach. (The Santa Barbara laboratory was considered by the Legislature for funding in 1997-98, but was deferred by the budget conference committee to help offset the one-time payment of deferred contributions to the Public Employees Retirement System.)

In contrast, the Fresno and Santa Rosa laboratories are proposed for funding at levels exceeding those previously approved by the Legislature. In order to budget these two laboratories in a manner consistent with the others, we recommend that the Legislature, through supplemental report language describing the scope and costs of these projects, recognize future costs for working drawings and construction that are reduced by $116,000 for the Fresno project and $674,000 for the Santa Rosa project from the amounts shown in Figure 14.

Land Acquisition. The budget proposal for the Fresno laboratory includes $871,000 to purchase property for the new facility. The DOJ indicates that its intent is to locate the new laboratory on the campus of the California State University, Fresno. The laboratory would be part of a planned science center at the university that, according to the university, could include a combination of university, community, state, and federal facilities. Since the new laboratory would be located on state property, there is no need to fund land acquisition. We therefore recommend a reduction of $871,000 under Item 0820-301-0001 (3).

Department of General Services (1760)

The budget includes $55.8 million from the Earthquake Safety and Public Buildings Rehabilitation Bond Fund of 1990 (general obligation bonds) to structurally strengthen state buildings. This program is administered by the Real Estate Services Division within the Department of General Services (DGS). The budget amount includes:

Seismic Retrofit Projects

We withhold recommendation on $52.6 million to structurally strengthen 18 state buildings pending review of refined scope and cost estimates for each project that will be available in the spring.

As required by the bond measure, the DGS surveys and evaluates the structural safety characteristics of state buildings. Through a multistep screening process, the highest priority projects are identified for expenditure of the bond funds. Those buildings that, through the initial screening steps, have been identified as potential structural safety hazards, are then evaluated by structural engineers and assigned a risk level of 1 through 7 (the highest risk). Only buildings that have been rated either a risk level 5 or 6 are being retrofitted using the bond funds. (No buildings have been rated a risk level 7.)

In the fall 1997, the DGS, using funds provided in the 1997-98 Budget Act, identified the 18 risk level 5 and 6 buildings that are included in the Governor's budget for retrofitting in 1998-99. The amount proposed in the budget for each project is based on initial cost estimates from the structural engineers. The DGS is currently preparing preliminary plans for these 18 projects and, by May 1998, will have a more refined cost estimate for each project. We therefore withhold recommendation on the budget proposal pending review of the revised estimates in the spring.

Reappropriation of Funds for Local Assistance

We recommend deletion of Item 1760-491 to reappropriate funding for all local government seismic projects because the bond funds should no longer be available for projects that have not proceeded on schedule.

The Earthquake Safety and Public Buildings Rehabilitation Bond Act of 1990 provided $50 million to assist with seismic safety upgrading of certain local government buildings. The program is administered by DGS. Projects funded with these bonds must include a 25 percent local matching contribution.

In the 1997-98 Budget Act, the Legislature reappropriated $17.8 million of the bond funds for 47 local government projects. The Governor's budget proposes to reappropriate the unencumbered funds for all of these projects, making the funds available for another year. The Legislature provided funding for these projects on the assumption that they were needed to address seismic safety hazards and that the local entities would make every effort to expedite design and construction. The local entities should be able to encumber the funds for these projects in the current year. If not, the funds should be made available for other local projects that are ready to go.

We therefore recommend that the Legislature delete Item 1760-491 and not reappropriate funds for any projects. To the extent that this action makes bond funds available for new local projects, the DGS has already developed a priority list of projects that would be eligible for funding. This list of projects to be funded from available funds should be submitted to the Legislature for consideration.

Department of

Forestry and Fire Protection (3540)

The California Department of Forestry and Fire Protection operates 460 facilities--consisting of 2,500 structures, many of which were built before 1960. The department's five-year capital outlay plan totals $363 million and emphasizes replacement of older facilities, relocations where conditions have changed, and acquisition of leased sites. The Governor's budget proposes $32.3 million (all General Fund) in capital outlay for the department--including $25.8 million for 32 major projects and $6.5 million for 27 minor projects. The future cost to complete projects proposed for partial funding in this budget is $16 million.

Statewide: Construct Telecommunication Towers and Vaults, Phase 2

We recommend the Legislature delete this $9,148,000 request for preliminary plans, working drawings, and construction of telecommunication towers and vaults because the department has not specified which facilities it proposes to construct or provided cost estimates to justify the amount of this proposal. (Delete $9,148,000 from Item 3540-301-0001 [32].)

The department operates 103 telecommunications facilities, which generally consist of an antenna tower, communications equipment building, emergency power generator, and microwave dishes. These are used to support not only the department's fire and emergency response activities but the telecommunications needs of numerous federal, state, and local agencies.

Background. The 1995-96 Budget Act appropriated $10 million to construct 22 towers. Those facilities did not proceed on schedule and the $10 million was reappropriated in the 1996-97 Budget Act. At the time the Legislature reappropriated these funds, the department gave no indication the $10 million would not be sufficient to construct all 22 towers. When bids were received for this work in October 1996, the bids were significantly higher than the appropriation authority so they did not proceed with the projects. Consequently, in the 1997-98 Governor's Budgetthe department requested a $12.4 million augmentation (a 124 percent increase) to undertake the original project. The Legislature denied this request and adopted supplemental report language directing the department to fund the 11 highest priority towers with the original $10 million appropriation.

Current Proposal. The $9 million budget request is to fund the replacement of ten of the remaining 11 towers the Legislature denied in 1997-98. The department has provided limited information in support of this request. It has not (1) specified which towers it proposes to construct, (2) addressed the need to replace more towers in view of the Legislature's directive in the current year to replace the highest priority towers with the original $10 million, or (3) provided project-specific cost estimates. Given the history of this tower replacement project and prior legislative action, we recommend the Legislature delete the requested $9,148,000. If the department provides more definitive information as described above, a proposal to replace some towers may warrant legislative consideration.

Department of Fish and Game (3600)

The budget includes $2.4 million for capital outlay for the Department of Fish and Game. This amount consists of $1.2 million from the Fish and Game Preservation Fund, $0.6 million from bond funds, and $0.6 million in reimbursement expenditures. The proposal includes two major projects ($0.9 million) and five minor projects ($1.5 million).

Napa-Sonoma Marsh Wildlife Area--Water Control Structures

We recommend the Legislature delete funding for this project because the department has not provided any information to substantiate the amount requested. We also recommend the Legislature delete Budget Bill language that would allow this project to be designed and constructed without complying with the contract provisions of the Public Contract Code. (Delete $300,000 from Item 3600-301-0200 [3] and $155,000 reimbursement from Item 3600-301-0200 [5].)

The budget includes $300,000 (from the Fish and Game Preservation Fund) for the planning, design, and construction of water control structures and fish screens to manage wetlands and marsh restoration activities in the Napa-Sonoma Marsh Wildlife Area. The budget also includes a $155,000 reimbursement from Ducks Unlimited to offset approximately one-half of the project cost.

According to the department, it plans to enter into an agreement with Ducks Unlimited whereby Ducks Unlimited will design and manage construction of the project with its own funds and the department will reimburse Ducks Unlimited for $145,000 of the cost. Under this scenario, it is not clear why the budget would propose a $300,000 appropriation with a $155,000 reimbursement to the state from Ducks Unlimited. Instead, only a $145,000 appropriation would be needed for the state's share of the cost.

