Analysis of the 2007-08 Budget Bill: General Government

Commission on State Mandates (8885)

The Commission on State Mandates (commission) is responsible for determining whether local government claims for reimbursement of state-mandated local costs should be paid by the state. If the commission determines that a statute, executive order, or regulation contains a reimbursable mandate, it develops an estimate of the statewide cost of the mandated program and includes this estimate in a semiannual report.

Under Proposition 1A, approved by the state’s voters in 2004, the Legislature must appropriate funds in the annual budget to pay a mandate’s outstanding claims, “suspend” the mandate (render it inoperative for one year), or “repeal” the mandate (permanently eliminate it or make it optional). Two categories of mandates—those relating to K-14 education and employee rights—are exempt from this payment requirement. Proposition 1A also authorizes the state to pay over a period of years outstanding noneducation mandate claims incurred prior to 2004-05. The state’s backlog of these claims totals $914 million.

No Funds to Pay 2007-08 Mandate Bills

In recent years, the state has appropriated funds under the commission’s budget item to pay all of the state’s mandate bills, except bills relating to K-12 districts, community colleges, and one county mental health mandate referred to as the “AB 3632 mandate.” Last year, the budget provided $404 million under this item for these purposes, including $169.9 million to pay two years of a 15-year plan to pay the backlog of accumulated pre-2004-05 mandate bills. (Funding for education and the AB 3632 mandates is appropriated under K-12, community colleges, and the Department of Mental Health [DMH] budgets.)

Inconsistency Between Budget Funding and Government Code

We recommend the administration either propose funding to pay local governments’ mandate bills in 2007-08 (about $150 million) or propose legislation to modify the Government Code to reflect its delayed payment schedule.

The 2007-08 budget includes no funding to pay noneducation, non-AB 3632 mandate claims. The administration explains that the state can realize a one-time savings in 2007-08 because: (1) funding in the 2006-07 budget provides sufficient resources to pay all mandate bills submitted in the current year and to make the 2007-08 backlog payment and (2) Proposition 1A shifted the mandate payment due date and now permits the state to pay mandate bills one year after the fiscal year in which local governments submit mandate bills.

Our review indicates that the administration’s first assertion may be accurate. While the State Controller’s Office (SCO) is still paying and auditing mandate bills, there appears to be sufficient resources in the 2006-07 budget to pay these mandate bills and make the 2007-08 backlog payment. The SCO advises us that it will have updated estimates of mandate costs in the spring and will provide this information to the Legislature at that time.

With regard to the administration’s second assertion (that Proposition 1A shifted the payment date for mandates), we find that the administration’s proposed payment schedule is inconsistent with the longstanding payment schedule in the Government Code. Specifically, the Government Code (which was not modified by Proposition 1A) permits local governments to file for mandate reimbursements in the year in which the local government carries out the mandated activity. It further directs SCO to pay these claims promptly, imposing interest penalties on the state if SCO does not pay the claim within 60 days. Thus, while Proposition 1A permits the state to pay mandate bills one year after the local government submits the bills, the Government Code specifies an earlier payment schedule.

In our view, paying mandate bills in the year in which the state imposes a mandated responsibility makes good policy sense. Otherwise, the state may be less likely to consider the fiscal consequences of its actions when making decisions whether to maintain, repeal, or suspend a mandate. For 2007-08, we estimate the cost of funding all currently active (that is, not suspended) mandates would be about $150 million. (This estimate excludes education mandates and AB 3632.)

Accordingly, we recommend the administration propose funding for the mandates it proposes be active in 2007-08. Alternatively, if the administration wishes to postpone these mandate payment obligations, using the flexibility provided under Proposition 1A, we recommend the administration propose changes to the Government Code to be consistent with its delayed payment schedule.

No Proposal Regarding Three New Mandates

We recommend that, prior to budget hearings, the Department of Finance clarify its budget proposal regarding three of the four mandates recently identified by the commission.

Chapter 1123, Statutes of 2002 (AB 3000, Committee on Budget), requires the Legislative Analyst’s Office to review each mandate included in the commission’s annual report of newly identified mandates. In compliance with this requirement, we reviewed the four mandates shown in Figure 1. We discuss the Integrated Waste Management mandate under our analysis of the California Community Colleges. We raise no policy issues with the three criminal justice mandates.

