Analysis of the 2008-09 Budget Bill: Criminal Justice

Victim Compensation and Government Claims Board (1870)

What Does the Board Do?

The Victim Compensation and Government Claims Board was first established in 1911 as the Board of Control and was responsible for supervising the business affairs of many different state departments, facilities, and organizations. By 1927 its oversight role had ended and its focus was the adoption of rules and regulations governing contract and tort claims. In 1965, California created the nation’s first Victim Compensation Program (VCP), which became the responsibility of the board in 1967, though it did not receive its current name until 2001. Today, the board’s primary responsibilities include the state’s Government Claims Program as well as the VCP. The Government Claims Program processes claims for money or damages against the state. Generally, anyone who wishes to file a lawsuit against the state or its employees must first go through the process administered under the program. In these cases, litigation against the state can only move forward to the courts if the board rejects or denies a claim.

Victim Compensation Program. The VCP can help pay unreimbursed expenses that result when a violent crime occurs. If an individual involved as a victim in a crime has been injured or has been threatened with injury, he or she is sometimes eligible to have qualifying costs paid for by the board. These costs include medical, dental, mental health, and funeral services, as well as home security, crime–scene cleanup, and emergency relocation costs.

While a victim can apply directly to the board for assistance, victims are generally referred to the board by local government, often by victim advocates that work in county district attorney’s offices. The state currently contracts with 21 counties to help assist victims in this process.

In the majority of cases, victims will receive services from providers who then send bills directly to the board. The board has established reimbursement rates it pays to providers. However, these rates may not cover all of the costs the provider has incurred. This is similar to the way many medical insurance reimbursement rates do not fully cover all provider costs.

Restitution Fund. A defendant found guilty of a criminal offense is usually ordered by the court to pay various fines and penalties. The money collected is divided in accordance with state law as determined by a judge, among various recipients, and sometimes includes direct payments of restitution to the victim of the crime. In addition, both state and local government agencies finance a number of programs from the fine and penalty money that they receive. For example, prior to any other distribution, state law requires that 2 percent of all fines and penalties collected in criminal cases be directed toward funding the automation of trial court record–keeping systems. A portion of the money collected from defendants is deposited in the Restitution Fund, which was established to compensate those injured by crime.

The board has a continuous appropriation from the Restitution Fund, which means the money it receives is not subject to appropriation by the Legislature in the annual budget act. The Restitution Fund is the primary source of funding for the VCP. Also, Restitution Fund revenues are used as a match to draw down federal funds under the Victims of Crime Act (VOCA) grant program. The VCP receives 60 cents in federal VOCA grant funding for each dollar spent to provide victims with services. The board deposits this money in the Restitution Fund and uses it exclusively for victims. Beyond the VCP, the Restitution Fund is also a funding source for programs operated by the Office of Emergency Services (OES), the Department of Justice (DOJ), and the State Controller’s Office, which are discussed further below.

Short–Run Stability, Long–Run Potential for Problems in the Restitution Fund

Restitution Funds Balance Could Be Transferred to General Fund in the Short Term

The fiscal projections upon which the Governor’s budget plan is based appear to indicate that the Restitution Fund is experiencing a sharp decline in its fund balance. Our analysis of more up–to–date fiscal data indicates, however, that the fund is in stronger shape in the short run and that a portion of its large fund balance could be transferred to the General Fund to help address the state’s current budget shortfall.

Background. The Governor’s 2007–08 budget plan projected that the Restitution Fund would have a balance of about $127 million as of June 2007. This sum, well in excess of the reserve needed to operate the VCP, appeared at the time to be growing. However, by later in the year, revised projections indicated that rising expenditures from the Restitution Fund would begin to exceed its relatively stable revenue. As shown in Figure 1, the 2008–09 budget plan assumes that the Restitution Fund balance will drop to $77 million by June 2008, and slip further to $49 million by June 2009. If these assumptions were correct, they would imply that the fund was headed for a deficit of nearly $30 million in 2010–11.

Projections May Overstate Expenditures and Understate Revenue. Based on more recent data made available by the board, it appears that actual Restitution Fund revenues will be higher, and expenditures lower, than were assumed in the Governor’s budget. Our analysis of this recent data indicates that the fund may in fact have a balance of as much as $110 million as of June 2008, and as much as a $95 million balance as of June 2009. Figure 2 highlights the differences between the projections in the budget and our updated estimates.