In any case, we have two concerns with this proposal. First, the department has provided no information to substantiate the estimated $300,000 project cost. Second, the proposed Budget Bill language exempts the project from the contract provisions of the Public Contract Code, thereby giving Ducks Unlimited the authority to undertake design and construction without any competition. We do not believe this is a prudent way to proceed with the expenditure of state funds. If the department develops the necessary information to justify the project, then the state could proceed with the project and receive reimbursement from Ducks Unlimited. Under the circumstances, however, we recommend the Legislature delete the $300,000 appropriation and corresponding $155,000 reimbursement.

Fisheries Restoration Project

We recommend the Legislature delete $550,000 (and associated budget language making these funds available for ten years) for this project because no specific project has been proposed and no construction cost estimate has been submitted to support the proposal. (Delete $550,000 from Item 3600-301-0786 [1].)

The budget includes $550,000 from the California Wildlife, Coastal, and Parkland Conservation Act of 1988. Proposed budget language would make these funds available to the department for ten years. The department has not identified either what work would be accomplished with the requested funds or the basis for the amount requested. The department is merely proposing to spend these funds on an undefined project or projects consistent with the source of funds. Furthermore, Public Resources Code Section 5922 specifically requires that the department submit a plan to the Legislature for spending any funds from the act that have not been spent by July 1, 1998. Lacking any such plan or a description of proposed work and a cost estimate, we recommend the Legislature delete the $550,000 and the proposed budget language.

Department of Parks and Recreation (3790)

The budget proposes almost $24.9 million for capital outlay for the Department of Parks and Recreation (DPR). This amount includes $5.9 million from the General Fund, $10.4 million from the Off Highway Vehicle Trust Fund, $2.5 million from the Habitat Conservation Fund, $0.6 million in federal funds, $1.5 million from two existing bond funds, and $4 million from reimbursements. The future cost of off-highway vehicle recreation projects in this budget is about $13 million and of other projects is $10 million.

Schedule Projects Rather Than Lump-Sum Appropriation

We recommend the Legislature delete the request for a lump-sum $4 million of "reimbursement" funds for capital outlay projects because specific projects have not been identified, cost estimates have not been received to support the amount of this proposal, and the department has a large amount of uncompleted work. (Delete $4,000,000 from Items 3790-301-0001 [6] and [9].)

The budget includes a proposed $4 million lump-sum appropriation from the General Fund offset by reimbursements from two funding programs under the Department of Transportation--the federal Transportation Enhancement Activities Program (TEAP) and the Environmental Enhancement Mitigation Demonstration Program (EEMDP). In addition, proposed budget language would allow the DPR to borrow funds from the State Parks and Recreation Fund at no interest cost to advance cash for authorized reimbursement-funded projects. There is no information in the budget as to what capital outlay projects will be undertaken with this $4 million.

In support of this request, the DPR has provided only a list of titles and costs for projects for which grant applications have already been submitted, with an indication the projects to be funded under this $4 million appropriation would be similar. Such a list, however, has not been submitted to support this proposal. The department should prepare one that includes schematic sketches, a definition of the scope of the work, and reasonably definitive cost estimates. Lacking information on the proposed expenditure of $4 million, we recommend the Legislature delete this amount from Item 3790-301-0001.

These projects would normally warrant legislative consideration if the department were to provide the appropriate information for each project. We are, however, concerned that the department has such a large backlog of work that it could not complete any new projects during 1998-99. For example, the department has not been able to undertake the projects funded in a similar manner in the current year. In the Budget Bill, the department is asking the Legislature to reappropriate $9.6 million of the $10 million appropriated for this same purpose in the 1997-98 Budget Act. In addition, the department is asking for reappropriation of funds from other sources for another 15 projects that the department has not been able to complete. We believe the department should concentrate its efforts on completing these previously funded projects before attempting to undertake more projects.

Fresno Area--Site Acquisition

We recommend the Legislature delete this $3 million request to acquire an off-highway vehicle recreation area in the Fresno County region because a site has not been identified for this acquisition. (Delete $3 million from Item 3790-301-0263 [6].)

This request is for acquisition of an undefined amount of land for an off-highway vehicle (OHV) recreation area in the Fresno County region to meet demand generated by both population growth and the closure of alternate sites such as those in the Stanislaus National Forest.

The only information provided by the department is that the project would be in the Fresno region. Lacking any subsequent information to evaluate this proposal, we recommend the Legislature delete the requested $3 million. Elsewhere in the budget the department has requested $195,000 for planning this acquisition, and we recommend approval of that request. This planning effort will identify the site, provide an acquisition cost estimate, conceptual development drawings, and development cost estimates. When this work is complete, the department should be able to provide the Legislature the information it needs to assess a request for site acquisition. A proposal for acquisition funding at that time would warrant the Legislature's consideration.

Oceano Dunes State Vehicular Recreation Area--LaGrande Tract

We recommend the Legislature delete this $2.2 million request because the property to be acquired is currently in public ownership and operated as an State Vehicular Recreation Area, and there is no need for the state to acquire title to the property. (Delete $2.2 million from Item 3790-301-0263 [8].)

Oceano Dunes State Vehicular Recreation Area (SVRA) is located in San Luis Obispo County and provides OHV recreation for central Californians. It consists of two areas, north and south. The project in question, the La Grande Tract, consists of 500 acres located on beach sand dunes between the two areas. The La Grande Tract became a subdivision at the turn of the century but was never successfully marketed, and parcels totaling 317 acres are now owned by San Luis Obispo County. It has been managed as part of Oceano Dunes SVRA by the DPR since the early 1980s under the terms of an agreement with the county.

The DPR is currently working to acquire the La Grande Tract parcels that are still privately owned, but this proposal is to acquire those parcels already owned by San Luis Obispo County. Given the current public ownership and operating agreement, we see no reason for the state to spend $2.2 million to acquire the property. Consequently, we recommend that the Legislature delete this $2.2 million from Item 3790-301-0263 (8).

Health and Welfare

Agency Data Center (4130)

The Health and Welfare Agency Data Center (HWDC) provides computer processing and telecommunications services to those department's within the agency.

Acquisition of Leased Facility

We recommend deletion of $5.2 million from the General Fund because the state first needs a policy regarding whether consolidation of the state's data centers is appropriate. (Delete $5,236,000 under Item 4130-301-0001.)

The HWDC's operations are housed in two leased buildings in the City of Sacramento. The total rentable space for the two leases is 118,000 square feet and 75,000 square feet, respectively. Each lease provides an option for the state to purchase the buildings during a specific time period. The state cannot purchase the smaller of the two buildings prior to July 2000. The lease for the larger building allows for purchase from May 1993 until the end of the lease in June 2003. The budget proposes $5.2 million from the General Fund to purchase this building. Of this amount, $3.8 million is a loan to be repaid from the HWDC Revolving Fund.

The purchase option price was initially $3 million and escalates by $25,000 each month. If the state exercises the purchase option, it would also have to pay off the costs of building improvements that were made by the building owner at the request of the state. (The amount that the state would have to pay for these improvements declines over time, and thus partially offsets the monthly increases in the base purchase price.) The budget proposal of $5.2 million for acquisition is based on the purchase option price as of July 1998 ($4.5 million) plus about $700,000 to pay for the building improvements.

As mentioned above, under the administration's proposal, about $3.8 million of the General Fund amount would be a loan to be repaid by the HWDC Revolving Fund. This loan would be repaid over an eight-year period with annual payments of $471,000 plus interest. The amount that will not be repaid from the revolving fund ($1.4 million) represents the estimated land costs associated with the acquisition. Under federal cost standards, land value cannot be reimbursed by the federal funds that flow into the revolving fund. In addition to the $5.2 million capital outlay proposal, the HWDC's support budget includes a $455,000 augmentation to cover the state's costs for maintenance and operations of the property upon acquisition. We discuss this proposal in our analysis of the HWDC's support budget (see the General Government chapter of this Analysis).

