LAO 2005-06 Budget Analysis: General Government

Analysis of the 2005-06 Budget Bill

Legislative Analyst's Office
February 2005

Department of General Services (1760)

The Department of General Services (DGS) is responsible for providing a broad range of support services to state departments and performing management and oversight activities related to these services. It provides these services through three programs: statewide support, building regulation, and real estate services. Virtually all of DGS costs are reimbursed through fees charged to client departments.

The Governor's budget proposes total expenditures of $970 million from various funds to support DGS activities in 2005-06.

Budget Provisions Need Clarification

The budget includes provisions that authorize the Departments of General Services (DGS) or Finance to increase spending authority for several DGS revolving funds during the year in order to provide services or purchase equipment for departments. Contrary to the intent of the provisions, the current administration has used these provisions to accommodate workload growth increases which should have been anticipated. For this reason, we recommend that the Legislature clarify DGS' provisional authority to authorize increases for only unanticipated expenses.

Since 1987, the budget has included provisions that allow midyear increases to the DGS Service Revolving Fund (SRF) and other DGS revolving funds in order to meet customer requests. Specifically, provisions 3 and 4 of Item 1760-001-0666 allow DGS (up to 10 percent of the revolving funds) or the Department of Finance (over 10 percent of the revolving funds) to increase the expenditure authority when (1) the Legislature has approved funds for departments to purchase equipment or services from DGS or (2) a local government agency or the federal government has requested DGS services. For increases proposed to be permanent, the administration also is required to submit the request through the annual budget process the following year.

Budget Provisions Allow DGS to Accommodate Department Requests. Because DGS is a provider of services to other departments, there are occasions when DGS needs to increase its expenditure authority to accommodate unanticipated department requests. For example, there may be instances when the Legislature has provided funds in other departments' budgets for DGS services without prior DGS knowledge. In addition, there may be occasions when costs for some DGS purchases are higher than what was expected when the budget was developed. Since the Legislature has already approved these services or purchases under prior legislative actions, additional "upfront" notification to the Legislature is not necessary, and DGS is able to provide services without disruption. Provision 6 requires that DGS notify the Legislature within 30 days after increases are made.

Recent Increases Have Been for Anticipated Workload Growth. Since July 2004, DGS has increased the SRF current-year expenditure authority five times, totaling $9.2 million and 17 positions. With the exception of a $404,000 equipment purchase, these increases were due to ongoing workload growth in the Office of Administrative Hearings, Office of Fleet Administration, and the Real Estate Services Division. Most of the workload growth had occurred in these DGS areas over the past few years and, therefore, should have been anticipated.

Anticipated Workload Growth Should Be Reviewed During Annual Budget Process. Departments should examine their workload on an annual basis. If workload has increased, then the department should request additional resources through the annual budget process. This process provides the Legislature with the opportunity to review the proposal and then make decisions on the proposal before the department has actually hired staff and increased expenses. Under prior administrations, this was the practice, and DGS submitted workload growth requests through the annual budget process. Under the current administration, however, DGS has interpreted the budget provisions to allow anticipated workload growth increases. This interpretation unnecessarily limits the oversight role of the Legislature.

Clarify Provisional Authority for Unanticipated Expenses. It is important for DGS to be able to accommodate unanticipated department requests without delaying purchases or disrupting services. We also believe, however, that requests for anticipated workload should be provided during the annual budget process. In our view, DGS should follow the same process for anticipated workload growth increases as other departments. For this reason, we recommend that the Legislature clarify DGS' provisional authority to only authorize increases for unanticipated expenses.

DGS Can Improve Its Drug Procurements

In "Part V" of The 2005-06 Budget: Perspectives and Issues, we review the state's procurement and administrative operations for drug purchases. In that review, we found a number of deficiencies in activities performed by the Department of General Services (DGS). To correct these deficiencies, we recommend that the Legislature take of a number of actions that would result in lower state drug prices. For this reason, we recommend that the Legislature direct DGS to submit a budget proposal to implement recommendations from our review.

In Part V of The 2005-06 Budget: Perspectives and Issues, we examine how the state purchases drugs for its program recipients. We found several deficiencies in how DGS procures drugs for five state agencies. Specifically, we found that DGS (1) does not use an annual work plan, (2) purchases about one-half of its drugs without contracts, (3) does not participate in groups that perform drug reviews, and (4) does not collaborate and share information with other state agencies that also purchase drugs. To address these deficiencies, we recommend that the Legislature:

Direct DGS to Submit Proposal to Implement Recommendations. To correct the DGS deficiencies found in our review, we recommend that the Legislature direct DGS to provide a budget proposal in the spring that provides a plan and the costs to implement the recommendations noted above.

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