Legislative Analyst's Office, February 1999

Highlights of the 1999-00 Analysis and P & I

State Fiscal Picture

Governor's Proposal Can Be Characterized As a "Workload" Budget

• Funds most, but not all, current-year commitments and provides funds for caseload growth and various statutory COLA's in 1999-00.
• Its initiatives are focused in K-12 education, with few changes in other areas.
• The budget relies on increased federal funds, asset sales, and spending delays to maintain balance.
• Budget assumes continued, though slowing, economic and underlying revenue growth.

LAO's Assessment (P & I, Part I)

• The current economic and revenue trend is significantly stronger than the budget's forecast.
• Revenues will exceed the budget forecast by more than $1.3 billion in the current year and budget year combined.
• Total expenditures could exceed the budget by nearly $800 million, partly due to lower-than-budgeted federal reimbursements for Medi-Cal and corrections.
• State will end the budget year with a reserve that is at least $500 million higher than the $415 million provided in the budget.
• If current positive economic trends continue, revenues could exceed our estimates. Legislature should devote a significant portion of unanticipated revenues to increasing the reserve.

Program Highlights

K-12 Education

Legislature Should Consider Decentralized Approaches to Improving Schools

• The Governor's budget includes $444 million from all funding sources for various proposals to improve reading achievement, teaching, and school accountability, collectively called the READ (Raising Expectations, Achievement, and Development in Schools) initiative. In the Governor's various proposals, the general tendency is toward centralized approaches in which the state mandates prescriptive improvement strategies.
• The high priority that the Governor has assigned to better outcomes from the state's public schools is appropriate. However, the Legislature might consider whether the generally centralized approaches taken in the Governor's various proposals are the best way of getting to the improved academic outcomes.
• If there is a theme to the various recommendations we make on K-12 education, it is one of recognizing (1) the inherent variability in the challenges faced by the state's 8,000 public schools and (2) the consequent need to consider decentralized approaches that foster improvements in place of centralized approaches that attempt to impose improvements. (Perspectives and Issues, page 80).

Improving Reading and Other Skills

• We recommend an approach that recognizes the importance of improving other academic skills along with reading, and that would give local schools more flexibility in allocating funds to meet particular local needs and circumstances.
• For example, we recommend that the Legislature consolidate funding for two of the Governor's new reading programs with five existing programs that address deficiencies in reading and other academic skills. This consolidation would give local districts more flexibility in addressing local needs and circumstances, which vary from place to place. (Analysis, page E-34.)

Enhancing Teacher Quality

• We make a series of recommendations intended to make the Governor's proposals broader in scope and effect, and to increase options for local school districts and teachers.
• For example, in addressing teacher quality issues the Governor would have the state effectively mandate that all schools adopt a teacher peer review program under which "exemplary" teachers would assist "veteran" teachers in need of development. In addition, the Governor's proposal would, after the budget year, end the Mentor Teacher Program that provides assistance and guidance to new teachers.
• Under our recommended approach, the proposed peer review program would be optional, not mandated, and would complement, rather than replace, the Mentor Teacher Program. Related recommendations would further increase local flexibility in addressing teacher quality needs. (Analysis, page E-58.)

Accountability

• We make a series of recommendations that we believe will provide for a smoother, more effective implementation of the Governor's accountability proposals, including placing local districts in the "chain" of accountability.
• For example, we recommend that the Legislature make districts the state's point of contact in the proposed High Achieving/Improving Schools Program. If districts are given a formal role in the accountability system, the state can specify what it expects each district to accomplish in terms of improving schools. Since the administration's approach gives no direct role to districts, no such expectations are made of them. This absence of explicit expectations for districts could even lead to counter-productive incentives. (Analysis, page E-69.)

Getting $150 Million to Schools in the Upcoming School Year

• We recommend that the first appropriations for "Governor's Performance Awards" be in the same fiscal year that, as a practical matter, the awards can be distributed to schools (2000-01). This has the effect of increasing by $150 million (one-time) funding available for schools at the start of the coming school year. (Analysis, page E-68.)

