Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

California Department of Food and Agriculture (8570)

The California Department of Food and Agriculture (CDFA) provides services to both producers and consumers of California's agricultural products in the areas of agricultural protection, agricultural marketing, and support to local fairs. The purpose of the agricultural protection program is to prevent the introduction and establishment of serious plant and animal pests and diseases. The agricultural marketing program markets California's agricultural products and protects consumers and producers through the enforcement of measurements, standards, and fair pricing practices. Finally, the department provides financial and administrative assistance to county and district fairs.

The budget proposes expenditures of $267 million and 1,655 positions in 2004-05 for the department, including $111 million from the Agriculture Fund and $73 million from the General Fund. The proposed expenditures are $28 million, or 10 percent, below estimated current-year expenditures due to a variety of proposed program reductions.

New Funds for Pierce's Disease Not Needed This Year

The Pierce's Disease Control Program has a proposed reserve of $7.8 million (37 percent of expenditures) at the end of the budget year. This level of reserve is unnecessary. Consequently, we recommend that the Legislature eliminate proposed General Fund support for the program of $4.4 million and backfill with these reserve funds. (Delete Item 8570-004-0001.)

Background. In August 1999, an outbreak of Pierce's Disease, a bacteria that infects several plant species and can be particularly devastating to grape vines, was confirmed in the Temecula area in southern Riverside County. The cause of the spread of the disease was due to a nonnative insect—the Glassy-Winged Sharpshooter. In response to the potential harm this disease poses to the wine grape industry, the Legislature has appropriated a total of $38 million from the General Fund to combat the spread of the disease. In addition, the federal government has provided about $42 million and the wine industry has contributed about $16 million through fee assessments. Thus, through 2003-04, $96 million has been committed to the Pierce's Disease Control Program.

Budget Proposal. The budget proposes expenditures of $20.9 million from the Pierce's Disease Management Account (PDMA) for support of the program. This is similar to program spending levels in recent years. Of this amount, the budget proposes that the General Fund provide $4.4 million (a reduction of $2 million) and federal funds provide $11.0 million. Contributions from the wine and grape industry and monies carried over from the current year would provide the remaining $5.5 million.

Account Reserve Too High. The proposed program expenditure level would leave the PDMA a reserve of $7.8 million at the end of 2004-05, about 37 percent of projected expenditures. Given the minimal variance in expenditures over the past several years, the account does not need to maintain a reserve of this magnitude. Accordingly, we recommend the $4.4 million General Fund transfer into the PDMA be eliminated. Instead, the program can use its reserve to meet it proposed expenditures. This would leave a reserve of $3.4 million at the end of 2004-05, over 15 percent of expenditures.

Position Management Fails To Provide Appropriate Oversight

In the course of our review of the department's budget, we learned that the department's management of its budgeted positions significantly deviates from standard state procedures. About half of CDFA's positions have been created at the discretion of the department—without approval of either the Legislature or the Department of Finance (DOF). While the CDFA's position management practices have been in place for several decades, our review reveals that the department's practices need major revisions. To better understand the department's approach to position management, we met with and spoke to departmental staff on a number of occasions. We also reviewed the State Administrative Manual (SAM); various state statutes; and position documents from the department, DOF, and the State Controller's Office (SCO). The department now acknowledges that some of its policies should be changed.

Why Is Position Oversight Important? In order to oversee the operations of the state, the Legislature needs accurate information about the number of staff working in state government. In recent years, the Legislature has expressed concern about the overall number of positions in state government. The Legislature has also expressed a concern about the number of these authorized positions that are held vacant and go unfilled. To address these concerns, the Legislature has taken a number of recent actions. For instance, at the start of each year, current law requires the abolishment of positions that were vacant for more than six months. In addition, the 2002-03 budget required the elimination of at least 7,000 vacant positions over two years. In the current budget, Control Section 4.10 requires the elimination of 16,000 positions in state government. Finally, the state has had a hiring freeze in place since 2001-02 to limit the growth of state employment and, in turn, reduce spending.

All of these actions rely on statewide information on departments' positions—including salaries, classifications, and whether the position is vacant. Information about positions is also necessary to know the amount of resources that the state is dedicating to implement its programs.

Below, we first describe how most state departments manage their positions. We then describe CDFA's position management practices and evaluate the department's rationale for its practices. Finally, we offer recommendations to the Legislature to improve the oversight and accountability of CDFA.

How State Departments Manage Positions

How Are Positions Authorized? Typically, if a department identifies a need for additional positions, it submits a budget request for DOF review. If DOF approves the request, it is included in the Governor's budget and submitted to the Legislature. If the Legislature authorizes the request for positions, the department begins the administrative steps necessary to establish the positions.

