Analysis of the 2007-08 Budget Bill: General Government
The Department of Veterans Affairs (DVA) provides services to California veterans and their dependents, as well as eligible members of the California National Guard. The DVA provides home and farm loans to qualifying veterans using the proceeds from the sale of general obligation and mortgage revenue bonds. The department also helps eligible veterans and their dependents obtain federal and state benefits by providing (1) claims representation, (2) subventions to county veterans service offices, and (3) educational assistance. The DVA operates veterans’ homes in Yountville, Barstow, and Chula Vista, which provide medical care, rehabilitation services, and residential services. Additional homes at West Los Angeles, Ventura, and Lancaster will begin construction in 2007.
The budget proposes total expenditures of $349 million in 2007-08. This is $26 million (8 percent) more than estimated current-year expenditures. General Fund expenditures of $112 million are proposed, which is $24 million (27 percent) more than the estimated current-year level. This includes $17 million for updated and improved information technology (IT) infrastructure and patient management software and $3 million for equipment replacement at the veterans’ homes.
The Governor’s budget proposes new General Fund spending of $3.2 million for ongoing maintenance and equipment replacement throughout the department. The department’s proposal does not specify what equipment is scheduled for replacement. We withhold recommendation pending receipt and review of a comprehensive plan.
Proposal to Expand Equipment Purchases. The budget provides $3.2 million from the General Fund in ongoing funding for the three homes and headquarters for equipment purchases and replacement. The department requests this funding to replace equipment that is beyond its functional life or is no longer economical to repair. The request also provides funding for new equipment to meet functional, regulatory, clinical, and safety needs. The department reports that unallocated reductions in past years have forced the elimination of all funding related to equipment.
Plan for Spending Still Being Drafted. While the proposal includes an extensive list of equipment (including three kitchen sinks), it provides little information as to what equipment is to be replaced and how that relates to the dollar level of this request. The department is in the process of developing a maintenance and equipment replacement plan, but fails to tie this request to that plan. While the department has indicated that the plan will be finalized in March, it provided us a draft plan. Even with this draft plan, the request is missing the following key components.
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Specific Equipment Lists for 2007-08 Replacements. The proposal fails to identify which equipment is most critical and will be purchased in the budget year.
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Consistency of Equipment Inventory. Overall, the equipment lists provided are extensive for some program areas and contain minimal information in others, reflecting the department’s inconsistent approach across the homes and headquarters.
Withhold Recommendation Pending Final Plan. We withhold recommendation until the department submits a comprehensive plan for maintenance and replacement of equipment and the Legislature has had time to review it. The plan should address the concerns discussed above.
The Governor’s budget proposes $1 million in General Fund expenditures to hire staff for new homes in Southern California. We recommend the Legislature reduce the request by $374,000. The department’s proposal to hire staff for these homes is too aggressive given construction schedules that place opening of the first two homes more than 18 months away from the start of the budget year. (Reduce Item 8967-001-0001 by $374,000.)
Background. The department is engaged in the development of new homes in West Los Angeles, Ventura, and Lancaster that will add approximately 616 beds to the veterans’ home system. Current bidding and construction schedules show that the bids for all three homes are to be received in February 2007 with construction to start in July. Construction will last 18 months for both Lancaster and Ventura and 30 months for West Los Angeles.
Request to Begin Staffing. The department’s budget requests General Fund support for ten new positions for the West Los Angeles, Ventura, and Lancaster veterans’ homes. Six positions are scheduled to start July 1, 2007, and four positions are scheduled to start January 1, 2008. Included in this request are staff to handle accounting, clerical, hospital administration, plant operations, and nursing program development duties. The request indicates that these staff will be located in both Los Angeles (eight staff) and in the Sacramento headquarters office (two staff). Tasks to be accomplished during 2007-08 include clinical program development, IT and capital outlay support, contract management, recruitment, and hiring. The request indicates the department’s intent to increase staffing levels to 21 full-time positions in 2008-09.
Request Is Overly Aggressive. Based on the bidding and construction schedules discussed above, the department would be hiring many staff 18 and 30 months in advance of the homes being completed. It makes sense to hire some staff prior to the opening of the homes in order to accomplish many of these tasks. In most cases, however, the tasks described in the proposal should reasonably be handled within a single calendar year before the homes open. The one exception is the Chief of Plant Operations, who will have duties specifically related to the homes’ construction.
Request Also Overstates Equipment Needs. Additionally, the department’s requests for associated equipment and operating expenses is overly generous. For instance, the purchase of three vehicles is unnecessary. Moreover, the costs of some equipment such as Blackberry devices appears dramatically overstated ($8,000 each).
Recommend Reduction of Department’s Request. We recommend reduction of this request by $374,000. This includes a reduction of $228,000 in personal services relating to the timing of positions and $146,000 in operating expenses and equipment. The reduced amount will be sufficient to allow the department to hire the Chief of Plant Operations immediately in July with the remaining nine positions being hired a full 12 months (January 2008) in advance of construction completion of the first new homes.
The Governor’s budget proposes a $1.5 million General Fund augmentation to cover anticipated increased operating costs at the veterans’ homes. We recommend the Legislature reduce this request by $702,000 due to faulty calculations used to project costs. (Reduce Item 8960-001-0001 by $334,000; Item 8965-001-0001 by $32,000; Item 8966-001-0001 by $336,000.)
Nature of the Request. The department’s proposal requests $1.5 million from the General Fund for a baseline adjustment to its expense and equipment line items. This amount is intended to cover projected increased costs for pharmaceuticals, contracted medical services, medical supplies, and energy purchases. The department provided information regarding costs over the last five years for these items at each of the veterans’ homes, as well as the baseline amount included in the 2006-07 budget. The department’s budget-year request applies a five-year average growth rate to the amounts received in 2006-07.
Technical Mistakes in Calculations. The method in which the department calculated the baseline adjustment contains a number of flaws which cause the request to be overstated. For instance, in the case of pharmaceuticals for Yountville, the department determined an average yearly cost of $2.3 million. This is a 30 percent increase over the 2001-02 amount of $1.8 million, for an annual average increase of 6 percent. However, the department arrived at a 26 percent annual increase that it used to adjust the baseline budget. In addition, in the case of Barstow, the population has fluctuated dramatically over the past five years (due to licensing problems). The department failed to accurately account for these swings in applying the cost increases.
Recommend Reduction of the Request. Medical costs have gone up faster at the homes than standard inflationary adjustments—making a baseline adjustment warranted. To arrive at a more appropriate amount, we recommend an adjustment of the 2006-07 baseline funding using projections of medical, pharmaceutical, and energy costs for the budget year. We recalculated the budget request using these estimates (which tend to average between 7 percent and 9 percent) and determined that the department’s request is overstated by $702,000. Accordingly, we recommend then that the Legislature reduce the request by that amount.
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2007-08 Budget Analysis