Restore Deferred Maintenance Funding

• We recommend that the Legislature restore $115 million for deferred maintenance deleted by the Governor's budget proposal, so that the massive backlog of deferred maintenance of school facilities can continue to be addressed. (Analysis, page E-95.)

Higher Education

Budget Detail Lacking for CSU and UC

• The Governor's budget provides little detail on how the California State University (CSU) and University of California (UC) will allocate budget changes among various programs. The Governor's budget states that CSU and UC will develop specific budget plans in the spring.
• We withhold recommendation on the total proposed budgets for CSU and UC pending receipt of these plans. (Analysis, pages E-115 and E-122.)

Year-Round Operation in Higher Education

• Higher education will experience steady, moderate enrollment growth over the next decade. As a result, most UC, CSU, and California Community College (CCC) campuses will soon reach their current capacities. The state will then be faced with providing space for these students.
• In order to serve these students, we recommend that the three segments move to year-round operation. This means the segments would provide the same level of educational services in the summer as they now provide in the fall, winter, and spring.
• By going year-round, the state could serve up to one-third more students in existing instructional facilities and save several billions of dollars that would otherwise be spent on additional buildings. Year-round operation would have no impact on faculty workload. It would increase students' access to high-demand campuses and provide students the option to accelerate their time to degree. (Perspectives & Issues, page 127.)

Governor's CCC-Based K-12 Initiatives Lack Merit

• The Governor's budget requests a total of $22.4 million for three CCC initiatives designed to improve the K-12 educational system. These initiatives propose to  (1) develop a system to report on how well students from each high school perform in community college ($10.6 million), (2) encourage community college students to tutor K-12 students in reading ($10 million), and (3) expand a program that offers at-risk high school students the opportunity to take high school courses on community college campuses ($1.8 million).
• We recommend deleting funds for the first two of these proposals because they lack sufficient detail to justify the costs. We recommend deleting funds for the third proposal because the program, which is ten years old, has not documented its effectiveness at achieving its stated goals. (Analysis, pages E-137, E-138, and E-140.)

CSU Cannot Document Teacher Preparation Enrollments

• In the past two budget acts, the state has invested $13.8 million to expand CSU's teacher preparation enrollments by 2,702 full-time equivalent (FTE) students. Now, CSU reports that it does not know how many students are enrolled in its teacher preparation programs.
• If CSU cannot document at budget hearings that it achieved the promised enrollment growth, we recommend the Legislature shift the $13.8 million from its base budget to provide an additional 3,000 Cal Grant T awards. These awards provide financial aid grants to students enrolled in accredited public or private teacher-preparation programs. (Analysis, page E-125.)

Increase Cal Grant T Funding

• In addition to the potential shift of funds to Cal Grant T awards noted above, we recommend that the Legislature shift $2.5 million from three proposals in the Governor's K-12 initiative to the Cal Grant program, thereby providing 500 additional awards to students in teacher-preparation programs. (Analysis, page E-147.)

Health and Social Services

Agency Secretary to Develop Plan for Health Care Reforms

• The budget includes $37.3 million from the General Fund that is reserved for expenditure on health care reforms, pursuant to a plan to be submitted by the Secretary of the state Health and Human Services Agency.
• Funding is contingent on federal action because it is tied to federal approval of a waiver to provide Medicaid funding for family planning services currently funded entirely by the state.
• We provide options for (1) expanding health insurance coverage, (2) simplifying administration of Medi-Cal and Healthy Families, and (3) increasing participation in these programs. (Analysis, page C-17.)

Medi-Cal Budget Depends on Risky Federal Assumptions

• The Medi-Cal budget includes a total of $332 million in General Fund savings that depend on federal actions to (1) revise the methodology for determining the federal share of costs for this program and (2) approve a waiver to provide federal funding for the state-only family planning program.
• Both assumptions entail significant risk. Regarding the assumed increase in the federal share of Medi-Cal costs, the Secretary of the U.S. Department of Health and Human Services recently announced the federal share of costs for the states, and did not propose an increase for California. As regards the family planning program, in the past, states that have put their own money into programs first as California did, have been penalized by losing out on federal funds later. (Analysis, page C-35.)