Restitution Fund Money Could Benefit the General Fund. The balances we have identified represent 83 percent of what we project to be the total expenditures from the Restitution Fund in 2007–08 and 67 percent of the total expenditures we project for 2008–09. Balances of this magnitude far exceed any likely unforeseen expenditure the fund may incur. Thus, the Legislature has the option of transferring Restitution Fund money to the General Fund to help close the state’s current budget shortfall.

We note here, and discuss further below, that over the long term our projections indicate that the Restitution Fund will eventually face a deficit, with or without such a transfer of money to the General Fund. According to our estimates, the Restitution Fund will become insolvent in approximately 2012–13, when it could run a deficit of nearly $35 million. If as much as $45 million was transferred from the Restitution Fund to the General Fund in either the current year or the budget year, a deficit would appear one year earlier, in 2011–12. This would still leave the state three years, however, to address this potential, future imbalance—a problem we believe is solvable if the appropriate actions are taken now. Later in this analysis, we discuss further both the cause of this imbalance and some potential solutions that could bring Restitution Fund revenues and expenditures into alignment.

Legislative Option. Given its current large fund balance well in excess of its current operational needs, the Legislature should consider the option of transferring as much as $45 million from the Restitution Fund to the General Fund in light of the current fiscal condition in the state. A transfer of this amount would still leave the state with three years to address a potential longer–term imbalance in fund revenues and expenditures.

Increased Victim Claims and Support for Other Programs May Leave Fund Short in the Future

If the current expenditure trends continue, the Restitution Fund will be unable to fully support the Victim Compensation Program as well as other programs it now supports, in the long term. We outline several actions that the Legislature could take to help move the Restitution Fund towards long–term solvency.

As discussed above, the Restitution Fund faces a potential shortfall by either 2011–12 or 2012–13, depending upon whether the Legislature chooses to draw down part of the fund’s large balances to address the state’s current General Fund shortfall. The main source of the problem is the likelihood that expenditures will grow faster than the relatively stable revenues flowing into the fund. These increased expenditures are due to (1) increased awareness of the services provided by the board, (2) various changes in the board’s compensation of service providers, and (3) the increased use of the Restitution Fund in recent years to support other new state programs. We discuss these factors below.

Growing Public Awareness of Program. At any given time, crime statistics suggest, there are many more victims of crime in California eligible for compensation from the board than actually seek it out. In the past, however, increased public awareness of the VCP has increased the number of victims seeking compensation from the board over time. The number of victims seeking compensation increased by more than 1,900, or about 4 percent, between 2005–06 and 2006–07, the last year for which complete data are available.

The increase in the number of individuals filing claims has contributed to an increase in VCP expenditures, as can be seen in Figure 3. The sharp increase in payments to victims following 2001 is attributed by board officials to greatly increased public awareness of victim compensation processes in the wake of the well–publicized reimbursements to families of the victims of the September 11, 2001 terrorist attacks. The board is currently engaged in ongoing efforts to promote the services they offer, and therefore expects the trend of increasing victim claims, and expenditures for those claims, to continue.

Changes in Reimbursements to Providers. Actions taken by the board in recent years to increase reimbursements to various medical providers who provide services to crime victims are another major factor reducing the once–large balances in the Restitution Fund.

Following the large spike in claims after 2001, the Restitution Fund’s balance declined steeply, as can be seen in Figure 3. In order to maintain the solvency of the fund, the board decreased the reimbursement rates it paid to providers of victim services and delayed payments to them in connection with victim claims. As a result, we are advised by the board, a number of providers started to refuse to serve crime victims affiliated with the program and payments out of the Restitution Fund for such claims decreased.

The board has since increased some of the reimbursement rates for providers and is attempting to rebuild its relationship with them, such as by providing them with more timely payments and implementing a new online claim processing system that streamlines the claim process. Also, in 2006, the board increased the availability of mental health services, established dental treatment preauthorization and preapproval, and raised the compensation cap for funeral and burial expenses. The total number of bills received by the board increased by more than 32,000, or nearly 24 percent, between 2005–06 and 2006–07. All of these changes in compensation to providers have contributed to the rising expenditures by the VCP from the Restitution Fund.

Program Expansions. In addition to the VCP, the Restitution Fund has increasingly become a source of support for the recent expansion of programs operated by several other departments. As a result, about $14 million in annual costs have been added in recent years.