Three of the four mandates shown in Figure 1 (each of the mandates after False Reports of Police Misconduct) were reported to the Legislature after September 2006. Perhaps due to this late date, the budget bill does not specify the administration’s proposals regarding them. That is, the budget bill does not identify funding for them, suspend their requirements, or indicate that their costs are to be deferred. We recommend that, prior to budget hearings, the Department of Finance (DOF) notify the budget subcommittees whether it proposes to fund, defer, repeal, or take other actions concerning these three mandates.

Mandate Process reform

The problems state and local governments are facing with regard to the mandate determination process could be improved substantially by legislative action to (1) facilitate adoption of simpler mandate reimbursement methodologies and (2) authorize alternative processes to determine mandates.

The Governor’s budget proposes significant changes to the process the state uses to (1) determine whether a reimbursable mandate exists and (2) specify the methodology by which the mandate would be reimbursed. In our view, the administration’s proposal to reform this mandate process provides a good starting point for discussion.

In “Part V” of our accompanying Perspective and Issues, we review the administration’s proposal and offer the Legislature a similar, but more extensive, proposal that includes three significant changes to the mandate process:

• Simplify the process for local governments to file reimbursement claims by placing greater emphasis on unit cost methodologies.

• Allow mandate payment methodologies to be developed through negotiations between local governments and DOF.

• Establish an alternate process to provide early settlement of mandate disputes and bypass the commission entirely.

Status of Major Mandates

Over the last several years, the Legislature has reviewed a number of major noneducation mandates and has taken actions to modify the mandates or reduce their costs. We summarize below the status of these mandates.

Peace Officer Procedural Bill of Rights (POBOR). The POBOR (Chapter 465, Statutes of 1976 [AB 301, Keysor]), provides enhanced rights and procedural protections to peace officers who are subject to interrogation or discipline by their employer. At the request of the Legislature in 2004, the commission reconsidered its statement of decision regarding the mandate, but made few changes to the list of activities found to be state reimbursable. In 2005 and 2006, SCO began releasing POBOR audits, disallowing large parts of local governments’ claimed costs because they were not consistent with the mandate’s claiming methodology or lacked sufficient documentation. In 2006, the commission began working to develop a simpler, easier-to-use POBOR claiming methodology. As of early 2007, no new methodology had been adopted due to significant differences in state and local perspectives regarding the mandate’s costs.

Open Meetings Act and the Mandate Reimbursement Process Mandate. Prior to 2005, the state reimbursed local governments over $40 million annually to post agendas in compliance with the Open Meetings Act and to file and prepare mandate reimbursement claims. Chapter 72, Statutes of 2005 (AB 138, Committee on Budget), amended the Government Code to direct the commission not to find a mandate in cases when a state law (1) implements or (2) is “reasonably within the scope of” a voter-approved measure. It further directed the commission to set aside its Open Meetings Act decision and reconsider its Mandate Reimbursement Process decision.

The commission relied on the new provisions of Chapter 72 in overturning the Mandate Reimbursement Process decision (as well as a decision regarding School Accountability Report Cards) and in setting aside the Open Meetings Act mandate decision. In January 2007, the Sacramento Superior Court heard a case challenging the constitutionality of Chapter 72, but no decision has been released to date.

Animal Adoption. At the request of the Legislature, the commission clarified the reimbursement methodology for the animal adoption mandate created by Chapter 752, Statutes of 1998 (SB 1785, Hayden). Under this mandate, stray dogs and cats must be held for an additional three days before being euthanized. The commission’s new reimbursement methodology applies to mandated activities taken after 2004 05. Thus far, we have not identified any significant change in the mandate’s costs due to the revised claiming methodology. We estimate this mandate costs over $20 million annually.

AB 3632. The current-year budget and proposed budget bill each provide $121 million in annual categorical funding to reimburse counties for their costs to provide mandated mental health services to special education pupils. Specifically, the current and proposed budgets provide $52 million (General Fund) under DMH and $69 million (federal special education funding) under the California Department of Education. County data indicate, however, that the cost of providing services under the AB 3632 mandate will exceed the amounts budgeted. Under existing law, counties may file mandate claims to recoup any program costs not offset through the categorical programs. We estimate that counties will request $40 million as mandate reimbursements for AB 3632 services in the current year and about $90 million in the budget year.

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