Delay in Implementing Medi-Cal Eligibility Determinations for Former CalWORKs Recipients Is Costly to the State

• More than 250,000 former California Work Opportunity and Responsibility to Kids (CalWORKs) recipients have been kept on the Medi-Cal rolls indefinitely due to delays by the Department of Health Services (DHS) in issuing criteria and implementation guidelines for Section 1931(b) eligibility. This section of Title XIX of the Social Security Act establishes an eligibility category of Medicaid, replacing the previous automatic (or categorical) link to Medicaid for families on welfare.
• We estimate that the General Fund cost of Medi-Cal coverage for these beneficiaries will total about $90 million through 1998-99, and that most of this cost will be for persons who would not otherwise be enrolled in Medi-Cal (if the Section 1931[b] determinations were completed). (Analysis, page C-38.)

Medi-Cal Caseloads Overestimated

• We recommend a General Fund reduction of $2.7 million in the current year and $124.1 million in 1999-00 because the budget overestimates the CalWORKs-related Medi-Cal caseload. (Analysis, page C-42.)

CalWORKs County Incentive Payments Should Be Related to Improved Program Performance

• The budget includes $545 million in 1998-99 and $479 million in 1999-00 for performance incentive payments to the counties. The amount is based on estimated savings attributable to recipient earnings, exits from the program due to employment, and the diversion of persons from applying for the program.
• We recommend basing the portion attributable to earnings on 50 percent of the total of such savings to more closely reflect the savings that result from changes made in CalWORKs rather than savings that would have occurred even in the absence of these changes.
• This would result in a savings of $193 million in 1999-00 (federal block grant funds). We recommend allocating at least half of these savings to a CalWORKs reserve. (Analysis, page C-103.)

CalWORKs Employment Services Overbudgeted

• We recommend reductions totaling $171.2 million (federal block grant funds) to account for (1) nonparticipation of recipients in required program activities and (2) estimated savings from the Maximum Family Grant provision of current law.
• We recommend allocating at least half of these savings to a CalWORKs reserve. (Analysis, page C-102.)

Budget Proposes Elimination of General Fund Support for the County Medical Services Program

• The budget proposes elimination of the annual $20.2 million General Fund allocation for this program, under which 34 small counties provide indigent health care services to adults not eligible for Medi-Cal. We comment on the proposal and discuss options. (Analysis, page C-57.)

Need to Control Medi-Cal Mental Health Expenditures

• Medi-Cal expenditures for mental health services under the Early and Periodic Screening, Diagnosis, and Treatment program have increased rapidly in recent years.
• To give the counties more incentive to control these costs, we recommend transferring the General Fund allocation of $89 million from the DHS budget to the Department of Mental Health, where the funds would be distributed to counties as part of their managed care allocations, as is the case for other Medi-Cal mental health services. (Analysis, page C-85.)

No Clear Rationale for Proposal to Eliminate New Adoptions Program

• The budget proposes to eliminate the Substance Abuse/HIV Child Adoption Program for a General Fund savings of $1 million, but incorrectly states that the program is scheduled to sunset at the end of the current year.
• Because this is a new program established by statute in the current year and the administration has no policy rationale for eliminating it, we recommend continuing the program. We withhold recommendation on the appropriation, pending receipt of information from the department on estimated current-year expenditures for the program. (Analysis, page C-137.)

Judiciary and Criminal Justice

Prison Inmate Growth Slows

• Although the state's prison inmate population is projected to grow over the next five years, the rate of growth is much slower than in recent years.
• Even with the lower projections, however, the prison system will run out of bed space by 2001. We recommend that the Legislature take a balanced approach to accommodating future inmate population growth, weighted evenly between adding new prison capacity and enacting policy changes to reduce the expected growth.
• Our review indicates that the projected inmate population for the current and budget years is overbudgeted by a total of $67 million. (Analysis, pages D-60 to D-69.)

