Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

State Personnel Board (1880)

The State Personnel Board (SPB) has the authority under the State Constitution and various statutes to adopt civil service rules and regulations. An executive officer appointed by the board is responsible for administering the merit aspects of the state civil service system. (The Department of Personnel Administration administers the nonmerit aspects of the state's personnel systems.) These duties include, but are not limited to, adopting classifications within the State Civil Service System, conducting hearings and appeals on matters of discipline for civil service employees, and developing and administering the merit-based civil service hiring and promotional process.

The board and its staff are also responsible for establishing and administering, on a reimbursement basis, merit systems for certain city, county, and civil defense employees, to ensure compliance with federal requirements. The SPB is also responsible for coordinating equal employment opportunity efforts within state and local government agencies, in accordance with state policy and federal law.

The budget proposes $70 million for SPB support in 2002-03, which is $1.6 million, or 2.2 percent, below current-year estimated expenditures. The proposed expenditures consist of $57 million from the General Fund and $13 million in reimbursements from other departments. The majority of proposed spending consists of $50 million to reimburse local governments for a mandate relating to the Peace Officer Procedural Bill of Rights.

Peace Officer Procedural Bill of Rights (POBOR) Mandate

We recommend the Legislature delete $50 million proposed to reimburse local governments for the POBOR mandate in the budget year. We recommend the Legislature refer the matter to the Joint Legislative Audit Committee (JLAC) for review and recommendation on possible revisions to the mandate's parameters and guidelines. We further recommend that the Legislature hold an oversight hearing to review the information gained from the JLAC review and determine whether the mandate should be modified. To avoid incurring a large liability as this review is undertaken, we recommend the Legislature suspend the mandate in the budget year, pursuant to Government Code 17581. (Reduce Item 1880-295-0001 by $50 million.)

Background

Seeking to ensure stable employer-employee relations and effective law enforcement services, the Legislature enacted the Peace Officer Procedural Bill of Rights (POBOR), Chapter 465, Statutes of 1976 (AB 301, Keysor). This measure provides a series of rights and procedural protections to peace officers who are subject to interrogation or discipline by their employer.

In 1995, the City of Sacramento filed a claim with the Commission on State Mandates, alleging that POBOR (including nine subsequent legislative measures that clarified or expanded POBOR) constituted a reimbursable state-mandated program within the meaning of Article XIII B, Section 6 of the California Constitution. In 1999, the commission adopted its "Statement of Decision," finding to be a mandate certain procedural requirements of POBOR that exceeded the rights provided all public employees under the due process clause of the United States and California Constitutions. Figure 1 summarizes the elements of POBOR that the commission found to surpass state and federal due process requirements. For example, the commission found that the courts have not interpreted the state and federal due process clause as requiring an administrative hearing when an employee is transferred as punishment. Thus, the commission decided that the POBOR provision that requires such an administrative hearing constituted a mandate.

To guide local agencies in their preparation of mandate claims, the commission adopted a reimbursement methodology referred to as the mandate's parameters and guidelines, or "Ps&Gs." Local agencies, in turn, submitted claims to the State Controller's Office (SCO). In March 2001, based on the claims submitted to the Controller at that time, the commission adopted a statewide cost estimate, projecting the annual costs of the POBOR mandate to be $26.5 million and prior-year costs to be $126 million.

Usually, after the commission adopts a statewide cost estimate, the administration proposes funds in the May Revision to reimburse local governments and the Legislature appropriates the funds in the annual claims bill. Last year, however, in a letter to the Joint Legislative Budget Committee, the administration proposed funding $50 million of POBOR's costs in the claims bill, with the remaining $102.5 million to be made available in future years. 

The Legislature adopted this approach in enacting the annual claims bill, Chapter 723, Statutes of 2001 (SB 348, Kuehl). The State Controller, in turn, allocated the $50 million to local agencies on a pro-rata basis.

Budget Proposal. The Governor's budget requests $50 million for POBOR reimbursements in 2002-03. The administration indicates that it expects the State Controller to use $25 million to pay prior-year claims and $25 million to pay budget-year liabilities.

Mandate Costs Much Higher than Anticipated

In the course of our analysis, we reviewed a sample of POBOR claims submitted to SCO. Our review found a greater number of local governments submitting reimbursement claims than was anticipated by the commission in its statewide cost estimate. In addition, we noted that some local governments have amended their claims to request higher reimbursement amounts. Based on this review, we estimate that the annual state cost associated with these peace officer procedural protections is likely to be two to three times higher than the amount projected by the commission, or $50 million to $75 million annually. Mandate costs in this range would be comparable to the state's total costs to provide all peace officer training programs run by the Commission on Peace Officer Standards and Training. The mandate's cost is also noteworthy given that, at the time the Legislature enacted POBOR, the cost of providing these peace officer procedural protections was thought to be insignificant.