How Are Positions Established? The administrative guidelines to establish positions are included in the SAM. This manual, published by DOF, is a reference source for statewide policies, procedures, and regulations. According to SAM, departments are required to provide certain basic information to the SCO to appropriately establish any position. The DOF can also administratively establish positions to address any immediate needs.

How Is the Information Maintained? Upon receipt of the position information from a department, the SCO establishes the position and provides a unique identifier number. The SCO maintains a database that tracks all these positions. This process allows the SCO to gather and maintain important information related to the position—including its salary, classification, and whether the position is vacant. Departments, DOF, and the Legislature are among the many entities that use the position information maintained by the SCO.

What Is the Blanket? Most departments have a "blanket" which they can use to fund overtime and some positions on a temporary basis. The intent of this blanket is to allow a department some flexibility to temporarily adjust staffing levels to meet the needs of its programs. Typically, a department uses its blanket to pay for overtime for existing staff or to hire temporary or seasonal help to address short-term workload. The SAM specifies that the blanket may not be used for permanent positions on an ongoing basis. Positions funded by a department's blanket are not established with the SCO. The SCO's database of state employment, therefore, does not include detailed information about such positions.

How CDFA Manages Positions

For about half of its positions, CDFA uses the same procedures to establish positions as other departments (described above). The remaining positions (771), however, are funded out of the department's blanket. Of these 771 positions, 273 are temporary-help positions and appear to be an appropriate use of the blanket. The remaining 499 positions are permanent civil service positions. As such, these positions violate the provisions of SAM and are not tracked by the SCO. The department has developed its own unique internal process to establish and manage these 499 permanent positions.

How Are Positions Funded? Many of the department's programs are funded by the Agriculture Fund. In these cases, the state collects fees from the agricultural industry to provide certain services and regulate the industry. For example, the milk testing program is funded through an assessment on California milk. The CDFA inspects dairies and milk processing plants to ensure that the products comply with sanitation and quality standards. Another example of such programs is the market enforcement program which enforces laws to protect against unfair business practices by producers, handlers, and processors of farm products. The Agriculture Fund is continuously appropriated. The department, therefore, can use the funds without regard to fiscal year, and the funds are not subject to an annual appropriation in the budget bill. Most of the department's 499 permanent blanket positions are funded from continuous appropriations (generally the Agriculture Fund).

How Are Positions Authorized? When CDFA seeks new positions associated with continuous appropriations, the department submits budget requests to the CDFA secretary for approval. Upon approval of the secretary, the department begins to establish the positions and does not seek any approval outside of CDFA. As noted above, current regulations require that these requests be approved by DOF and then the Legislature.

How Are Positions Established? Based on the approval of the secretary, the positions are established using CDFA's internal process. The department funds these positions from its blanket. These positions are not established with the SCO and not identified in its database. While the DOF's budget documents display the total number (499) of these positions, it does not include information about their classifications or salaries.

A Closer Look at the Positions. Upon our request, the department provided its internal tracking information for its permanent blanket positions. As shown in Figure 1, the department has created positions in the manner described above in all of its program areas. Position classifications include office assistants, auditors, legal staff, and specialized technical staff. Salary levels are also varied, including one position funded at $123,000. While many positions are funded from the Agriculture Fund, our review indicates that some positions are (at least in part) funded by the General Fund.

What Is the Department's Rationale for Its Policies?

The department acknowledges that its position management practices differ significantly from those of other state departments. The CDFA, however, provided various reasons to justify its process. The three primary reasons are discussed below.

Continuously Appropriated Funding Source. The department reports that its continuous appropriation authority to expend funds without regard to fiscal year also extends it the authority to create positions at the discretion of its secretary. This argument appears to rely on the notion that, because DOF and the Legislature do not oversee its appropriation on an annual basis, its positions are also exempt from annual review.

Quick Staffing Response Needed. The department also reports that the seasonality of the agricultural industry makes it difficult to follow the normal budget process. The CDFA asserts the ability to create positions unilaterally gives it flexibility to react to emergencies in the agricultural industry more quickly.

Industry Funded Programs. The department reports that since programs supported by the Agriculture Fund are funded through fees paid by the agricultural industry, the funds should not be subject to the typical level of legislative or DOF oversight. The state, in essence, is obligated to provide a level of service to the industry within the industry's timelines. According to CDFA, industry boards and CDFA provide sufficient oversight of these programs, funds, and positions.

Rationale for Separate Process Flawed

We have serious concerns with the rationales the department has offered for its unique personnel process.

Continuous Appropriations Require Legislative Oversight. Departments only have as much fiscal power as given to them by the Legislature. Consequently, the department needs to identify explicit language authorizing such latitude for position creation. The department, however, could not identify any such language—only language related to appropriating funding, not positions.

