LAO 2006-07 Budget Analysis: General Government

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Department of Finance (8860)

The Department of Finance (DOF) advises the Governor on the fiscal condition of the state and develops the Governorís budget. The department also provides economic, financial, and demographic information. In addition, the department oversees the operation of the stateís accounting and fiscal reporting system. The Office of State Audits and Evaluations assesses the operation of the stateís programs. Finally, the Office of Technology, Review, Oversight, and Security serves as the administrationís information technology project review unit.

The Governorís budget proposes expenditures of $47.7†million ($33.7†million General Fund and $14†million reimbursements) to support the activities of DOF in 2006-07. This is an increase of $1.1†million, or 2†percent, above estimated current-year expenditures. The department proposes to continue the development of a new budget information computer system. The budget proposes expenditures of $3.5†million for this project, as well as the reappropriation of $1.7†million from 2005-06 (due to delays in awarding a consulting contract). In addition, the department proposes the creation of a new unit to oversee state-reimbursable mandates, which we discuss below.

New Mandates Unit

We withhold recommendation on the departmentís proposal for $537,000 to create a mandates unit, pending receipt of the departmentís required mandate reform proposal.

When the state mandates that local agencies implement a new program or higher level of service, the California Constitution generally requires the state to reimburse local agencies for their costs to carry out the activities. Over the last several years, there has been considerable tension between state and local governments regarding: the process for determining whether a state law or regulation imposes a mandate, the mounting backlog of unpaid mandates claims, and State Controller Office audit exceptions regarding local mandate claims.

To encourage the administration to participate to a greater extent in the discussions regarding mandate reform, the Legislature directed the department in the 2005-06 Budget Act to prepare a report on the mandates reimbursement process and evaluate alternatives. This report is to be provided to the Legislature by March†1, 2006.

The 2006-07 budget proposes $537,000 (from reimbursements) and four positions for a new mandates unit in the department. The department indicates that the new unit would develop and implement mandate reform policies. Pending receipt of the administrationís proposal for mandate reform, however, we are not able to advise the Legislature regarding the need for this funding or these positions. We therefore withhold recommendation on the $537,000 and the four positions pending receipt and review of the required report.

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