Analysis of the 2005-06 Budget Bill Legislative Analyst's Office February 2005

Homeland Security

California has received almost $900 million in federal homeland security funds, which has helped the state start addressing homeland security needs. The state, however, lacks a unified strategic approach to homeland security. In addition, only 31 percent of the state's homeland security funds have been spent to date. We make a number of recommendations on how to address these problems in the state's homeland security approach.

Background

Homeland security involves many aspects of terrorism—prevention, preparedness, response, and recovery. In 1999, the state created the State Strategic Committee on Terrorism (SSCOT), which was coordinated by the state Office of Emergency (OES) and responsible for guiding the state's preparedness and response to terrorism. In addition, the 2001-02 Budget Act provided $562,000 from the General Fund to OES and three positions to support SSCOT's efforts. (This amount was later reduced to $284,000.) In response to the events on September 11, 2001, the state began additional homeland security efforts, discussed below.

Executive Orders Began Additional Homeland Security Activities. In October 2001, an executive order directed the SSCOT to (1) evaluate potential terrorist threats, (2) review the state's readiness to prevent and respond to terrorist threats, and (3) develop recommendations for the prevention of and response to terrorist attacks. The SSCOT was eventually disbanded because it was unable to provide the comprehensive approach to homeland security that was envisioned by the 2001 executive order. In February 2003, another executive order was issued that established the Office of Homeland Security (OHS) to coordinate the state's antiterrorism activities. Specifically, OHS is responsible for (1) coordinating the state's antiterrorism activities, (2) acting as the state's liaison with the federal government on antiterrorism issues, and (3) coordinating the state's antiterrorism intelligence gathering and information sharing.

Expansion of Department of Health Services' (DHS) Emergency Preparedness Office (EPO). Prior to 2002, DHS' EPO was primarily responsible for coordinating public health disaster preparedness and emergency management. In 2002, the EPO was expanded to also coordinate bioterrorism preparedness at the state and local levels. (Bioterrorism is the unlawful release of toxins with the intent to intimidate or harm government entities or individuals.)

2004-05 Budget Act Provides Positions. Until this year, OHS operated with five staff borrowed from other departments. The 2004-05 Budget Act provides $2 million in federal funds and 12 permanent positions for OHS. These positions are primarily for policy and coordination activities. The funding and positions are included in the OES budget. The act also providesDHS with an expansion of bioterrorism staff: (1) ten permanent positions to monitor and account for state and local expenditures and (2) 19 one-year limited-term positions for certain bioterrorism preparedness activities. In total, DHS now has 105 positions working in this area, primarily in the EPO.

State's Approach to Homeland Security

Many State and Local Agencies Involved in Homeland Security. Many agencies—at both the state and local levels—are involved in California's homeland security activities. At the state level, the primary agencies are OHS, DHS, Emergency Medical Services Authority (EMSA), California Highway Patrol (CHP), Military Department, and the Departments of Transportation, and Forestry and Fire Protection. The OHS and DHS regularly meet with these departments to coordinate the state's antiterrorism activities. At the local level, the primary agencies are the sheriffs, police, public health, fire, emergency medical services, hospitals, and other health-related agencies. At the local level, the emphasis has been on updating emergency response plans, conducting exercises, training first responders (people who are the first on the scene of an event), and purchasing personal protective equipment (PPE) and medical supplies. In addition, since 2001, state and local agencies have been involved in a number of joint homeland security related activities. For example, the Military Department, in collaboration with several different state and local agencies, has trained over 100,000 first responders on what to do in the event of a terrorist attack. The OHS, through the collaboration of various law enforcement agencies, has estab lished the state terrorism threat assessment and early warning centers to gather intelligence and share information statewide among federal, state, and local law enforcement agencies. In addition, DHS has been able to design a statewide disease reporting system and develop a statewide network that alerts public health officials of bioterrorism events.