Assuming this building would meet the state's long-term needs for the data center, then the purchase of the site would make sense. However, we believe that because of two major issues, it is premature to consider purchasing the site this year. First, the state lacks an overarching policy guiding the future of its data centers. Specifically, the administration has yet to decide whether the state's two main data centers (Stephen P. Teale and HWDC) should be consolidated. Second, while the HWDC is pursuing acquisition of property that is located within a flood plain, the Teale Data Center has cited its current location within a flood plain as a major reason for its need to relocate to new facilities. These two major issues--consolidation and locating data centers in a flood plain--need to be resolved before the state purchases the HWDC building. Otherwise the state, in purchasing the building, could forestall potential consolidation efforts in the future and end up owning a building in a location that is inappropriate for a data center. We therefore recommend that the Department of Information Technology (DOIT) provide the Legislature with a plan regarding configuration of the data centers, including whether locating in a flood plain is appropriate. If consolidation is proposed, the DOIT should indicate a time frame for accomplishing the consolidation.

Pending a policy decision and schedule regarding consolidation, we recommend deletion of the $5.2 million proposed for the acquisition.

Department of Health Services (4260)

The Department of Health Services (DHS) owns and operates laboratory facilities in Berkeley, Los Angeles, and Fairfield. The 1998-99 Governor's Budget for DHS capital outlay consists of $115.7 million in a proposed authorization of lease-payment bonds for construction of the second phase of the department's new laboratory facilities in Richmond. Construction is scheduled to begin in January 1999 and be completed in August 2001.

Richmond Laboratory, Phase II

We recommend a reduction of $7.2 million because the budget proposal is not consistent with the amount for construction previously approved by the Legislature. We also recommend that increased General Fund revenues be used instead of lease-payment bonds in order to avoid future debt-service costs. (Approve $108,416,000 in a new Item 4260-301-0001 and delete $115,668,000 under Item 0690-301-0660.)

Proposal Exceeds Legislatively Approved Cost. In the 1996-97 Budget Act, the Legislature provided $2,989,000 to prepare preliminary plans for a facility containing 302,000 gross square feet (gsf) of laboratories and offices and a 30,000 gsf warehouse. The 1997-98 Governor's Budget initially proposed $4.5 million for the working drawing phase of this project. The anticipated future construction cost for the project totaled $92.6 million. In spring 1997, the Legislature was informed that the estimated construction cost had increased to $116.6 million--a 26 percent increase. The Legislature did not approve this entire increase, however. In the Supplemental Report of the 1997-98 Budget Act, the Legislature recognized a future construction cost of $108.4 million, or about $8.2 million less than the amount proposed by the administration.

In October 1997 (two months after enactment of the budget), the State Public Works Board approved the project's preliminary plans and recognized a future construction cost that was $7.2 million higher than the amount approved by the Legislature in the supplemental report. The board indicated that the construction cost was consistent with that approved by the Legislature, but the board approved the higher budget to account for inflation-related costs up until the time when the construction contract would be bid and also throughout the construction period.

Our review indicates that the estimate prepared by the administration in 1997 already accounted for these inflationary impacts. Moreover, the reduction in the project budget as approved by the Legislature was unrelated to these inflation adjustments. It was instead for other building-related costs that the administration could not substantiate. We see no reason to increase the construction budget for this project above that which the Legislature has already approved. We therefore recommend approval of $108,416,000, a reduction of $7,252,000.

Use General Fund Rather Than Debt Financing. As discussed in our Crosscutting Issue, "Financing Priority Capital Outlay Projects," we recommend taking advantage of increased General Fund revenues to finance a greater portion of capital outlay on a "pay-as-you-go" basis. We therefore recommend that construction of the DHS laboratory be funded from the General Fund instead of from lease-payment bonds. This will reduce the state's future burden to pay debt-service costs for this project. We estimate that the state would avoid about $120 million in total interest costs that it would otherwise incur with bond financing.

The net effect of our recommendations would be to delete Item 4260-301-0660 and approve a new Item 4260-301-0001 in the amount of $108,416,000.

Department of Mental Health (4440)

The Department of Mental Health (DMH) operates four state hospitals--Atascadero, Metropolitan, Napa, and Patton. The department's capital outlay program for 1998-99 totals $34.3 million, including $1.3 million from the General Fund and $33 million in lease-payment bonds, for three projects.

Further Expansion at Atascadero

The budget proposes $984,000 from the General Fund to prepare preliminary plans for a 250-bed addition to Atascadero State Hospital. According to the department's proposal, the project would include about 167,000 gross square feet of building space and related infrastructure and support facility improvements to house Judicially Committed/Penal Code (JC/PC) patients (including sexually violent predators). The estimated future cost for working drawings and construction is $46.3 million. The total cost of the project would thus be almost $190,000 per bed. This is the second 250-bed addition proposed for Atascadero. In the 1997-98 Budget Act, the Legislature provided funding to prepare design documents for an initial 250-bed expansion, and as discussed below, the Governor's budget for 1998-99 proposes $33 million for construction of this facility.

Increase in Patient Population

Since enactment of realignment legislation in 1991-92, the number of patients placed in the state hospitals pursuant to the Lanterman-Petris-Short (LPS) Act has declined by about 1,400 through December 1997. During this same time, however, the number of JC/PC patients increased by over 800. Because of the security needs associated with JC/PC patients, the Legislature has funded capital outlay projects and additional personnel to increase security at Metropolitan and Napa State Hospitals. Upon completion of these security improvements, and other housing unit renovations at Metropolitan and Patton, the state hospitals will have secured facilities to house almost 3,600 JC/PC patients in June 2001. At that time, however, the JC/PC population is expected to be almost 4,000, and according to the department, this population will continue to grow by about 300 patients per year. About 50 percent of the projected increase in JC/PC population is attributable to patients committed under the Sexually Violent Predator (SVP) Program.

SVP Background. The SVP program was established by Chapter 762, Statutes of 1995 (SB 1143, Mountjoy), and Chapter 763, Statutes of 1995 (AB 888, Rogan). This program provides for the civil commitment of individuals who (1) have been convicted of a specified sexually violent offense against two or more victims, (2) have served their entire prison sentence, and then (3) have been diagnosed as having a mental disorder that makes it likely they will engage in sexually violent criminal behavior. Persons diagnosed as SVPs, after going through a complex process established by the SVP statutes, are civilly committed to the custody of the DMH for two years. Their commitments are subject to two-year extensions if it is determined by the DMH and the courts that the mental disorder and danger to the community persist.

The constitutionality of the SVP law is being challenged in the California Supreme Court, and a decision from the court is expected in 1998. In 1997, however, the U.S. Supreme Court upheld the constitutionality of a similar SVP program operated by the State of Kansas.

SVP Caseload. As of January 1998, there were about 70 individuals committed to Atascadero pursuant to the SVP law. In addition, there are about 130 individuals diagnosed by DMH as SVPs who have been placed at Atascadero by various court orders while awaiting disposition of their cases (pre-commitments). The Governor's budget assumes that the state's SVP law will be ruled constitutional and that the SVP population will continue to increase--reaching 321 commitments by June 1999. The administration projects that the SVP population will continue to grow and will range from about 1,400 to over 1,500 by mid-2006.

Long-Term Housing Strategy Needed

We recommend deletion of $984,000 for preliminary plans because consideration of the addition is premature pending consideration of other options for accommodating growth in the judicially committed caseload. (Delete $984,000 from Item 4440-301-0001 [1].)

