Analysis of the 2006-07 Budget Bill Legislative Analyst's Office February 2006

Forestry and Fire Protection (3540)

The California Department of Forestry and Fire Protection (CDFFP), under the policy direction of the Board of Forestry, provides fire protection services directly or through contracts for timberlands, rangelands, and brushlands owned privately or by state or local agencies. These areas of CDFFP responsibility are referred to as “state responsibility areas” (SRA). In addition, CDFFP (1) regulates timber harvesting on forestland owned privately or by the state and (2) provides a variety of resource management services for owners of forestlands, rangelands, and brushlands.

The budget requests about $1.1 billion for the department in 2006-07, including support and capital outlay expenditures. Of this total, 94 percent is for fire protection, 4 percent is for resource management, and the remainder is for State Fire Marshal activities and administration.

The total proposed budget is an increase of $164.6 million over estimated current-year expenditures. This largely reflects an increase of $121.3 million (mainly lease-revenue bonds) in capital outlay above estimated current year expenditures and $41.8 million (mainly General Fund) for employee compensation increases resulting from the 2001 Unit 8 memorandum of understanding (MOU). As in the current year, the proposed budget bill for 2006-07 authorizes the Director of Finance to augment the budget for emergency fire suppression by an amount necessary to fund these costs.

The General Fund will provide the bulk of CDFFP’s funding for state operations and capital outlay-$591.3 million (about 56 percent). The remaining funding will come from reimbursements ($228.9 million), lease-revenue bonds ($119.1 million), federal funds ($29.2 million), and various other state funds. Major budget proposals include $119.1 million (lease-revenue bonds) for five new projects.

Employee Compensation Increasing Again

In the sections that follow, we discuss a number of issues related to the department’s increasing employee compensation costs, largely being driven by contractual obligations to extend fire season staffing patterns to the nonfire season. We discuss a case of overbudgeting and make recommendations for the enactment of legislation to (1) ensure that additional staffing resources in the nonfire season are used to enhance the state’s fire prevention activities and (2) provide the Legislature with better information on the costs and benefits of staffing patterns inherent in future contractual agreements that it is asked to approve.

Background

The budget proposes an augmentation of $38.7 million (mainly General Fund) for increases in employee compensation costs due to contractual obligations which will increase planned overtime costs.

Planned Overtime Driving Increasing Costs. As discussed in our report, A Primer: California’s Wildland Fire Protection System, the employee compensation costs for CDFFP are increasing significantly, largely driven by increases in the compensation rate for “planned overtime” pursuant to a 2001 MOU with CDFFP firefighters (Unit 8). Planned overtime is the portion of the firefighters’ regularly scheduled workweek for which they receive compensation at overtime rates. The number of hours in a firefighter’s workweek is determined by state contract. Federal law requires that firefighters be paid at overtime rates for the portion of a workweek that exceeds 53 hours.

Currently, the scheduled workweek for most state-funded CDFFP firefighters exceeds 53 hours only during the fire season. While the length of the fire season varies across the state, it is generally for a period of six to seven months (May-November) in Northern California and nine to ten months (April-November) in Southern California. During the fire season, firefighters normally work three 24-hour shifts in a week, for a total of 72 hours. Of this total, 19 hours are therefore considered planned overtime. During the nonfire season, firefighters do not currently accrue planned overtime because they generally work a 53-hour week consisting mostly of day shifts. During this time, when wildland fire activity is low, firefighters prepare equipment for the next fire season, take vacation time, conduct fire prevention activities, and perform work on a reimbursement basis for those activities considered local government responsibilities.

Employee Compensation Projected to Increase Significantly in Budget Year. The budget proposes an augmentation of $38.7 million ($34.3 million General Fund, $4.4 million reimbursements) for increases in employee compensation costs due to contractual increases in planned overtime costs. This is the result of a provision in the 2001 Unit 8 MOU that provides that beginning the last day of the agreement (June 30, 2006), firefighters will earn planned overtime year round, instead of only during the fire season as is the current practice. As a result of this provision, the average salary (excluding benefits) for a Unit 8 employee will increase 29 percent according to the department.

Employee Compensation Costs Overbudgeted

We recommend a reduction of $2.9 million from the General Fund requested for an increase in employee compensation costs due to overbudgeting. (Reduce Item 3500-001-0001 by $2,865,000.)

Planned Overtime Costs Overbudgeted by $2.9 Million. Based upon our review of the budget’s projections for planned overtime expenditures in 2006-07, we find that the projections are overstated by about $2.9 million. This is because the projections overestimate the number of employees who will be affected by the move to year round planned overtime because they do not accurately account for the changes that have already occurred in the current year. (In the current year, there has already been the transition to year round staffing in selected Southern California counties.) The department concurs with our findings. We therefore recommend a reduction in the General Fund appropriation of this overbudgeted amount, for a savings of $2.9 million.