Legislature Should Adopt "Containment" Strategy for Adult Sex Offenders

• About half of the 7,300 adult sex offenders now on parole are considered to pose a high risk of committing new sex crimes and other violent acts. Very few of these offenders received any treatment services while in prison to curb their pattern of criminal activity and only a fraction receive intensive supervision on parole.
• We recommend that the Legislature implement a more cost-effective strategy of "containment" of high-risk adult sex offenders. This strategy includes longer and more intensive supervision of high-risk sex offenders on parole, regular polygraph examinations of sex offenders, and pre- and post-release treatment to help control the behavior of these offenders. (Analysis, pages D-11 to D-38.)

New Youth Authority Fees Achieving Intended Objectives

• Legislation to increase fees paid by counties for committing less serious offenders to the Youth Authority appears to be having its desired effects. Counties are sending significantly fewer less serious offenders to the Youth Authority. Counties are also moving to increase their menu of local programming options for these offenders.
• We recommend a number of steps to improve the current fee system, including giving counties more input into decisions regarding the length of stay of less serious offenders in the Youth Authority and adjusting the state's fees periodically to account for the effects of inflation.
• We find that the Youth Authority still has an important role to play in the treatment of less serious offenders. We recommend that the Youth Authority report on the feasibility of developing programming targeted to chronic and intractable offenders who are in the less serious categories. (Analysis, pages D-95 to D-109.)

Proposed Budget Not Consistent With Legislative Direction in Several Areas

• The budget proposal does not fully implement several programs as intended by the Legislature. This includes: (1) a 1998 legislative agreement to balance expansion of prison capacity with new programs intended to reduce recidivism rates of offenders on parole (Analysis, pages D-69 to D-72); (2) the lack of any proposed expansion for juvenile crime programs (Analysis, pages D-81 to D-84); and (3) the proposal to reduce the county share of costs for trial courts by half of the amount required in law (Analysis, pages D-118 to D-120).

Crime Lab Fee Proposal Is Sound Policy

• The Governor's budget proposal to charge state and local agencies for the services provided by the Department of Justice's crime laboratories is sound public policy because it properly aligns state and local government funding and programmatic responsibilities for investigation and prosecution of criminal cases.
• There are several details yet to be worked out regarding the proposal, however, and we recommend that the department provide the Legislature with the details of the proposal and a revised estimate of savings to the state resulting from the proposal. (Analysis, pages D-133 to D-135.)

Capital Outlay

The State Needs to Overhaul Its Process for Planning and Financing Infrastructure

• The state faces a significant challenge over the next decade and beyond to address both the deficiencies of an aging public infrastructure and the need for new infrastructure to sustain a growing economy and population. We recommend the Legislature take several steps to overhaul the current pro
  cess, including adopting a policy that dedicates 6 percent of annual General Fund revenues to infrastructure investment. (P & I, Part V.)

Most New Capital Outlay Projects to Be Managed by the Department of General Services (DGS) Should Be Deferred

• The budget proposes funding for working drawings and/or construction for 73 projects managed by the DGS. The preparation of preliminary plans for these projects is behind schedule.
• Given these delays and the DGS's large ongoing workload, we recommend the Legislature (1) defer 77 new projects proposed in the budget and (2) partially defer ten other new projects involving safety- or security-related improvements. (Analysis, page G-16.)

Maintain Governor's Proposed Level of "Pay-As-You-Go" Funding for Capital Outlay

• The budget proposes $195 million in direct General Fund appropriations for capital outlay in 1999-00. We recommend that, to the extent the Legislature accepts our recommendations to reduce the General Fund amounts appropriated for specific capital outlay projects, these funds should be redirected to reduce the level of proposed lease-payment bond authorizations in the budget. (Analysis, page G-24.)