The DOJ administers the California Witness Protection Program, which primarily reimburses county district attorney’s offices for the costs of providing witness protection services. In 2006–07, the Restitution Fund provided $3 million in annual support for this program. The DOJ currently is budgeted to receive $7 million from the Restitution Fund in 2007–08, a funding level the Governor’s budget plan proposes to maintain in 2008–09.

The OES received new allocations from the Restitution Fund in 2007–08 totaling $10 million to support a task force combating Internet crimes against children and a statewide anti–gang coordination program. The Governor’s budget plan assumes that this level of funding would continue in 2008–09 for these OES programs.

In addition, a one–time expenditure of $300,000 was made from the Restitution Fund in 2007–08 for the Equality in Prevention and Services for Domestic Abuse Fund. This fund is designed to help provide services to gay and lesbian victims of domestic violence.

As discussed above, the money spent by the VCP on victim services generates additional revenue for the Restitution Fund by drawing down matching federal VOCA grants. This is not the case, however, for DOJ and OES expenditures from the fund. In effect, the total of $17 million spent on these projects potentially reduces the federal grant revenue the fund would otherwise receive if the money could be spent on qualifying services for victims by as much as $10 million annually.

Some Steps Could Be Taken Now to Bolster the Fund. Our analysis indicates that there are several actions the Legislature could take to address the long–term solvency problem potentially facing the Restitution Fund.

One such approach would be to reduce the $7 million annual cost of the witness protection program now being supported from the fund. The DOJ currently has statutory authority to collect matching funds from local agencies to help support the victim witness protection program. The Legislature could change state law to require a larger local match, therefore permitting a reduction in support of the program from the Restitution Fund of several million dollars annually.

Alternatively, it might be possible to leverage funding for the witness protection program to generate additional federal fund revenues for the fund. One of the purposes of the witness protection program is to assist crime victims, as witnesses are often crime victims themselves. Thus, it is possible some of these expenditures may qualify for federal matching funds under the VOCA program, particularly if they were administered under the board rather than DOJ. The Legislature could direct the board to analyze the fiscal and operational ramifications of such a change, which might offset part of the impact of a reduction in Restitution Fund support for the program.

The Legislature may also wish to review the condition of the Restitution Fund in the next couple of years to determine whether it is healthy enough to continue to sustain these programs. If it is not, the Legislature may wish to consider eliminating the Restitution Fund as a support source for these programs in order to ensure fund revenues and expenditures are in alignment.

Analyst’s Recommendations. As noted above, the Restitution Fund is cash–rich in the short term, but faces a longer–term risk of insolvency by 2011–12 or 2012–13. Accordingly, we recommend that the Legislature take actions now that would help move the Restitution Fund towards solvency through the options outlined above to (1) reduce the cost of the witness protection program by increasing the required local match; (2), examine whether the witness protection program can be restructured to draw down federal funds for victim assistance; and (3) review in the next few years whether all of the programs supported from the Restitution Fund, and the higher rates paid to providers of victim compensation services, can be sustained.

In the next section of this analysis, we discuss other potential steps for ensuring the future solvency of the fund by ensuring that administrative costs for the VCP are reasonable and that potential revenues for the Restitution Fund are being collected.

Administrative Costs and Fund Revenues Warrant Scrutiny

The Victim Compensation and Government Claims Board does not separately track the administrative costs of its Victim Compensation Program (VCP) and the Government Claims Program, making it difficult for the Legislature to assess the efficiency of these programs. Also, it appears possible that the collections of Restitution Fund revenues could be improved. Accordingly, we recommend that the Legislature (1) direct the administration to modify the state budget for the board to separately list the administrative expenditures of its programs within the budget, and (2) request an audit to determine if administrative costs of the VCP can be reduced or the recovery of restitution payments can be improved.

Administrative Spending Not Tracked Separately. The Victim Compensation and Government Claims Board does not separately track the administrative costs of the VCP and the Government Claims Program. In particular, in the VCP, some administrative expenditures and direct payments to crime victims are combined in one state operations budget item and the board does not internally track these expenditures.