State Policy Provides for Quick Staffing. The department asserts that it needs the ability to create positions quickly to respond to the agricultural industry's seasonality and any emergencies. The normal budget process, however, already provides an easy process for the funding of seasonal staff, temporary staff, and overtime of existing staff. In fact, the department has already used this process to establish 273 such positions in its blanket to address short-term needs. Additionally, the DOF has the authority to administratively establish additional positions in the cur rent year if needed. Other departments, such as the Department of Forestry and Fire Protection, routinely respond to emergencies (such as fires) by using temporary staff.

Special Funds Require Oversight. The fact that the department's programs are supported by special funds financed by industry fees is not unusual. Many other state programs are special-fund supported—including numerous regulatory programs paid for by business fees—and all of these are subject to the prescribed process of legislative and DOF oversight. Ultimately, the state is accountable to taxpayers to ensure that these funds have been spent in an efficient and effective manner.

Management Practices Have Serious Deficiencies

Based on the information above, it is clear that the department has developed a process that allows it significant flexibility and authority over its own budget. The department reports that it monitors itself closely and that this "self-policing" provides appropriate oversight. We disagree and have identified serious deficiencies in the process.

Budgeting Policies Do Not Provide Complete Picture. We found that the department's policies do not provide a complete picture of its activities to the Legislature. The department reports that it does not submit budget requests to DOF and the Legislature for its complete administrative staffing needs. Instead, it submits requests for only a portion of the staff needed. The remaining staff are then established using its internal process. For example, while the Legislature might have thought it was authorizing ten new positions, the net result of an approved request might be 20 new positions. The total costs of the administrative staff are then distributed proportionally through all fund sources (including the General Fund).

Positions Not Subject to Reviews. Because the department never established these blanket positions as required by SAM, the department avoids automatically being subject to various legislative and administrative reviews. For example, since the positions are not established with the SCO, the SCO is unable to determine whether any positions are vacant. Thus, recent efforts to eliminate vacant positions throughout state government have "skipped over" CDFA's blanket positions. Likewise, CDFA's blanket positions were not automatically considered for elimination this year under Control Section 4.10. Finally, DOF would have minimal ability to monitor CDFA's hiring practices to ensure compliance with the state's hiring freeze.

The department indicates that, while not subject to position reduction actions, it typically has voluntarily created parallel systems for compliance. For instance, the department has imposed its own versions of a hiring freeze and position reduction plans. For eliminating vacant positions, CDFA reports it has chosen to double the length of time a position can be held vacant (from 6 to 12 months) before being eliminated. We note, however, that the department's position management practices allow it to internally restore any eliminated positions without external review. This policy of self-policing leaves CDFA free to choose whether or not to implement any legislative mandate regarding position reductions.

Recommendations

The California Department of Food and Agriculture's management of 500 permanent positions needs significant revision. We recommend that the Legislature adopt trailer bill language to specify that the department's continuous appropriations do not exempt it from the normal position approval process. We also recommend that the department establish permanent positions with the State Controller's Office and submit budget requests through the Department of Finance and the Legislature for all of its future staffing needs. Finally, we recommend budget bill language requiring the department to report on these permanent blanket positions by December 2004.

We conclude that CDFA's position management practices are in need of significant revision. The department's rationale for managing its blanket positions is unfounded. Its current practices fail to provide an appropriate level of oversight. Consequently, we recommend that the Legislature require the following changes to ensure sufficient oversight and accountability. The CDFA acknowledges that some changes to its process are appropriate and is considering revisions to its process.

Trailer Bill to Clarify Position Authority. We recommend that trailer bill language be adopted to specify that its continuous appropriations do not exempt CDFA from the normal position approval process.

Properly Establish All Permanent Positions. We recommend that the department comply with state administrative policies and establish permanent positions with the SCO. As required by SAM, this would move all permanent positions out of its blanket. This would also allow the department's positions to be appropriately accounted for in the state's personnel database.

Department Should Submit Budget Requests. We recommend that the department submit budget requests through DOF and the Legislature for all of its future staffing needs. If the department needs to establish a permanent position in the current year, DOF may administratively establish it, as with other departments. If the position is needed for a longer period of time, a budget request should be submitted to extend it. Since the department is already submitting budget requests for all positions to its secretary, this requirement should not create new workload.

Report to the Legislature. The Legislature needs a complete assessment of the 499 existing permanent positions in the department's blanket. We therefore recommend that the Legislature adopt budget bill language requiring the department to provide a report reviewing these positions by December 2004. The report should include (1) the positions by program, classification, and fund source and (2) a complete description of the workload for the positions.