Year-Round Operation in Higher Education Saves Capital Outlay Costs

• Enrollment projections indicate that the California State University (CSU), University of California, and community colleges will need to accommodate an additional 300,000 full-time-equivalent students by 2007-08. To construct new facilities for these additional students would cost several billion dollars. This cost can, however, be avoided if the segments operate campuses year round.
• We recommend the Legislature direct the segments to implement year-round operation. This will allow existing campuses to accept up to one-third more students before there will be a need for new instructional space. Accordingly, we recommend that the Legislature delete $9.5 million in the budget for projects that would not be needed under year-round operation. (Analysis, page G-27.)

Discontinue Practice of Providing Equal Amounts of Bond Funds to Each Segment of Higher Education

• In recent years, the administration has had an agreement with the segments to provide an equal amount of bond funds to each segment. This results in "grants" to each segment without regard to the differences between segments or the condition of the facilities on each campus. It can also result in lower-priority projects in one segment receiving funds while a higher-priority project in another segment goes unfunded.
• In order to assure that the bonds approved by the voters are spent on the highest statewide priorities, we recommend that the Legislature appropriate funds for higher education on the merits of each project in the context of statewide priorities. (Analysis, page G-28.)

Unclear Costs and Benefits of CSU Telecommunications Infrastructure

• The CSU is proposing a five-year program to improve the telecommunications capabilities at all CSU campuses. The budget proposes $1.8 million to initiate this program at six campuses. The estimated total program cost is $244 million for construction and $83 million in additional operational costs annually.
• The CSU has not provided sufficient information on either the specific work to be done or the benefits that may be realized from this large investment. The CSU should develop the information necessary for the Legislature to evaluate this extensive plan. We withhold recommendation pending receipt of this information. (Analysis, page G-68.)

San Jose State University Joint Library Is Not Needed

• The budget includes $70 million for a new library at San Jose State University to be jointly developed, owned, and operated with the City of San Jose.
• The campus has a sufficient amount of library space for the current enrollment. The proposed project would provide a net increase of 28,000 assignable square feet in library space on the campus. Based on CSU cost guidelines this amount of additional space would cost about $6 million.
• The proposal also raises several important operational and ownership questions concerning the tenant-in-common relationship with the city.
• In view of the current amount of space on campus coupled with the high cost of the project and the operational and ownership questions of the proposed library, we recommend that the Legislature not fund this project. (Analysis, page G-75.)

Transportation

Increased Federal Transportation Funds Present Challenges and Opportunities

• The new federal transportation act increases federal funding for California highways significantly.
• The Department of Transportation (Caltrans) and local transportation agencies will have to deliver projects on a timely basis if California is to receive any federal funds left unobligated by other states and avoid a loss of its own federal funds. We recommend enactment of legislation to encourage local agencies to deliver projects in a timely manner. (Analysis, page A-12.)

Mass Transportation Continues to Face Funding Shortfall

• Current projections show no Public Transportation Account funds available for new transit capital improvement projects over the six-year period from 1998-99 through 2003-04. Declining diesel sales tax revenues, lower-than-projected growth in gasoline consumption, and increasing expenditures, particularly for the operation of intercity rail service, result in a projected account shortfall of $38 million over the period. (Analysis, page A-21.)
• In order to partially address the transit funding shortfall, we recommend enactment of a constitutional amendment to permit expenditure of gasoline tax revenues for transit rolling stock. (Analysis, page A-24.)

Large Increase in Highway Capital Outlay Expenditures Proposed

• Caltrans proposes to increase highway capital outlay expenditures by $1.2 billion, a 47 percent increase above the estimated current-year level.
  The vast majority of this is attributable to projected increases in spending for projects in the 1998 State Transportation Improvement Program and State Highway Operation and Protection Program, including seismic retrofit projects. (Analysis, page A-25.)