Staffing Changes Should Support State Responsibilities

We recommend the enactment of trailer bill language to ensure that a planned extension of fire season staffing patterns to the nonfire season enhances the state’s fire prevention activities.

Year Round Overtime Results in Additional Staff Resources. In addition to increasing costs, the change to year round planned overtime beginning in 2006-07 also means that during the nonfire season, most permanent Unit 8 employees will be now on a 72-hour rather than 53-hour workweek. The department indicates it will implement the year round planned overtime by adopting workweek schedules for permanent Unit 8 employees that are similar to those in the fire season-that is three, 24-hour shifts. There are a number of ways that the department could allocate its staffing during the nonfire season given the planned overtime.

How Should Additional Resources Be Used? Generally, CDFFP is responsible for wildland firefighting and local governments are responsible for life and property protection in SRA. Because wildland fires are infrequent in many parts of SRA during the nonfire season, it is not likely that extending planned overtime to the nonfire season will result in significant increases in resources being used to fight wildland fires. We believe the Legislature should take action to ensure that the additional funding requested to extend planned overtime to the nonfire season is spent consistently with the state’s wildland firefighting and fire prevention responsibilities. The extension of planned overtime to the nonfire season could be implemented in such a way as to further the department’s wildland fire protection mission, if such a staffing change provides more resources for fire prevention and fuel reduction activities in SRA. Such activities could include removing fuels, enforcement of the state’s brush clearance requirements, and working with local governments on wildland fire prevention and preparedness plans. While we recognize that some fire prevention activities can likely be done more cost effectively by using nonfirefighting personnel, nonetheless it is appropriate that additional resources that are available to the department as a result of contractual obligations for planned overtime be at least used in support of the state’s wildland fire responsibilities.

In order to ensure that the additional resources available in the nonfire season are used for fire prevention activities that are a state responsibility, we recommend the adoption of the following trailer bill language. This recommendation is consistent with legislative intent expressed in the Supplemental Report of the 2005 Budget Act that the change to year round staffing in 2005-06 in selected Southern California counties result in significant increases in fire prevention activities.

It is the intent of the Legislature that if funding is provided in the annual budget act as a result of extending the workweek in the nonfire season from 53 to 72 hours for most classifications within Unit 8, such funding will be used to significantly increase the level of fire prevention activities that are a state responsibility. In order to assess the progress of the department’s prevention efforts, the department shall expand its reporting of fire prevention efforts as specified in the Supplemental Report of the 2005 Budget Act to include its efforts in all state responsibility areas and provide an assessment of the additional fire prevention efforts that result specifically from expanding the workweek to 72 hours in the nonfire season on a statewide basis.

Future Compensation Agreements Merit Legislative Direction

We recommend the Legislature provide specific direction to the Department of Personnel Administration concerning the type of analysis required when considering future Unit 8 memoranda of understanding. The purpose of the direction is to ensure the Legislature gets full information on the costs and benefits of the staffing patterns inherent in future labor agreements it is asked to approve.

Costs and Impacts of Current MOU Were Not Fully Evaluated. As we discuss in the primer, at the time the Legislature approved the 2001 Unit 8 MOU, the Department of Personnel Administration (DPA) did not provide information to the Legislature on the significant costs associated with changing to a 72-hour work week year round. Consequently, the Legislature did not have the opportunity to consider whether such staffing changes are cost-effective and best serve the department’s mission of wildland fire protection. In addition, according to CDFFP, previous increases in planned overtime already put in place have resulted in “salary compaction” problems. According to the department, it has been difficult to recruit for the chief officer positions from the rank and file positions because, as a result of the planned overtime compensation changes, some rank and file positions are now making more than chief officer positions.

Recommend Future Unit 8 MOUs Be Guided by Legislative Direction. In order to ensure that the Legislature is provided with complete information on the costs and benefits of future Unit 8 MOUs it is being asked to approve, we recommend the Legislature provide specific direction to DPA on the analysis required when considering future Unit 8 MOUs. Specifically, when negotiating future Unit 8 MOUs, we think that DPA, in conjunction with CDFFP, should conduct an analysis of the costs and benefits of proposed staffing patterns and compare them with the costs and benefits of alternative staffing patterns. Alternatives to be considered should include both proposals which reduce the need for planned overtime and proposals which eliminate the need for planned overtime. We recommend that the findings and conclusions of this analysis, along with a report on the outcome of the negotiations using the analysis, be submitted to the Legislature upon submission of the Unit 8 MOU for legislative approval. In addition to assisting DPA in its analysis and preparation for contract negotiations, we think such an analysis will be valuable to the Legislature in evaluating any future Unit 8 MOUs submitted for its approval. (We note that Chapter 499, Statutes of 2005 [SB 621, Speier], requires our office to provide a fiscal analysis of future MOUs prior to consideration by the Legislature.) We therefore recommend the adoption of the following trailer bill language:

It is the policy of the state for the Department of Personnel Administration to consider the cost-effectiveness of any Unit 8 memorandum of understanding (MOU) with an effective date on or after July 1, 2006. It is the intent of the Legislature that the department, in conjunction with the California Department of Forestry and Fire Protection, analyze the costs and benefits of proposed staffing patterns and compare those with the costs and benefits of alternative staffing patterns. Alternatives to be considered should include both proposals which reduce the need for planned overtime and proposals which eliminate the need for planned overtime. A report of the department’s analysis and its findings, along with a report on the outcome of the negotiations using the analysis, shall be submitted to the Legislature upon the submission of the Unit 8 MOU for legislative approval.

