Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

Workforce Development

Governor Proposes to Restructure The Workforce Development System

The Governor' budget summary outlines a proposal to reorganize the state's job training programs into a new labor agency and to restructure the state's workforce development system. The restructuring proposal includes (1) the potential consolidation of up to 34 separate job training programs, (2) providing more funds in block grants to local agencies, (3) increasing standards of accountability, and (4) shifting the focus of workforce development toward economic development. We review and comment on the Governor's proposal.

Summary of the Governor's Proposal

The Governor's budget summary presents a broad outline intended to improve California's workforce development system. The outline essentially consists of two proposals: (1) a specific proposal to create a new labor agency and (2) a more general strategy for improving the state's $4.6 billion ($2 billion General Fund) workforce development system. Workforce development refers to a myriad of state programs that provide training for workers or help match job seekers with employers.

Creating a Labor Agency. The proposed labor agency would be comprised of the Employment Development Department (EDD), the Department of Industrial Relations (DIR), the Workforce Investment Board (WIB), and the Agricultural Relations Board (ALRB). All apprenticeship programs currently operated by the Department of Education (SDE), and the California Community Colleges (CCC) would be consolidated under DIR.

Strategy for Improving the Workforce Development System. The Governor provides a general plan for reforming the workforce development system in order to (1) promote access to services and accountability, (2) eliminate program duplication, and (3) achieve cost-effectiveness. The four primary elements of this plan are:

Process for Reforming the Workforce Development System

Creation of the proposed labor agency and reform of the workforce development system will proceed on two separate tracks. With respect to creation of the proposed labor agency, the process for reorganizing state government is specifically prescribed in the State Constitution and in statute. As discussed below, the administration plans to begin this process in the near future. Conversely, the administration has no specific plan for exactly which programs will be consolidated as part of the workforce development reform effort, or when these reforms would take place. The administration had indicated, however, that a task force will be established to consult with stakeholders and develop specific policy options for reforming the workforce development system by the time of the May Revision.

Process For Reorganizing State Government. The State Constitution (Article 5, Section 6) grants the Governor the authority to reorganize functions among executive officers and agencies through legislation. State law (Section 8523 of the Government Code) requires that the Governor sub mit any reorganization plan to the Milton Marks "Little Hoover" Commission on California State Government and Organization and Economy 30 days prior to submitting any such plan to the Legislature. The Little Hoover Commission then must report its findings on the proposed reorganization within 30 days to the Governor and the Legislature. The Legislature then has 60 days to reject or accept the reorganization plan submitted by the Governor. The administration indicates that it intends to start this process so that it can be completed prior to the start of the 2002-03 fiscal year.

Criteria for Evaluating the Reform Proposals

The current workforce development system includes a total of 34 programs with a combined budget totaling $4.6 billion in 2002-03 ($2 billion General Fund). Fourteen separate departments or boards currently oversee these programs. Given the magnitude of the resources involved and the degree of fragmentation in existing programs, the Governor's proposals for streamlining the system, increasing local flexibility through block grants, increasing accountability, and fostering economic development are reasonable. Reforming this fragmented system presents an opportunity for the Legislature to improve the delivery of workforce development services in California. In their deliberations on reforming the workforce development system, we suggest that the Legislature and the task force use the following criteria as they consider the proposals.

Comments on the Reform Proposals

In order to assist the Legislature and task force in improving the workforce development system, we comment on various aspects of the Governor's proposal.

The Proposed Labor Agency

Although the Governor identifies a total of 34 training programs currently overseen by 14 different departments or boards, the administration has not decided which of these programs will be consolidated into the proposed labor agency. At the time this analysis was prepared, the labor agency was to be comprised of the EDD, DIR, WIB, and ALRB.

Comments on the Labor Agency. We note that the ALRB does not provide job training. Rather, the ALRB (1) conducts union certification elections to determine collective bargaining representation and (2) investigates and resolves unfair labor practice disputes. The Public Employee Relations Board performs virtually identical functions for public employees. Similarly, the Department of Fair Employment and Housing and the Fair Employment and Housing Commission enforce laws against discrimination in employment, housing, and public accommodations. The Legislature may wish to consolidate some of these union certification, dispute resolution, and discrimination prevention functions under one board and/or department within the proposed labor agency. This approach could increase efficiency by avoiding duplication of effort.