OHS and DHS Approve Local Grant Proposals. As summarized in Figure 1, since 2000, the state has received almost $900 million in federal funds for five different homeland security grant programs. (Some local agencies receive additional funding directly from other federal homeland security grant programs that are not administered by the state.) Currently, OHS administers three grant programs and DHS administers the remaining two programs. Each grant program has its own set of regulations specifying the authorized recipients and use of the funds. For the most part, the funds are available for expenditure over several years and can be used for planning, training, and purchasing PPE and medical supplies. Except for the Centers for Disease Control (CDC) Bioterrorism Preparedness Grant, the federal government allows states to keep 20 percent of the grant funds and the remaining 80 percent must be provided to local agencies. (The CDC grant does not require a specific split between state and local agencies.) All grant programs allow the state's administrative agencies to keep a percentage of the funds to help administer the grants. The OHS and DHS use different methods to allocate funds to local agencies:

• OHS Grants to Local Agencies. With the exception of the Urban Areas Security Initiative, the local grant funds administered by OHS are distributed by formula to counties on a population basis. The OHS requires each county to have a committee consisting of the county public health officer, the county fire chief, a municipal fire chief, the sheriff, and a chief of police to determine the use of the grant funds within the county.
• DHS Grants to Local Agencies. Chapter 393, Statutes of 2002 (SB 406, Ortiz), establishes the procedures and requirements for the allocation and expenditure of the DHS administered grant programs. Chapter 393 establishes the local funding formula, which includes a base allotment for each jurisdiction and additional funding based on population. In addition, Chapter 393 requires each local jurisdiction to report to the state on a regular basis its grant activities and expenditures.

State Agencies Have Received Funding From Homeland Security Grants. As shown in Figure 2 (see page 17), the vast majority of the funding received by the state has been allocated to local agencies ($677 million, 78 percent of the total). Since 2001, state agencies have received about $149 million in federal homeland security funding. Figure 2 identifies the agencies that have received homeland security grant funds. Over 90 percent of these monies have gone to five state agencies: Military Department, CHP, OHS, EMSA, and DHS.

The OHS and DHS use different methods to allocate funds to state agencies:

• OHS Administrated Grants. The OHS reviews and approves grant proposals from other state agencies based on the state's annual homeland security funding priorities. In the initial years of its grants, OHS' funding priority was training and equipping state agency first responders. For future grants, OHS' funding priorities will be cyber security, agricultural terrorism, and replacing PPE.
• DHS Administered Grants. The DHS generally awards funding to the department that is the lead state entity working in a grant program's designated policy area. For example, DHS has awarded funding to EMSA to lead statewide efforts that would improve the capacity of hospitals and emergency medical systems to respond to bioterrorism events.

Unencumbered Funds. As shown in Figure 2, roughly $44 million in grants have yet to be encumbered. The administration expects that these additional funds will be encumbered by August 2005.

Budget Proposals

Budget Proposes Additional OHS Positions. For 2005-06, OHS expects to receive another $283 million for its grant programs. The January 10 budget does not include these additional federal funds. (We expect OHS to submit a proposal for the additional federal funds by the May Revision.) The budget, however, does propose $1.8 million ($1.7 million in federal funds and $100,000 from the Antiterrorism Fund) and 19 limited-term positions for OHS to manage its federal homeland security grant programs. Specifically, these new positions would (1) administer the OHS grants, (2) review and monitor existing grant activities, and (3) conduct audits to ensure that the completed activities and purchases are consistent with grant guidelines. According to OHS, due to its limited staffing, it has not been able to perform the monitoring and auditing activities.

Budget Proposes Extension of DHS Positions. The budget proposes $8.2 million in federal funds and the extension of 95 positions for two additional years. (The positions are due to expire on June 30, 2005.) The DHS has requested these positions to continue the bioterrorism preparedness activities that were initiated in prior years in areas including: (1) planning and assessment of overall preparedness, (2) surveillance and monitoring of disease outbreaks, (3) establishing a statewide network to alert local health jurisdictions, (4) education and training of public health personnel, and (5) building the capacity of health care personnel. As noted above, the current-year budget provides DHS ten positions to administer the grant funds.