Proposed Solution to Capital Outlay Project Delay Is Inefficient

We recommend deletion of the proposed budget bill language, and related position authority, delegating project management responsibilities for capital outlay activities to the California Department of Forestry and Fire Protection (CDFFP) because it would establish a function at CDFFP that is duplicative of the function that already exists at the Department of General Services (DGS). Further, we recommend the administration report at budget hearings on how it proposes to address the existing project delays in the department’s capital outlay program in a way that is consistent with statutory policy delegating project management authority to DGS.

Current Law Designates DGS as Project Manager. Under current law, most of the department’s capital outlay real estate design and management activities are done by DGS, the state agency generally responsible for managing state capital outlay projects. The DGS is designated with project management authority because it allows for economies of scale by consolidating specialized services, such as architectural and engineering services, and also provides oversight. Recent budget acts have provided CDFFP with limited authority to manage a select few projects. Using this authority, CDFFP has managed mainly a number of minor capital outlay projects (those with costs of less than $500,000), and eight major capital outlay projects over the last five years.

Capital Outlay Projects Are Consistently Behind Schedule and Over Budget. The department’s capital outlay projects are consistently behind schedule and are often over budget. The department indicates these delays have occurred for a variety of reasons, including expanded review requirements for lease revenue bond financing, bids coming in over budget, project scope changes, and environmental studies dictating project changes. In addition, because DGS manages projects across state departments, statewide prioritization may contribute to a delay in CDFFP’s projects.

Budget’s Proposed Solution to Project Delivery Problems Raises Several Concerns. The budget proposes to address the above delays in project delivery by establishing a project management unit within CDFFP to handle project management services for a number of major capital outlay projects on an ongoing basis. Currently, the department’s capital outlay staff involvement is generally limited to minor capital outlay projects (such as landscaping, water system improvements, and equipment storage buildings) and providing assistance to DGS on major capital projects.

The budget proposes to double the department’s capital outlay staff from 15 positions to 30 positions over a two-year period in order to allow CDFFP to manage an additional six to eight capital outlay projects annually out of a total of about 45 projects on an ongoing basis. (The remainder of the projects would continue to be managed by DGS.) The CDFFP also notes that using existing staffing, it plans to manage three to four major capital projects on an ongoing basis. The proposed budget bill also includes language authorizing CDFFP to conduct any real estate design and project management activities associated with its capital outlay projects. Figure 1 provides a list of the different types of activities related to real estate design and project management that the department proposes to undertake.

We have two primary concerns with the department’s proposed solution to the delay in capital outlay projects:

• Inefficient to Establish New Duplicative State Function, Rather Than Fix Existing Function. By expanding the project management function for major capital outlay projects at CDFFP, the budget proposal does not directly address the underlying issues with project delay and instead creates potential inefficiencies. The statutory policy to consolidate project management authority in a single agency-DGS-reflects the potential efficiencies from consolidating what would otherwise be similar functions performed by multiple state agencies. Additionally, there would likely be significant “start-up” costs at CDFFP to build expertise and it would take eight to ten months, according to the department, to hire staff to perform the expanded function.

• Proposal Is Inconsistent With Current Statutory Policy. As discussed earlier, under current law, DGS is generally delegated with project management authority for state agency capital projects. This budget proposal is inconsistent with this statutory policy in that it provides for a major project management function outside of DGS. As discussed above, the budget proposal raises fundamental policy issues about the role of DGS as the delegated authority for real estate management in statute. As such, we think changes to existing statutory policy should be evaluated by the Legislature in the policy committees before approving the creation of a project management unit in CDFFP.

In addition to the concerns addressed above related to the overall policy of establishing a project management function within CDFFP, we are also concerned that the budget includes a request for a high level position, Chief of Technical Services, that is unnecessary because such a position already exists within CDFFP.

Recommend Denial of Requested Position Authority. Based on the above concerns, we recommend the Legislature deny the proposed increase in positions and delete the corresponding budget bill language. We note that funding for these positions is included as a project cost under the department’s capital outlay budget. By adopting our recommendation, this funding would be used instead to reimburse DGS for project management services. Therefore, no funding reduction accompanies this action.

Recommend Administration Report at Budget Hearings. Rather than establishing a separate capital outlay program at CDFFP to address concerns with project delays, we recommend the administration report at budget hearings on a proposal to address the existing project delays for the department’s capital outlay program that is consistent with current policy to delegate project management authority to DGS.