Apprenticeship Consolidation Proposal

The Governor proposes that all apprenticeship programs currently operated by the SDE, and the CCC would be consolidated under DIR.

Comments on Apprenticeship Consolidation. The DIR does not currently administer apprenticeship programs. The DIR does have a Division of Apprenticeship Standards (DAS) which sets standards for certification of apprenticeship programs. Although DAS's certification functions could be consolidated with other departments (like SDE or CCC) which operate apprenticeship programs, we believe the lead department should be one that has demonstrated its expertise directing apprenticeship programs.

Vocational and Adult Education Consolidation Proposal

All vocational and adult education programs would be consolidated under CCC. According to the Governor's budget summary, community colleges currently receive approximately $459 million (Proposition 98 General Fund) for vocational education and related job development services. The budget proposes to move approximately $1.3 billion ($1.1 billion Proposition 98 General Fund and $138 million other funds) worth of additional adult and vocational programs to CCC from the SDE and the Secretary for Education.

Comments on the Vocational and Adult Education Proposal. We believe that, in principle, consolidating vocational and adult education programs under one state agency, such as CCC, has merit. It is possible that consolidation could reduce administrative costs, increase coordination of services, and preserve access. However, the administration has not been able to provide the Legislature with sufficient information to evaluate whether the consolidation envisioned by the administration is an appropriate one.

Increasing Local Flexibility Through Block Grants

To the extent permitted by federal law, the Governor proposes to place all existing job training programs into block grants. Specifically, the Governor has identified (1) $2.9 billion in funding ($459 million General Fund) for employment services, economic development, and job training services; and (2) $1.7 billion in funding ($1.6 billion General Fund) for adult and vocational education programs. The Governor proposes that these funding streams be consolidated into block grants.

Comments on the Block Grant Proposal. We concur with the concept of increasing local flexibility through block grants. However, the Governor's budget does not identify the local entity or entities that would receive the proposed block grant. Currently, there are a number of local entities involved in workforce development including county welfare departments, community college districts, and local WIBs. Under current state and federal law, the local WIBs receive approximately $500 million in federal Workforce Investment Act funds. In theory, these local WIBs have board members representing these other entities. Thus, the local WIBs potentially could be the recipient of the proposed block grant. We note that any shift in funding to the local WIBs would require a similar shift in responsibility.

Increasing Accountability

The administration proposes to hold state and local job training programs to the same standards of accountability that were enacted as part of K-12 education reforms in 1999-00. Although Chapter 771, Statutes of 1995 (SB 645, Johnston), established a job training report card in 1996, implementation of this program has been hampered by lack of funding and concerns involving federal confidentiality laws. To inform policymakers, service providers, and the public, the Governor proposes specific outcome measures including (1) job placement and duration of job retention after placement, (2) wage increase, (3) academic achievement, and (4) the return on public investment. The administration proposes to redirect existing funds to support the accountability system started by Chapter 771.

Comments on the Accountability Proposal. We concur with the accountability goals outlined in the Governor's proposal. Nevertheless, the Legislature needs more information about how much funding will be redirected to the accountability system, and what specific steps the administration proposes in order to restart the job training report card program created by Chapter 771.

Shifting the Focus to Economic Development

The administration believes that the workforce development system should focus on long-term economic development rather than short-term job training. To this end, the Governor proposes that job training programs (1) be responsive to labor market and industry demands and growth opportunities, (2) provide opportunities to move up in the workforce, and (3) reflect the needs of larger regional markets rather than the needs of a single small community.

Comments on the Shift to Economic Development. We generally concur with the Governor's goals of using employment training to foster economic development that makes sense on a regional, rather than local level. We note that certain job training programs, such as those designed to move California Work and Responsibility to Kids recipients into employment, will need to retain their focus of quickly moving individuals into jobs. As the administration develops more specific proposals for redirecting job training programs toward economic development, the Legislature will need to weigh the relative importance of such economic development against the short-term job training needs of certain individuals.


The current workforce development system is fragmented among many departments. Generally, we concur with Governor's goals for streamlining the system, increasing local flexibility through block grants, increasing accountability, and fostering economic development. However, in order for the Legislature to exercise its oversight and policy review responsibilities with respect to improving workforce development, the administration needs to provide specific proposals that are designed to achieve the goals presented by the Governor. In presenting more specific proposals, the administration should identify the problems that it intends to solve and how the proposed reform measures will solve the identified problems.

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