President's Proposed 2006 Budget. The President's proposed 2005-06 budget includes several significant funding changes for homeland security. For example, the funding formula for providing some grants to OHS would be changed, resulting in additional funds for California. National funding for CDC grants, however, would be somewhat reduced. These changes, if adopted, generally would not affect grants received by the state until the 2006-07 state fiscal year.

State Has Started Addressing Homeland Security Needs …

The state has started addressing California's homeland security needs. The OHS and DHS have been able to distribute federal grant funds to many state and local agencies for various homeland security activities. As a result of these grant funds, state and local agencies have begun additional training of first responders. Local agencies have also been able to improve their emergency response plans, conduct more exercises, and purchase more equipment and medical supplies.

… But Lacks Unified Strategic Approach

Our review found that the Legislature has limited information about California's homeland security needs. There are several explanations why this is the case, which we discuss below.

Homeland Security Lacks a Comprehensive Plan. Most of the state's homeland security efforts to date have been directed at (1) addressing first responder and law enforcement needs (such as developing statewide intelligence systems and purchasing PPE) and (2) meeting federal grant requirements. The state is required to submit various plans detailing how the grant funds will be used. These plans are written to meet federal grant requirements, rather than offer a unified strategic approach to homeland security. For instance, in 2003, the federal government required OHS to submit a state homeland security assessment and strategy. The plan does not, however, provide a comprehensive strategy on how the state is using all of the state's grant funding for homeland security. For instance, it does not include how the DHS administered grants are being coordinated with the other federal grant funding to address the state's overall homeland security efforts. The strategy also does not address how homeland security preparedness and response activities assist in the state's overall emergency response and management plans (which include other types of man-made and natural disasters). Both OHS and DHS report that they are currently developing homeland security plans. At the time this analysis was prepared, it appeared that these plans would be developed independently of one another. Consequently, it is doubtful that their plans will result in a comprehensive look at the state's homeland security.

No Statewide Reporting on Homeland Security Grant Activities. The administration submits annual budget requests to the Legislature for authority to spend additional federal grant funds. These budget requests, however, do not generally describethe status of the prior-year grants, how those prior-year funds were spent, or what additional homeland security goals the administration hopes to achieve in the budget year. At the time of this analysis, DHS was able to provide only a sample of what local entities have accomplished with the federal funding. Even though Chapter 393 requires local health jurisdictions to provide regular progress reports, DHS does not generally compile this information on an aggregate basis. (The DHS indicates that it plans to compile this information in the future.) The OHS has attempted to enhance local coordination efforts for its grant programs by providing grant funds for those proposals that demonstrate cross-jurisdiction and multiple agency involvement. Other than anecdotal data, however, it is not clear how much coordination is actually occurring at the local level.

Monitoring and Audits Have Not Been Performed on Homeland Security Grants. State agencies that administer local agency grant programs are responsible for monitoring and auditing grant recipients. These activities ensure that the grant funds are being spent consistent with the approved grant proposal. In addition, monitoring and auditing helps provide information on purchases and identifies any problems that state and local agencies may be having in managing grants. As noted earlier, due to limited staffing, OHS has been unable to monitor and conduct annual audits of its grantees. The Legislature, therefore, has no detailed information on the status of its grant activities.

The DHS has implemented measures to monitor grant-funded activities at the local level. The DHS requires local health jurisdictions to submit a budget each year and provide progress reports on a regular basis in accordance with state and federal requirements. The DHS indicates that it has just begun to implement a new program coordination unit (consisting of positions funded by the 2004-05 budget) to monitor and coordinate local government activities. The department also is developing a tool to assess local jurisdictions' progress. This review and assessment tool would focus primarily on evaluating a local jurisdiction's ability to respond to public health threats as opposed to compiling a financial accounting of expenditures. In addition, DHS does not currently audit local expenditures—nor does it have plans to begin such audits. Finally, DHS does not currently audit expenditures by other state entities such as EMSA or DMH, which have received grant awards.