Based on the projected growth in the JC/PC population and the available secured beds in the state hospital system, the DMH will need to acquire additional secured beds. It is not clear, however, that adding additional capacity, in 250-bed increments, at Atascadero is the most appropriate and cost effective way to address this problem. The department indicates that, while the alternative to build a second 250-bed unit "seems to be most viable at this time," it is studying the alternative of constructing a new facility solely for the SVP population. The department has contracted with a consultant to perform such a study (to be available in the spring), which is intended to include the following:

We believe that the Legislature should not approve the proposed funding for the second 250-bed addition at this time. Instead, the Legislature should consider other options for addressing the housing shortage for JC/PC patients and SVPs. The pending department study should provide the Legislature with an opportunity to address this problem in a more comprehensive and long-range fashion. Aside from building a new facility for SVPs, there are a variety of steps that could be considered that would make additional beds available for JC/PC patients within the existing state hospital system, including:

In addition, the Legislature should also consider the potential of using other state facilities in lieu of building new facilities to house the growing state hospital population. For example, the population of the state's developmental centers has decreased significantly in recent years and is well below their aggregate licensed capacity. The state should consider whether any of these facilities could be used to house DMH patients. Prior to its closure, the former Camarillo State Hospital housed both DMH patients and DDS clients, and a similar joint use arrangement could be explored for one of the remaining developmental centers.

Based on the above, and given the pending department study, we recommend deletion of the $984,000 under Item 4440-301-0001 (1) for the second 250-bed addition at Atascadero State Hospital.

Atascadero, Initial 250-Bed Addition

We withhold recommendation on $33 million to construct the addition, pending review of the consultant's study on housing sexually violent predators and a decision regarding long-term housing options for Judicially Committed/Penal Code patients. If the Legislature decides to provide the construction funds in 1998-99, we recommend increased General Fund revenues be used to fund construction instead of lease-payment bonds in order to avoid future debt-service costs.

The budget proposes $33 million in lease-payment bonds for construction of the first addition of 250 beds at Atascadero. The preliminary plans for the project are complete and the preparation of working drawings is scheduled to begin in March. Construction is scheduled to begin in March 1999 and be completed by February 2001.

Consistent with our previous discussion regarding the proposal for a second phase addition at Atascadero, we believe that the Legislature should not act on construction funding for this 250-bed unit until a longer-term solution is developed regarding the impending shortage of bed space for JC/PC patients. If, for example, the Legislature decided to house SVPs in a location other than existing state hospital facilities, there would be adequate secured beds in the state hospitals to house the remaining JC/PC population until early in 2004. Under this scenario, construction of this 250-bed addition could be deferred. Furthermore, the time when these new beds would be needed could be extended even further if any of the various options to make additional secured beds available in the state hospitals were implemented (as discussed earlier).

We withhold recommendation on the budget proposal pending receipt and review of the consultant's study on housing SVPs and consideration of a long-term strategy for housing JC/PC patients.

In addition, as discussed in our crosscutting issue, "Financing Priority Capital Outlay Projects," we recommend taking advantage of increased General Fund revenues to finance a greater portion of capital outlay on a "pay-as-you-go" basis rather than with bond financing. Therefore, if the Legislature decides to fund construction of this 250-bed addition in 1998-99, we recommend that the General Fund be used instead of debt financing with lease-payment bonds. This would reduce the state's future burden to pay debt-service costs for this project. We estimate that the state would avoid about $37 million in total interest costs that it would otherwise incur with bond financing.

Department of Corrections (5240)

The California Department of Corrections (CDC) operates 33 prisons and 38 fire and conservation camps throughout the state. The prison system also includes 14 community correctional facilities operated by private firms, cities, or counties under contract with the CDC and two county jails leased and operated by the department. As of December 31, 1997, the system housed almost 155,000 inmates.

The budget includes $40.7 million from the General Fund for capital improvements at existing state institutions. The estimated future cost to complete these projects is $52.2 million. The budget proposal includes the following:

The budget does not include any proposals to design and build new institutions. The administration's proposal to increase the capacity of the prison system through separate legislation is discussed below.

Prison System Expansion

The administration's plan for accommodating inmate population growth relies solely on expanding the prison system. This approach is similar to past proposals that the Legislature has rejected. We continue to recommend a balanced approach to the state's inmate housing problem--one that includes both (1) development of additional capacity and (2) policy and program changes to reduce the growth rate in the inmate population. If the Legislature wishes to expand the use of leased prison facilities, as the administration is proposing, it should consider both the short- and long-term benefits of this approach to housing the state's inmates. The department should not advertise for new leasing contracts until the Legislature, through the budget process, determines how this proposal fits with its overall plan for addressing the inmate housing gap. Proposals for funding new state prisons also should be considered as part of the budget process.


The department's most recent inmate population projections (Fall 1997) estimate a total of 213,000 inmates by June 2003. When all of the additional prison system capacity that the Legislature has previously authorized is completed (in the current year), the system will be able to accommodate about 171,000 inmates. (This capacity does not include about 7,200 beds--triple bunks in prison gymnasiums and dormitories and double bunks on dayroom floors in celled housing units--that the department could use but considers to be a "high security risk" and thus not viable long-term housing.) Based on the department's projections, in about two years all beds (including the "high risk" beds) will be occupied. Moreover, accommodating the inmate population growth solely by increasing the long-term housing capacity of the prison system would require completion of 42,000 additional beds within the next five years.

The need for 42,000 beds is distributed among the various security housing levels used by the CDC. The department, through a formal evaluation procedure, classifies inmates based on their potential risk to escape or to act aggressively against other inmates or staff. Through this process, the CDC determines in which of four security levels--Level I (minimum) through Level IV (maximum)--a male inmate should be housed within the prison system. Women inmates are also classified, but because there are far fewer women's institutions, those with different classifications are often placed within the same housing units.

Figure 15 (see next page) compares the prison system capacity (171,000) with the estimated inmate population in June 2003 for each security level. The figure shows that the largest housing needs will be in Levels I and III. (The capacities shown in Figure 15 include CDC's plan to convert about 8,500 cells for Level III inmates to instead house Level IV inmates. We assume that these conversions will remain in effect as needed at least through 2003.)
Figure 15
California Department of Corrections

Prison Housing Gap by Security Level

Capacity ofExisting Prisons June 2003Inmate Population Projected Housing Gap in 2003
Women 13,203 15,716 2,513
Reception 20,526 24,637 4,111
I 26,890 46,746 19,856
II 40,929 41,361 432
III 39,928 50,713 10,785
IV 26,225 31,197 4,972
Special housing 3,030 3,050 20
Totals 170,731 213,420 42,689

Administration's Plan

The administration proposes two strategies to address the 42,000-bed housing shortfall. First, the CDC would contract with public or private entities for 15,000 beds to house female inmates and Level 1 male inmates. Of this total, about 2,500 beds would be to address the June 2003 housing gap for female inmates (as shown in Figure 15). Second, the prison system would be expanded by 22,200 beds. This would consist of building four new prisons (20,300 beds) and adding ten administrative segregation housing units (1,900 beds) at existing institutions. The state-owned facilities would mostly house the higher security, Level III and IV inmates.

