LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

Secretary of State (0890)

The Secretary of State (SOS), a constitutionally established office, has statutory responsibility for managing the filing of financial statements and corporate-related documents for the public record. The Secretary, as the chief elections officer, also administers and enforces election law and campaign disclosure requirements. In addition, the SOS appoints notaries public, registers auctioneers, and manages the state's archives.

The budget proposes total expenditures of $69.6 million for the SOS in 2004-05. The two primary sources of funding are the General Fund ($26.7 million) and the Business Fees Fund ($29.4 million).

Budget Fails to Account for Federal Election Funds

The budget fails to account for more than $250 million in expected federal election reform funds. We recommend that the Secretary of State provide the Legislature with a proposed spending plan during the spring.

Federal Election Reform. In October 2002, Congress passed and the President signed the Help America Vote Act of 2002 (HAVA). Under HAVA, California is required to replace specified punch-card machines, create a statewide computerized voter registration system, and make other specified changes to the state's election process. Federal delays in creating its new elections agency to oversee HAVA have slowed guidance to states, as well as expected funding. As the state's chief elections officer, the SOS is charged with administering the state's compliance with HAVA's requirements.

Funding Status. The 2002-03 federal budget included $1.5 billion to assist states in implementing HAVA's requirements. Of the first $650 million distributed in the summer of 2003, the state received $84.5 million in federal funds. Pursuant to Section 28.00 of the 2003-04 Budget Act, the SOS received authorization to spend $81.2 million in 2003-04 (with $3.2 million reserved for future years):

In addition, more than $800 million of 2002-03 federal funds has yet to be allocated to states. The recently passed 2003-04 federal budget includes an additional $1.5 billion for election reform purposes. Of these amounts, preliminary estimates indicate California would receive a total of about $95 million in 2002-03 funds and up to $170 million in 2003-04 funds. The SOS notes that the additional federal funds likely will be insufficient to meet all of the federal requirements.

No Spending Plan Proposed. In accordance with federal requirements, the SOS has prepared a 2003 state plan for gaining compliance with HAVA requirements. (The federal government is reviewing the plan and has yet to approve it.) Pursuant to this plan, the department has begun to disburse the $57 million to counties for voting machine replacement. The department also has begun spending its administrative dollars. The department, however, has not begun spending the remaining $22 million in funding already received. Other than the proposed continuation of $1.7 million in administrative expenses, the budget does not propose or acknowledge the expected receipt of the more than $250 million in additional HAVA funds in the current and budget years combined. As such, there is no proposal for how the SOS plans to spend those dollars.

Broad Authority for the Legislature. Federal law limited the use of the $57 million for election machine replacement for this specific purpose. The remaining HAVA funds, however, will be given to California with broad discretion for their use. As long as the funds are used to further the purposes of HAVA, the Legislature will have significant control in determining their use. Given that the new funds may be insufficient to meet all HAVA requirements, the Legislature should ensure that the funds are used efficiently and that the greatest election needs receive priority for the funds. For instance, in order to have the federal funds achieve the maximum benefit, the Legislature may wish to consider whether counties should contribute matching funds. (Counties had such a requirement to receive voter machine replacement funds provided by Proposition 41 in March 2002.)

Budget Proposal Needed. Even though the federal allocations have not been finalized, the Governor's budget should have included a best estimate of the expected funding. We recommend that the SOS provide the Legislature with a proposed spending plan during spring hearings using the best available estimates. This will give the Legislature time to consider its options. The administration can then update its proposal throughout the budget process to reflect the latest and best estimates of expected federal funds.

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