Future Demand for DHS Positions Uncertain. The DHS requests a two-year extension of its limited-term positions that are supported by federal bioterrorism preparedness funding. Of the requested amount, 76 positions would be funded with a bioterrorism preparedness grant which is scheduled to expire on August 30, 2005. While the federal government has indicated its intent to continue to fund these activities, information on the grant award and requirements is pending, but likely to be available this spring.

Legislative Direction Needed

Our review found that legislative policy direction of the state's homeland security efforts is needed.

Lack of Statutory Framework for OHS. To date, the state's homeland security efforts have been directed through executive orders and budget requests. The authority for OHS has been primarily provided through broader emergency authority under the Emergency Services Act (ESA). Our review, however, found that OHS and some of its specific duties (in particular the prevention of disasters) are not delineated in the ESA. Without specific statutory authority, it could be difficult for OHS to prioritize and accomplish some of its activities. For example, OHS currently relies on local agencies' cooperation to coordinate activities. There may, however, be occasions when some local agencies do not wish to participate or coordinate their activities. Currently, OHS lacks the statutory authority to require local agencies to participate in those activities.

Legislative Funding Priorities Have Not Been Identified. Both OHS and DHS approve state and local grant proposals. The OHS grant funding decisions are based on (1) priorities set by the administration and (2) federal government restrictions on the use of the funds. Typically, the administration has requested appropriation authority for OHS funds from the Legislature after making grant funding decisions. A better process would allow the Legislature to provide input prior to making the funding decisions.

The DHS grant funding decisions are based on priorities set by the administration and state constituency groups. In previous years, the Legislature has appropriated a portion of the grant funding through both the budget and other statutes to allow more time for DHS to work with the relevant groups to determine how funds would be spent.

Since the state's homeland security efforts lack a statutory framework, the Legislature has never established its priorities for the use of the grant funds. For this reason, there may be some legislative priorities on the use of these funds that are not being addressed. For example, the Legislature may consider evaluating communication systems or assessing vulnerabilities in public buildings a higher priority than some of the administration's funding priorities. Alternatively, it could decide to dedicate a larger or smaller portion of the CDC grant funds to local jurisdictions. (As noted earlier, CDC does not require a certain split of funding.)

Most of the Homeland Security Grant Funds Have Not Been Spent

In addition to the information problems noted above, several federal reviews by Congress and the U. S. Department of Homeland Security have found that many states (including California) and local agencies are having difficulties in spending specific homeland security grant funds. According to these reports, most of the spending difficulties are due to states' and local governments' procurement laws and regulations and equipment reimbursement practices. For example, some reports have found that cash-flow difficulties have slowed some local agency purchasing of expensive equipment—since the homeland security funds are provided on a reimbursement basis only. (According to OHS, the federal government recently changed this requirement and now allows states to provide the funds to local agencies prior to purchasing equipment.)

To determine the extent to which this is a problem in California, we reviewed the state's expenditure rates for homeland security grants. Figure 3 summarizes the expenditure rates for each of the five homeland security grant programs. Statewide, only 31 percent of homeland security funds have been spent. For the OHS administered grant programs, only 23 percent of the grant funds have been spent. For its 2000 through 2002 grants, OHS has an average expenditure rate of 75 percent. The most recent 2003 and 2004 grants, however, have a much lower average expenditure rate of 18 percent. For the DHS administered grants, only 46 percent of the grant funds have been spent. The most recent grants also have a much lower average expenditure rate of 29 percent.

For both departments, it is not surprising that the more recent grants have been spent at a lower rate than those for which more time has passed. Some funds have been obligated but not yet spent. (Virtually all of OHS grant money has been encumbered, and DHS reports this is the case for more than one-third of its grant amounts.) The low expenditure rates, however, point to a statewide problem in getting the funds spent in a timely manner on their intended purposes. At the time this analysis was prepared, we were not able to determine the causes of these delays.