Evaluation of Bridges for Water Erosion Lags; Repair Cost Could Be Substantial

• The Federal Highway Administration requires Caltrans to evaluate state and locally owned bridges for the effects of water erosion, referred to as "bridge scour." Although evaluation of most bridges is scheduled to be complete by 2002, approximately 3,000 locally owned bridges have unknown foundations and are not yet scheduled for evaluation. (Analysis, pages A-38 through A-41.)
• The cost of repairing state bridges could be substantialpotentially several hundreds of millions of dollarsdepending on the number and type of repairs needed. We recommend that Caltrans develop an estimate of the state costs for such repairs. (Analysis, page A-38.)

No End in Sight for Major Department of Motor Vehicles (DMV) Database Redevelopment

• The DMV's second attempt to replace its aging computer databases is falling further behind schedule. The first attempt began over a decade ago and was abandoned as a failure after five years and $50 million.
• The department has failed to meet its own projected deadlines for completing major components of the latest project, and now is unable to specify a final completion date for the effort. (Analysis, page A-51.)

Resources

Beverage Container Recycling Funds Rise While Recycling Rates Fall

• The state's Beverage Container Recycling Program is amassing large reserves while recycling rates for all types of beverage containers are declining.
• The expiration of several provisions of the Beverage Container Recycling Act on January 1, 2000 provides an opportunity for reversing both trends. We offer several recommendations including (1) increasing the minimum payment for each container returned to recycling centers and (2) providing grants to local jurisdictions to create and expand curbside recycling programs. (Analysis, page B-45.)

Petroleum Pipelines Pose Possible Problems

• The regulation of petroleum pipelines--of which there are about 10,000 miles in California--suffers from several problems including (1) conflicting and overlapping jurisdictions and (2) a costly and time-consuming permitting process.
• In order to address these problems, we recommend the enactment of legislation to designate a single lead state agency to (1) coordinate testing and maintenance requirements for petroleum pipelines and (2) streamline the permitting process.

No Funds for Deferred Maintenance in State Parks

• The Governor's budget proposes no funding to address the department's estimated maintenance backlog of about $180 million. This backlog negatively impacts the level and type of service the department can provide.
• The Legislature, in setting the state's priorities in funding various programs, should consider providing some funding for deferred maintenance in state parks. (Analysis, pages B-74 through B-85.)

State's Unpaid Bills for Local Flood Control Projects Continue to Mount

• With no funding proposed to pay the state share for local flood control projects, the unpaid amounts owed to local agencies continue to increase. The Department of Water Resources projects the arrearage to be about $189 million by the end of 1999-00.
• The Legislature should establish criteria for funding future local flood control projects and determining the state share of costs. Additionally, the Legislature could vary the amount of the state share based on the relative statewide benefits of a project. (Analysis, pages B-93 through B-95.)

Clean Water Enforcement Can Be Made More Effective

• Problems in the state's water quality enforcement program include enforcement activities either not being carried out or being carried out ineffectively, problematic data tracking, and inconsistencies in the implementation of enforcement policies and procedures among the nine regional water boards.
• To address these problems, we recommend a review of the board's funding structure (including fees), codification of a statewide enforcement policy in regulations, and the creation of an enforcement action review panel.
• Mandating minimum penalties for serious water quality violations has proven in other states to be a cost-effective enforcement approach that increases compliance. We recommend that the Legislature adopt this approach in California. (Analysis, pages B-103 through B-118.)

State Agencies Impeding Efforts to Reduce Landfill Waste Disposal

• State agencies are failing both to recycle and purchase recycled-content products in substantial amounts, thereby impeding the ability of some local jurisdictions to meet landfill diversion requirements. (Analysis, page B-98.)

General Government

Employee Compensation

• Most employee bargaining units have been in negotiations with the state for new memoranda of understanding (MOUs) since 1995. The Legislature has approved MOUs in the current year for four bargaining units, and a fifth unit has an MOU pending before the Legislature.
• The Governor's budget includes (1) $168 million ($64 million General Fund) for the annual cost of any salary increases approved in the current year for employees in the 16 bargaining units without MOUs and (2) $190 million ($100 million General Fund) for any budget-year salary increases that are agreed upon in collective bargaining negotiations with all 21 bargaining units.
• Salary increases will depend on collective bargaining. However, the proposed amount could, as an example, cover a 3 percent increase in the current year for those currently in collective bargaining and 2 percent in the budget year for all employees. (Analysis, page F-124.)