Wide Variation in Local Government Claims

While the scope of the reimbursable provisions discussed in the commission's decision and summarized in Figure 1 appears modest, some local governments have claimed very high costs. The City of Long Beach in 1999-00, for example, identified 310 disciplinary cases subject to mandated POBOR procedural protections and claimed more than $6,000 per case to comply with the mandate. Overall, Long Beach's costs exceeded by threefold the costs claimed by the Cities of Sacramento, Fresno, and San Jose combined. Some counties also reported unusually high costs. For example, while the population of the County of Contra Costa is 50 percent smaller than the County of Alameda, Contra Costa claimed nearly twice as many disciplinary cases and three times greater costs.

What Explains the Variation? Our review found no program or other factor to explain why some local governments claimed very high amounts. Instead, we suspect that the variation is attributable to the significant difficulty state and local agencies face in defining and estimating state-reimbursable costs when only part of a program is state-reimbursable. Specifically, when a portion of a program is eligible for reimbursement, draft ing Ps&Gs and filing claims that accurately differentiate "base" program expenditures from "mandated" program expenditures is difficult. This is particularly true when, as in this case, the mandated requirements have been state law for a quarter century and are very similar to employer responsibilities not determined to be reimbursable mandates.

LAO Recommendation: Prior-Year Costs Need Review

Given the cost of the claims and the significant variation in amounts, it is possible that the mandate's Ps&Gs need clarification to strictly interpret the limited nature of the commission's Statement of Decision. It also may be possible that some local governments are claiming costs not permissible under the Ps&Gs. To the extent that local governments are claiming inappropriate costs, SCO's audits (undertaken on a selective basis after the state pays the claim) should remedy this problem. If the problem pertains to ambiguities in the Ps&Gs, however, no existing state administrative process will automatically remedy this problem. Instead, state costs associated with ambiguities in Ps&Gs tend to escalate as local governments (and the consulting firms that prepare mandate claims on their behalf) learn how to maximize state reimbursements. (Under state law, local governments may spend mandate reimbursements for any purpose. Thus, mandate reimbursements represent a valuable source of discretionary local revenue.)

Last year, the Legislature faced an analogous problem when considering the "School Bus Safety II" mandate. Specifically, some school districts submitted claims for as much as $10,000 per school bus to implement relatively modest procedural safety safeguards. To examine this matter more fully, the Legislature requested the Joint Legislative Audit Committee (JLAC) to review that mandate's Statement of Decision, Ps&Gs, and district claims. Given the cost of the claims involved in the POBOR mandate, we recommend that the Legislature again ask JLAC to conduct an audit to:

• Clarify whether the POBOR Ps&Gs accurately reflect the Statement of Decision and clearly identify reimbursable costs.
• Identify the elements of this mandate that represent the greatest costs.
• Assess whether local governments have prepared claims in a manner consistent with the Ps&Gs.

Pending receipt of this audit, we recommend that the Legislature not appropriate additional funding for prior-year mandate reimbursements. While the state would incur an interest penalty (at the Pooled Money Investment Account rate, currently about three percent) on unpaid meritorious claims, the interest cost is modest compared to the dollars at stake. By comparison, if the State Controller pays claims submitted pursuant to the existing Ps&Gs, the state would have very limited ability to recoup funding from local agencies if the state later finds errors or ambiguities in the Ps&Gs.

LAO Recommendation: Place POBOR Mandate On "Pause" in Budget Year

In order to avoid incurring a large liability in the budget year as this mandate is reviewed, we recommend that the Legislature suspend the mandate provisions by using the procedure set forth in Government Code Section 17581. Such an action would not suspend the entirety of POBOR law, only the provisions found to be state-reimbursable mandates by the commission.

Once JLAC has completed its audit, we recommend the Legislature hold an oversight hearing to consider its findings and recommendations. We also recommend the Legislature use this hearing to revisit the policy basis for mandating enhanced procedural protections for a single category of employees. Specifically, while some of the measure's mandated provisions may be matters appropriate for state legislation, others may be appropriate for the collective bargaining process.

To suspend this mandate in the budget year, the Legislature would need to amend the budget bill to show a $0 appropriation for this man date (Item 1880-295-0001) and replace mandate budget provisions (1) and (2) with the following:

Pursuant to Section 17581 of the Government Code, mandates identified in the appropriation schedule of this item with an appropriation of $0 and included in the language of this provision are specifically identified by the Legislature for suspension during the 2002-03 fiscal year:

(1) Peace Officer Procedural Bill of Rights (Ch 675, Stats. 1990)