The department indicates that a portion of the 15,000 contract beds will be completed in each of the next three years. The department is requesting budget authority for 5,000 of these beds in 1998-99. The CDC's schedule shows that these beds would be activated beginning in the summer 1999.(We discuss this budget proposal in more detail in our analysis of the CDC's support budget. See the Judiciary and Criminal Justice chapter of this Analysis.) The department plans to request authorization for the remaining 10,000 contract beds in 1999-00 and 2000-01. At this time, it has not determined how many of these beds will be requested in each of those years. According to the department, the contracted facilities, which are planned to each house 500 inmates, can be completed much faster than the three to four years the department takes to develop a 5,000-bed state prison. These contract beds are intended to meet the housing shortfall that will occur in early 2000.

The impact of this proposal on the June 2003 housing gap is shown in Figure 16. As shown in the figure, after completion of all new facilities, there would be a housing gap of about 5,000 beds in June 2003. Under the plan, the department will therefore have to continue using most of the 7,200 "high risk" beds in order to accommodate the inmate population at that time.
Figure 16
Impact of Governor's Proposal on Housing Gap
Projected HousingGap in 2003 ProposedCapacity Increase Housing GapWith New Capacity
Women 2,513 2,513 --
Reception 4,111 1,710 2,401
I 19,856 14,111 5,745
II 432 0 432
III 10,785 11,110 -325
IV 4,972 7,783 -2,811
Special housing 20 -- 20
Totals 42,689 37,227 5,462

Cost of Plan. The CDC estimates that it will cost almost $1.3 billion to build the new prisons and administrative segregation units. This cost is proposed to be funded with $1.024 billion in state bond funds and $250 million in federal prison construction grants. A portion of these federal grants (about $15 million) have already been awarded to the state. The CDC anticipates receiving the remaining grant monies over the next three years. The grants would pay for 90 percent of the estimated cost to construct one state prison.

The administration has not made a final decision whether to use general obligation bonds or lease-payment bonds for the new prisons. If the new prisons were funded with lease-payment bonds (as appears to be the administration's intent), we estimate annual debt service costs would be about $90 million. We estimate that the annual operating cost associated with this new capacity will be $460 million. Total costs for debt service and operations would therefore be about $550 million per year.

For the 15,000 contract beds, the state essentially will make lease payments to cover the contractor's costs to construct and operate the facilities. (The CDC indicates that the construction cost will be amortized as part of the lease payments over a ten-year period.) The estimated annual costs when all 15,000 beds are completed is $285 million. This total includes costs of the contracts plus CDC support costs for such services as inmate medical care and transportation.

Administration Plan Relies Solely on Increased Capacity

Our analysis indicates that the plan, if implemented, would generally meet the state's anticipated housing needs over the next five years. The inmate population will not cease growing in June 2003, however. The department's projections show the system adding about 11,000 inmates per year over the following four years (though the last year of the projection--June 2007). Given existing law and practices within the criminal justice system, the inmate population will probably continue growing at a fairly steady rate for the foreseeable future. Accommodating this continued growth by expanding the state prison system would require building at least two new prisons every year with a capital outlay cost exceeding $500 million.

As with previous proposals by the administration, this plan addresses the inmate housing problem solely by adding capacity--both state-owned and leased space--to the existing prison system. For the last four years, the administration's approach has been rejected by the Legislature. In our May 1997 policy brief, Addressing the State's Long-Term Inmate Population Growth, we presented a plan to address inmate population growth over the next ten years. This proposal was weighted almost equally between adding capacity to the system and reducing inmate population growth through a variety of program and policy changes that we believe are cost-effective and minimize the risk to public safety, such as:

There are a wide variety of options available in addition to the ones we offered in our proposal, and there is no one clear-cut solution to the challenge of accommodating the tens of thousands of additional inmates. We continue to recommend a balanced approach similar to the one we have outlined. Below we comment on the administration's proposals for contract beds and for new prisons.

Contract Beds

The main difference between this year's plan and previous plans is the large component of beds to be leased from public or private entities. The plan would almost triple the number of such beds in the system. As discussed earlier, this proposal stems from the department's need for these beds in the short term when the inmate population would otherwise exceed the systemwide capacity before new state institutions could be completed. These prisons would house the lower-security level inmates for whom the department needs additional space.

Contracting for these beds is essentially an alternative to expanding capacity of the prison system through the state's capital outlay process. The department's past experience with contracting has shown it to be a cost-effective strategy for housing inmates. According to the CDC, the existing leased prisons operate at about 10 percent less than the cost to house inmates at state prisons. In general, the private sector should be able to build prisons in less time than the state due to the state's legal processes for awarding design and construction contracts. In addition, because the private firms bid on a competitive basis for both the construction and operation of the prison, the operating costs of these prisons can be less than for state prisons. We believe, however, that the Legislature should consider the potential long-term implications of contracting on such a large scale.

Lack of Ownership Stake. Since the early 1980s, the state has used bond financing to construct new state prisons. The state thus incurs debt and pays back this debt over many years for these state-owned facilities. The state does not incur debt--per se--in acquiring bed capacity through contracting, but nevertheless pays for the construction costs of the facilities through its lease payments to the owners. Unlike the state's debt payments for new state prisons, these lease payments do not lead to state ownership of the facility. From a long-term perspective, this is a key consideration.

Lease-Renewal Rates. With any lease (such as for commercial or office space), the occupant will be charged the market rate--based on the demand for that space--when a lease is first entered into and when it is renewed. Given the unique nature of prisons, it is difficult to predict future conditions regarding the "market" for prison space. To the extent that the state will need the proposed and current leased beds on a permanent basis, the state could be placed in a weak negotiating position when contracts are renewed for these beds. This could result in higher long-run costs to the state in the future when compared to operating similar state-owned facilities. Over the long-term, the contracting approach to housing inmates could prove to be less cost-effective than it may initially appear.

Alternatives. Prior to authorizing the department to proceed with its budget-year proposal for 5,000 of the proposed private sector beds, the Legislature should consider both the short- and long-run implications of this alternative and how the contracts could be structured to best protect the state's interest in the future. For example, the Legislature could consider providing up-front construction funding for facilities to be built and operated by its contractors. Once the contracts expire, the state would own the prison. It could select a vendor to continue operating the facility--or assume operations with state personnel--if no bid was cost-beneficial. Alternatively, the Legislature could authorize the department to enter into lease-purchase arrangements or leases with purchase options so that the state's payments, over time, would lead to ownership of the facilities.

The Legislature may also wish to consider to what extent inmates classified other than Level I should be housed in the proposed contract facilities. The policy changes that we proposed in our May 1997 report would divert a number of Level I offenders from the prison system, thus reducing the need for this type of housing. In that event, the Legislature may wish to consider housing higher security inmates (Levels II and III) in contract facilities if doing so could be done safely and in a cost-effective manner.

Another feature of the administration's proposal that the Legislature should consider is the merits of leasing numerous 500-bed facilities versus contracting for some larger ones. Reason would dictate that, while larger facilities may take longer to build, they could probably be operated at less cost when compared to the relatively small units being proposed by the CDC. The department, for example, has proposed and built very large prisons in part to achieve cost efficiencies.

Other issues that the Legislature may wish to consider as part of this expansion of contracting include:

The department plans to release a request for proposal (RFP) for the 5,000 beds in April 1998. The department is currently evaluating whether any modifications should be made to a 1995 RFP that was used to obtain contracts for 2,000 beds. We believe, however, that the department should not go forward with the RFP until the Legislature has had an opportunity to (1) consider whether the proposal for 5,000 contract beds fits with a more balanced approach, such as we have recommended, for addressing the inmate housing gap; (2) consider the issues related to contracting that we have discussed above; and (3) determine whether the various elements of the proposed RFP are appropriate.