Recommendations to Improve State's Homeland Security Efforts

There are a number of steps that the Legislature can take to address the problems we found in the state's homeland security approach. As summarized in Figure 4, we provide the following recommendations to address the identified problems.

Enact Legislation Authorizing OHS. The OHS has existed since 2003 without specific statutory authority. This lack of statutory authority limits legislative input and prevents OHS from effectively performing some of its duties. For these reasons, we recommend that the Legislature enact legislation authorizing OHS and its specific terrorism-related duties.

Require OHS and DHS to Report at Budget Hearings on Grant Expenditures. Our review found that state and local agencies are spending the homeland security grant funds at relatively low rates. Federal reports have found that other states and local agencies experienced spending problems due to state and local procurement laws and regulations and equipment reimbursement practices. It is not clear whether these national issues or more California-specific factors are responsible for the delays. For this reason, we recommend that OHS and DHS report at budget hearings on the reasons why California's agencies are experiencing spending delays. In addition, we recommend that OHS and DHS identify any statutory changes that could increase the expenditure rates on the homeland security grants.

Require Homeland Security Strategic Plan and Annual Expenditure Report. Currently, the state does not have a comprehensive plan for homeland security. Without a plan and ongoing assessments, it is not clear how the state is maximizing the use of its federal grant funds to address overall homeland security needs. In addition, to date, the Legislature has not received any report from the administration detailing the expenditures from the homeland security grants. For these reasons, we recommend that the Legislature require OHS, in collaboration with DHS, to develop a comprehensive homeland security strategic plan and annual expenditure report. The plan should include the state's homeland security goals and objectives and an assessment of the state's level of preparedness. The annual expenditure report should identify the areas of focus for the upcoming year, the grant expenditures and coordination activities at the state and local levels that have occurred over the past year, and how those expenditures and coordination activities met the state's strategic goals and objectives.

Set Legislative Priorities for Homeland Security Funding. To date, the Legislature has not established statewide priorities for the funding of the state's homeland security activities. Without stated priorities, it is unclear whether the administration is funding activities consistent with legislative goals. For this reason, we recommend that the Legislature include language in the annual budget bill establishing broad funding goals for homeland security activities for the coming year.

Approve Request for Additional OHS Positions to Audit Grants. It is important for OHS to monitor and audit the homeland security grants to ensure that state and local agencies are spending the funds consistent with approved grant proposals. This monitoring would also provide additional information to the Legislature on the state's homeland security efforts. For this reason, we recommend that the Legislature approve the administration's request for additional staff to manage the OHS homeland security grant programs.

Direct DHS to Expand Monitoring Efforts. To date, DHS has received over $240 million in federal grant funding for various planning and coor dination activities to prepare the state and local agencies against bioterrorism events. In response to concerns raised about the lack of administrative oversight of this funding, the 2004-05 Budget Act included several financial and contract management positions to monitor local activities, provide technical assistance, and assess preparedness. These positions, however, lack an important aspect of administrative oversight—financial accounting and auditing of grant funds. Given the magnitude of funding and the significance of the effort, we recommend that the Legislature direct DHS to expand its monitoring efforts to include audits of local jurisdiction expenditures.

Withhold Recommendation on Extension of DHS Positions. There is currently some uncertainty regarding the DHS administered grants for 2005-06. By spring, DHS should have more information regarding the grant requirements and be in a better position to evaluate its staffing demands in future years. Consequently, we withhold recommendation on DHS' request for an extension of its limited-term positions.

Reduce General Fund Appropriation. As noted earlier, the Legislature provided ongoing General Fund support of the SSCOT. Since the SSCOT no longer exists and the state can use federal funds to support homeland security activities, we recommend that the Legislature reduce OES' General Fund appropriation by $284,000.