Holocaust Claims Program

• Chapter 963, Statutes of 1998 (SB 1530, Hayden) required the Department of Insurance (DOI) to implement a program to review, investigate, and resolve unpaid insurance claims for losses related to the Holocaust. Chapter 963 appropriated $4 million for this program and required that additional funding be based on a plan submitted by the Commissioner to the Legislature outlining the plan for reimbursement of program expenses by investigated insurers.
• The DOI has not spent most of the current-year $4 million appropriation. The department is requesting an additional $1 million General Fund loan in the budget year for program expenses.
• We withhold recommendation on this request pending receipt and review of DOI's forthcoming master plan for this program, which will include the reimbursement plan required by Chapter 963. (Analysis, page F-30.)

Legislature Needs Update on California State Lottery Reorganization

• In 1997, the California State Lottery implemented the Bridge Project, a three-year strategic management plan to streamline lottery operations, decrease administrative expenses and staff, and increase sales. The budget year will be the third year of the project.
• We recommend the lottery provide the Legislature with information demonstrating that the project and associated changes in administrative expenses and revenue distribution have furthered the purpose of the Lottery Act by providing increased revenue to education. (Analysis, page F-32.)

Legislature Needs Update on Status of Smog Check Program

• Many elements of the Smog Check program have been delayed and other elements have not been implemented. Consequently, it is uncertain whether the program is still on track for meeting the requirements of the State Implementation Plan as agreed to by the state and the federal Environmental Protection Agency.
• We recommend the Legislature not approve the $71 million requested for the Smog Check program until the Department of Consumer Affairs reports on the status of the program. (Analysis, page F-35.)

General Fund Paying for Industry Regulatory Programs

• The Department of Food and Agriculture contracts with the University of California, Davis, Veterinary Diagnostic Laboratory for certain testing services. The laboratory performs tests as part of several state regulatory programsfor example, screening milk samples for E.coli and Salmonella bacteria.
• Unlike most other regulatory programs, which are funded through fees, the cost of these programs is subsidized by the General Fund. We recommend the Legislature require the department to implement a fee schedule that provides for 100 percent cost recovery of the laboratory from the regulatory programs. (Analysis, page F-53.)

Franchise Tax Board Augmentations Not Justified

• The Governor's budget includes three augmentations totaling $8.2 million and 73.2 personnel-years for merit salary increases and activities related to limited liability companies and audits and collections.
• The department has not provided any justification for these augmentations. Also, it is our understanding that no other department received an augmentation for merit salary adjustments. Lacking any justification for these augmentations, we recommend that the Legislature delete the requested $8.2 million. (Analysis, page F-65.)

Franchise Tax Board Performance Audit

• In 1998, the Franchise Tax Board contracted for a performance audit of the department. The audit report found several areas in the department's operations that needed improvements and made recommendations accordingly. (Analysis, page F-67.)

Expiration of Information Technology Oversight Agency Provides Opportunities

• The law that created the state Department of Information Technology (DOIT) will expire at the end of the budget year. Although DOIT has not met all of the Legislature's expectations, we believe that it has played a useful role in information technology oversight, policy development, and planning. Thus we recommend the enactment of legislation to extend the life of the department.
• While considering legislation to extend DOIT, we recommend that the Legislature consider a number of issues that could improve the operations of the department and state information technology generally. (Analysis, pages F-72 to F-75.)

Citizens' Option for Public Safety (COPS) Program Should Be Reconsidered

• The Governor's proposal to modify and make permanent the COPS program does not remedy the program's problems and will only exacerbate them.
• We recommend that the Legislature reject the Governor's proposal and instead consider the COPS monies in the larger context of state resources provided to restore the fiscal health of local governments. We suggest that any local government relief funds be used to transform California's system of local government finance into one that reflects modern needs and preferences of communities. (Analysis, pages F-131 to F-134.)