State Prisons. The administration indicates that it will seek bonding authority--for either general obligation or lease-payment bonds--through legislation separate from the budget for the four prisons and ten administrative segregation housing units. We have consistently maintained that proposals to construct new prisons should be presented as part of the budget process. These one-time costs should be considered in relation to the ongoing costs needed to operate the facilities. The costs of building and operating new prisons should also be considered in the context of the entire state budget and along with the state's other capital outlay needs.

In the past, we have also indicated that approval of new prisons does not require complete funding authority at one stage. The new prisons proposed by the department will take three to four years to complete. Given the time necessary for environmental reviews and design of these facilities, it will take at least one year from the time of funding for these activities until the department is ready to proceed to construction. The Legislature could therefore appropriate funds for preliminary plans and working drawings for those new prisons that need to begin in 1998-99. These initial costs could be funded with federal prison construction grants (90 percent) and a corresponding state match (10 percent).

Other Issues

Previously Funded Projects

We recommend approval of $18.2 million for 21 projects, contingent on completion of preliminary plans that are consistent with the scope and cost as previously approved by the Legislature.

Our analysis indicates that the amounts proposed in the budget for 21 projects previously funded for preliminary plans are consistent with prior legislative action. These budget proposals for working drawings and construction include:

The preliminary plans for these projects, however, have not been completed. Therefore, we recommend approval contingent on completion of preliminary plans that are consistent with the legislatively approved scope and cost.

Minor Capital Outlay

We recommend approval of $2.5 million, a reduction of $3 million for minor capital outlay because the department cannot undertake and complete all of these projects in the budget year. (Reduce Item 5240-301-0001 [24] by $3,000,000.)

The budget proposes $5.5 million for minor capital outlay for 1998-99. In keeping with state budgeting practice, these projects are scheduled in a lump sum appropriation. The total cost of a minor project cannot exceed $250,000, but the department has considerable flexibility regarding which projects to undertake within the available funds. The department prepares a priority list of minor projects, but can redirect funds to other minor projects if priorities change.

The minor projects, along with major repairs and most major capital outlay projects at existing prisons, are built with inmate labor under the supervision of CDC personnel. According to information from the department, the Inmate Day Labor (IDL) workload totaled about $60 million in projects in 1996-97. A majority of this workload involved implementing the department's emergency bed program, which included constructing new prison dormitories and support facilities at several institutions. The total staffing was reduced by about 10 percent in the current year because of a slight decrease in project workload.

We estimate that, if all capital outlay projects proposed for 1998-99 were approved by the Legislature, the IDL's workload for the budget year would total about $55 million. Though this total is slightly less than in prior years, the work will involve many more small projects as compared to the larger building projects in the emergency bed program. We seriously question the department's ability to complete the proposed $5.5 million in minor projects along with all other proposed IDL-related work in a timely fashion.

Consequently, we recommend a reduction of $3 million in the request for minor capital outlay projects. This would leave the department with $2.5 million to undertake its highest priority minor projects in the budget year. This funding level would be similar to the $2.3 million provided for minor capital outlay in the current year.

Department of the Youth Authority (5460)

The Department of the Youth Authority operates 11 institutions, including two reception centers, and six conservation camps throughout the state. The budget includes $14.2 million from the General Fund for the department's capital outlay program in 1998-99. This amount includes $3.5 million for minor projects (each project costs $250,000 or less), $250,000 for planning, and $10.5 million for the following major capital outlay projects:

The Governor is also proposing $33 million in bond authority, in legislation separate from the budget bill, to build a total of 300 single-occupancy rooms at four institutions. (The administration has not made a final decision regarding whether general obligation or lease-payment bonds will be proposed.) As with our discussion regarding proposals to expand the state prison system (in the preceding section on the Department of Corrections' capital outlay program), the merits of this proposal for the Youth Authority should be considered as part of the budget process. These costs should be evaluated in the context of the state's other capital outlay needs.

Master Key System

We recommend approval of $1.1 million for working drawings and construction pending completion of preliminary plans that are consistent with the scope and cost as previously approved by the Legislature.

The budget includes $1,075,000 for working drawings ($80,000) and construction ($995,000) to rekey approximately 1,700 doors and 1,000 padlocks and establish a master key control system at the Heman G. Stark Youth Correctional Facility. Our review indicates that this amount is consistent with prior legislative action. The preliminary plans for this project, however, have not been completed. We therefore recommend approval contingent on completion of preliminary plans that are consistent with the legislatively approved scope and cost.

Statewide, Personal Alarm Systems

We recommend approval of $609,000 for working drawings pending completion of preliminary plans and receipt of construction bids for a similar alarm system project.

The budget proposes $609,000 to prepare working drawings for the installation of new personal alarm systems at all Youth Authority institutions. The estimated future construction costs are $8.6 million. The preliminary plans for this project are not completed. In addition, the construction bids for a similar project to install a new personal alarm system at the Southern Youth Correctional Reception Center (SYCRC) are scheduled to be received in the spring. An evaluation of these bid results should assist the state in refining the estimate for installing alarm systems at the other institutions. We therefore recommend approval of the budget proposal contingent on (1) completion of preliminary plans that are consistent with the legislatively approved scope and cost and (2) review of construction bids for the personal alarm project at SYCRC.

University of California (6440)

The budget proposes $151 million from general obligation bonds to fund 26 projects under the University of California's (UC) 1998-99 capital outlay program. This amount includes $1 million from the 1996 Higher Education Capital Outlay Bond Fund and $150 million from a proposed 1998 bond measure. The estimated future cost to complete these projects is about $127 million.

As discussed under "Funding Higher Education Capital Outlay," it would cost about $1.2 billion to complete all projects included in this budget for all three segments of higher education as well as all projects not in the budget that were previously approved by the Legislature. Clearly, the Legislature will have to carefully allocate limited capital outlay resources to meet increased enrollment. We believe that the Legislature, in reviewing capital outlay proposals for UC, should:

LAO Assessment of Proposed Projects

Projects Meeting Statewide Criteria

We recommend the Legislature approve $65.7 million for 13 projects that meet the criteria for the priorities we have identified for funding higher education capital outlay. (Future estimated cost $37.9 million.) Of this amount we recommend the Legislature approve $2.2 million from existing bond funds and $63.5 million from the proposed 1998 bond measure.

In our Crosscutting Issue, "Funding Higher Education Capital Outlay" we recommend that the Legislature discontinue the approach of allocating equal shares of each higher education bond measure to each of the segments. Instead, we recommend that projects from all three segments be evaluated and funded based on how effectively they meet statewide priorities. We provide criteria for establishing statewide funding priorities that focus:

The Governor's budget proposes funding for 26 projects at UC campuses. We have evaluated these projects against the criteria discussed in our Crosscutting Issue and our recommendations are based on this evaluation. Our review indicated that half of the projects meet our proposed criteria. We recommend the Legislature approve the three highest priority projects (listed in Figure 17) from existing bond funds. We recommend the Legislature approve the ten projects listed in Figure 18 (see next page) from the proposed 1998 Higher Education Capital Outlay Bond Fund.
Figure 17
Projects Recommended for Funding With

Existing Higher Education Bond Funds

(In Thousands)
Campus Project Amount Cost to Complete
Priority No. 2--Necessary Equipment
Irvine Humanities/Fine Arts Facilities--equipment $387 --
Irvine UCIMCa Academic Laboratory Seismic

Replacement Facility--equipment

548 --
Santa Cruz Applied Sciences Building Alterations,

Phase 1--equipment

1,232 --
Total $2,167 --
aUniversity of California Irvine Medical Center

Figure 18
Projects Recommended for Funding With

Proposed 1998 Higher Education Bond Funds

(In Thousands)
Campus Project Amount Cost to Complete
Priority No. 4--Academic Improvements (Renovation, 30 Years Old)
Santa Barbara Broida Hall Building Renewal--working drawings $712 $10,257
Priority No. 5--Operationally Essential Facilities
Berkeley Campus Sewer System Renewal--working drawings and construction $2,007 $0
Berkeley Campus Water Distribution System Expansion, Step 2--construction 1,466 0
Los Angeles Campus High-Rise Fire Safety--working drawings and construction 4,377 0
San Diego SIOa Utilities System Improvements--construction 1,836 0
Santa Cruz Mt. Hamilton Infrastructure Improvements --construction 2,871 0
Priority No. 6--Administrative, Research, and Support Facilities
Riverside Entomology Buildings Seismic Replacement-- preliminary plans $991 $23,149
Santa Barbara Environmental Sciences Building--working drawings and construction 21,015 1,577
Santa Cruz Interdisciplinary Sciences Building--working drawings and construction 14,833 1,759
Davis Alternative Pest Control Quarantine and Containment Facilities for California 13,442 1,179
Totals $63,550 $37,921
aScripps Institution of Oceanography

Reevaluate the Following Projects

We recommend the Legislature delete $41.7 million for nine projects related to seismic retrofitting of University of California buildings because (1) the seismic risk of these buildings needs to be reassessed using the Department of General Services' method and (2) the projects need to be rescoped to include seismic retrofit work only. (Reduce Item 6440-301-0574 by $2,149,000 and delete subitems (1), (5), and (7); reduce Item 6440-302-0574 by $38,421,000 and delete subitems (3), (4), (6), and (7); and delete Item 6440-301-0658 for $1,084,000.)

As discussed in the Crosscutting Issue "Assessing Seismic Risk in Higher Education Buildings" in this chapter of the Analysis, we recommend all state buildings, including those on UC campuses, be evaluated for seismic risk using the methodology and rating scale developed by the Department of General Services (DGS). Without this uniform process the Legislature has no basis for comparing funding proposals from the different segments and for general state buildings to determine both the relative risk of the buildings and which buildings should be funded for improvements.

In addition, in order to reduce the seismic risk in the largest number of high risk buildings and to address other capital outlay needs with limited funds, the scope of these projects should be limited to work that is directly required because of the seismic retrofit. This is the approach the Legislature has taken for all other state buildings, and we believe it is the prudent way to proceed for the UC projects.

We recommend, therefore, that the projects in Figure 19 (see next page) be reevaluated using the DGS method and ranking system, and that they be rescoped to include only structural corrections. If they are determined to be seismic risk level V or VI, and if they are rescoped to include structural corrections only, they would warrant consideration by the Legislature as Priority 1 projects. In this case, we would recommend the Legislature use existing bond funds to fund the projects rather than projects of lower priority in the UC as well as in the California State University and community colleges. Although the UC has provided some information indicating that these buildings would be level V or VI, its engineers did not use the DGS's methods in arriving at these conclusions. Instead of using the DGS' evaluation process, the engineers attempted to equate the UC terms "very poor," "poor," and "fair" to the DGS terminology for seismic risk levels. In order to assure comparable risk evaluations, the use of the DGS methods is necessary.

On this basis, we recommend the Legislature delete the projects in Figure 19. If upon reevaluation, the seismic risk indicated is a risk level V or VI and the project is rescoped to include seismic retrofit work only, such revised projects would warrant the Legislature's consideration. At this time, however, we recommend the Legislature delete the nine projects and $41.7 million.

Previously Approved Projects Recommended for Reevaluation. Three of the projects in Figure 19 have previously been approved by the Legislature. These are:

Berkeley-Barker Hall, seismic safety corrections--working drawings.

Figure 19
Seismic Retrofit Related Projects

Need to Be Reevaluated and Rescoped

(In Thousands)
Campus Project Amount Cost to Complete
Berkeley Seismic Safety Corrections, Barker Hall-- working drawings $758 $12,599
Berkeley Seismic Safety Corrections, LeConte Hall-- preliminary plans 820 13,780
Berkeley Seismic Safety Corrections, Wurster Hall-- working drawings and construction 16,625 0
Irvine Arts Renovation and Seismic Improvements, Phase 1--preliminary plans 264 4,715
Irvine Seismic Improvements, Med Surge I and II-- working drawings and construction 2,528 0
Los Angeles Health Sciences Seismic Replacement Building 1--preliminary plans 922 22,141
Riverside Boyce Hall Seismic Upgrade--construction 2,376 0
Riverside Humanities-Olmsted Hall Seismic Upgrade and Renovation--preliminary plans 469 11,067
Riverside Rivera Library Seismic Upgrade and Remodel--construction 16,892 0
Totals $41,654 $64,302

These projects are now before the Legislature because it has the opportunity to review projects after completion of preliminary plans or working drawings to assure conformance with current needs and priorities. Given the limited availability of funds and the many statewide needs, we believe the Legislature should reevaluate these projects (1) for their seismic risk in relation to other state buildings and (2) to minimize the cost by funding only that work needed for seismic retrofit. For purposes of allocating the existing bond funds, we have assumed that these projects will not proceed in the budget year.

Delete the Following Projects

We recommend the Legislature delete $43.7 million for four projects because they do not meet the priority criteria. (Delete Item 6440-301-0574 [2] for $21,028,000, Item 6440-301-0574 [8] for $935,000, Item 6440-301-0574 [9] for $347,000, and Item 6440-301-0574 [10] for $21,362,000.)

We recommend the Legislature not fund the projects shown in Figure 20 because they do not meet the priority criteria described in our crosscutting issue. These projects are discussed further below.
Figure 20
Projects That Do Not Meet Priority Criteria
(In Thousands)
Campus Project Amount Cost to Complete
Davis Plant and Environmental Sciences Replacement Facility--working drawings and construction $21,028 $0
San Diego Basic Science Building Renovations--working drawings 935 14,949
San Diego Primary Electrical System Improvements--preliminary plans and working drawings 347 4,459
San Francisco UC Hall Seismic Replacement, Mission Bay--working drawings and construction 21,362 5,341
Totals $43,672 $24,749

Davis--Plant and Environmental Sciences Replacement Facility. This project will construct a 72,000 assignable square feet (asf) predominantly research building to accommodate programs in plant and environmental sciences currently located in Hunt Hall (39,000 asf) and Hoagland Hall (32,000 asf). These buildings were constructed in 1949 and 1959, respectively. The total cost of the project is $42 million, with $21 million requested from the state and $21 million to be provided from UC funds. Upon completion of this project, the campus intends to assign the vacated buildings to other academic and administrative functions not requiring intensive laboratory settings. The cost to alter the buildings for these other uses has not been identified.

The Davis campus currently has 1.3 million square feet of research space (this includes academic offices and research laboratories). This represents 101 percent of the amount needed based on enrollment. If this project were to be constructed, the campus would have 99 percent of the research space needed based on enrollments in 2002 when the building is scheduled to open. This amount exceeds the 90 percent criterion used in our evaluation. Because this project will replace two buildings that are more than 30 years old, we also reviewed the proposal based on the need to renovate or replace these buildings. Our evaluation concludes that the existing buildings do not need to be replaced. Instead, the UC should reevaluate the amount of alterations that may be necessary to improve the building conditions. The primary complaints appear to be (1) the lack of central air conditioning suitable for both an acceptable working and experimentation environment and (2) interior dust pollution due to windows being opened by occupants because of the lack of air conditioning. Both of these conditions can be remedied by installation of central or zoned air conditioning. A project to provide these modifications could be accomplished for far less than the $300 per square foot cost of this project. Therefore, we recommend the Legislature not approve the $21 million for construction of a new replacement building when renovation of the existing building could provide a satisfactory facility. (Delete Item 6440-301-0574 [2] for $21,028,000.)

San Diego--Basic Science Building Renovations. This project will renovate 134,000 asf of this 198,000 asf research and instructional building for the School of Medicine. The space to be renovated is instructional space for medical students (29 percent), research space (61 percent), and support space (10 percent). The work will consist of reconfiguring laboratories; upgrading electrical, heating, ventilation, and air-conditioning, plumbing, fire safety and elevator systems; and upgrading the offices, classrooms, auditoriums and the vivarium.

The San Diego campus currently has 900,000 square feet of research space (this includes academic offices and research laboratories). This represents 101 percent of the amount needed based on enrollment. The campus would have 97 percent of the research space needed based on enrollment in 2000 when renovation of the building is scheduled to be completed. Because this building was constructed in 1968 we also reviewed the proposal based on the need to renovate this building. The UC proposal includes many elements that are maintenance issues (such as replacement of floor covering, ceilings and electrical switchgear) that should be addressed through the campus maintenance budget. The proposal also includes replacement of equipment (such as telecommunications equipment and steam sterilizers) that should be funded through the campus operating budget. Consequently, our evaluation concludes the existing building does not need to be renovated under the capital outlay program to the extent of this proposal. Smaller renovations to this building have been made in the past to correct deficiencies and we believe the campus should continue this approach. Therefore, we recommend the Legislature not approve the $935,000 for working drawings. (Delete Item 6440-301-0574 [8] for $935,000.)

San Diego--Primary Electrical System Improvements. This project would add a new high-voltage transformer and switchgear to the campus' main electrical substation, reroute existing utility lines, and add two high-voltage cables from the east campus to the Revelle College substation. The need for this project is predicated on increased demand that would be required to serve planned new facilities, and an improvement in system reliability. Our review concludes that these improvements are not needed at this time. The main substation capacity is adequate for current loads and the planned new facilities have not yet been presented to or approved by the Legislature. An electrical system capacity increase should be deferred until new projects have been approved. When future expansion is approved by the Legislature, a project to address associated electrical system improvements could be considered for funding. (Delete Item 6440-301-0574 [9] for $347,000.)

San Francisco--UC Hall Seismic Replacement, Mission Bay. This project involves issues beyond those associated with just this proposed building. We discuss this project and the proposed Mission Bay campus in more detail below.

UCSF Mission Bay Project Should Not Be Funded

We recommend the Legislature delete $21.4 million for working drawings and construction at Mission Bay of a replacement facility for UC Hall located on the University of California, San Francisco campus. Further, we recommend the Legislature clearly delineate that no state funds will be provided for development of the planned research campus at Mission Bay.

Budget Proposal

The Governor's budget includes $21.4 million to partially fund the working drawings and construction cost of a 105,000 asf building at a proposed second campus for University of California, San Francisco (UCSF) in the Mission Bay area of San Francisco. The UC is asking for state funds to finance a portion of this Mission Bay building as part of a plan to replace UC Hall at the UCSF campus on Parnassus Avenue. The new building is estimated to cost $82.5 million, with the UC to provide $61.1 million from University funds. The proposal to construct this building raises issues not only about funding this proposal, but the larger issues associated with the UC making a commitment to construct a new $1 billion, 2.65 million square feet, 43 acre campus devoted to research. Figure 21 is a photograph of the model for the planned medical science research center in Mission Bay.

Funds Appropriated in Current Year Not Needed. In the 1997-98 Governor's Budget the UC requested $299,000 for preliminary plans (an additional $721,000 was to be provided from University funds) to construct a 33,000 asf facility on a site at the UCSF campus. This was to be the first of three buildings (two buildings at the campus and one building at another site) to replace and ultimately demolish UC Hall. The Legislature approved the UC request for $299,000. The UC decided not to proceed with that plan and no longer needs the funds appropriated by the Legislature in the 1997-98 Budget Act. The proposal in the 1998-99 Governor's Budget reflects the UC's current plans.

The UC Hall Should Not Be Replaced

The existing UC Hall is a 91,000 asf (147,000 gross square feet) seven story, concrete-encased steel frame building constructed in 1917. It was originally a hospital but was decommissioned as such in the 1980s. It now contains laboratory research space, several academic departments, a newly renovated vision clinic, a lecture hall, and physicians' and administrative offices. It has been inspected by structural engineers to determine its seismic risk. It is classified as "poor" using the UC seismic risk ranking system. It has not been evaluated for seismic risk using the DGS method.

Seismic Retrofitting of UC Hall Is Less Costly. The structural engineers who inspected UC Hall estimated the cost to provide the necessary seismic strengthening to improve the building to a "fair" rating (using the UC system of evaluation) would be about one-third the cost to replace UC Hall. Consistent with our recommendation to fund seismic retrofit costs only in order to reduce seismic risk in the largest number of buildings throughout higher education and to address other statewide needs (especially undergraduate instructional capacity) we recommend the Legislature not approve the budget request. We also recommend that the UC reevaluate the UC Hall based on the methods used by the DGS. If this reevaluation indicates UC Hall to be a V or VI level seismic risk, a proposal for seismic-only retrofitting of UC Hall may warrant the Legislature's consideration.

Legislature Should Not Commit State Funding for a New Research Campus

The UC indicates that this new research campus would become a full-service health sciences campus. According to the UC, this would require the development of library, teaching, administrative support, and "campus community" spaces. Given the relatively small and stable enrollments in the health sciences (and the health sciences capabilities at other UC campuses) and the amount of space currently available at UCSF, we do not believe it would be a prudent expenditure of state funds to provide additional space for UCSF and certainly not to embark on development of a new campus.

If the UC wants to proceed with the Mission Bay campus, it can use its authority and ability to raise funds, use research revenue bonds, grant funds, or other financing mechanisms to undertake the development. The state, however, should not have a responsibility for, nor be expected to spend limited state funds on this proposal. Any state funds contributed to this effort would diminish the state's ability to meet other needs throughout higher education--especially in light of the need to address expected growth in enrollments. Given the proposal before the Legislature and the UC plans for Mission Bay, we believe it is essential that, at this initial point of UC planning for this new campus, the Legislature clearly delineate the Legislature's commitment to state funding for the proposal. We recommend that the Legislature advise the University of California that there will be no commitment of state funds for the Mission Bay campus.

Other Issues Concerning the Mission Bay Proposal

Environmental Cleanup Uncertainties. The Mission Bay site is a planned community of which the UCSF campus is intended to be the centerpiece. The campus is to be located on 30 acres of land owned by a development company and 13 acres owned by the City and County of San Francisco. The property is primarily a vacant railroad yard. The university has indicated that the developer is committed to bearing the cost of environmental cleanup of the site. The UC's only recourse in the event of default, however, is an action against the real estate development company, which may or may not have recoverable assets at the time of default. All of these uncertainties make it unclear that the project can be completed without delays and additional future costs.

Significant Unavoidable Adverse Environmental Impacts. In certifying the final environmental impact report for this project, the Board of Regents found that there will be significant environmental impacts that cannot be avoided if the project is constructed.

Uncertain Effect of UCSF-Stanford Merger. The UCSF is in the process of merging its clinical activities with Stanford University Health Services. As currently proposed, a new nonprofit entity would be created as the corporate entity that would lease facilities from UCSF and Stanford. It has been indicated that UCSF has leased its clinical facilities to this new entity for $1 a year. The UC should advise the Legislature of any relationship between the current proposal and the UCSF-Stanford merger.

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