This is a problem, in our view, in that administrative costs can be a key measure in determining how efficient programs are in delivering services. Maintaining the lowest reasonable administrative costs is particularly important for the VCP, because such administrative expenses are ineligible for federal VOCA grant matching dollars. Also, given the declining balance in the Restitution Fund, minimizing VCP administrative expenditures can help assure that the maximum amount of money is reaching crime victims and that the Restitution Fund will remain solvent.

VCP Administrative Costs Appear to Be Relatively High. While it is not possible to identify total VCP administrative costs with complete accuracy, for the reasons discussed above, we have attempted to estimate those costs using information contained in the budget. Specifically, we estimate that administrative spending in 2006–07 was about $39 million, or about 31 percent, of the state and federal funding it receives annually for the program.

Our analysis indicates that VCP administration costs appear to have declined somewhat in recent years. We estimate that they were about 42 percent of program expenditures in 2004–05. However, our analysis suggests that they are still somewhat higher than those administrative costs incurred by victim compensation programs in other states, a fact that was acknowledged by the board in a letter to the Legislature in 2004. As shown in Figure 4, information we found on crime victim assistance programs in eight other states indicated that they reported administrative costs ranging from 5 percent to 32 percent, with an average of 17 percent. We would recommend, however, that the Legislature view this information with caution, because what constitutes administrative costs can vary significantly across different states.

Further Decreases in Administrative Costs Possible. The board is taking some steps to change its operations that could decrease its administrative costs. The board has nearly completed its transition to an Internet–based system for processing claims for compensation from crime victims, which could potentially reduce the time board staff would have to spend in processing requests for compensation. The board also intends to reorganize the manner in which it assigns employees to process claims. Instead of tracking a single claim through every step of the process, the new approach involves assigning employees to become specialists in a specific step in the claim process. However, the effect of these promising new approaches on program operations and administrative expense will be difficult to assess unless these costs are tracked accurately and separately.

No Recent Program Audits. It is generally sound fiscal management policy for programs involved in large numbers of financial transactions with the public, such as the VCP, to be subject on a regular basis to outside audits. However, we are advised that no outside agency has conducted an audit of the VCP since 2001–02.

Under the current circumstances, including rising expenses that could eventually threaten the solvency of the Restitution Fund, a comprehensive audit of the VCP appears warranted. Such an audit could shed light on the fiscal integrity of the board’s procedures for processing victim claims and their relative efficiency. It could also examine whether there are other ways for the board to streamline its processes, reduce administrative costs, and thereby help preserve the solvency of the Restitution Fund.

Opportunity May Exist to Collect Additional Revenues. Our analysis indicates that it may be possible to address part of the Restitution Fund solvency problem by increasing the collection of some of the revenues that flow into the fund from the collection of restitution orders. When a victim who has been provided services by the board is still owed restitution by a defendant, the board can subsequently recover these funds from the defendant to offset the expense to the state of assisting the victim. The board collaborates with various state agencies, such as the Franchise Tax Board, in such activities. It also sometimes partners with counties in such collection efforts, and in such cases allows the county to keep 10 percent of the amount collected as an incentive for county participation. However, we are advised that when defendants are no longer under the supervision of a probation department or are released on parole, the state and local government lose their practical ability to collect the restitution owed.

The following steps to improve these collections have been proposed and appear to be worth further study:

• Imposing additional financial asset disclosure requirements on criminal defendants.
• Increasing county financial incentives for participation in collection efforts.
• Modeling restitution collection efforts on those used in the collection of child support.
• Extending the ability of state and local agencies to continue collection efforts after a defendant has been released on parole or from probation.
• Improved record keeping on the amount owed by defendants that is accessible to state and local officials involved in collection efforts.
• Encouraging superior court judges to garnish the wages of individuals who are behind in restitution payments.
• Requiring defendants to appear before a judge if they fail to pay restitution, as is currently done in Alameda and Santa Clara Counties.

It is also possible that some of these changes would result in greater direct collection of restitution by crime victims, and lesser reliance on VCP for victim assistance services. In the long term, this could also reduce the financial pressure on the Restitution Fund.

Analyst’s Recommendation. To assist the board and the Legislature in tracking the administrative costs of the VCP, we recommend that the Legislature direct the administration to establish separate budget items and displays in the Governor’s January 10 budget plan for the administrative costs of the VCP and the Government Claims Program.

We further propose that the Joint Legislative Audit Committee be requested to direct the Bureau of State Audits (BSA) to conduct a comprehensive audit of both the VCP and the Quality Assurance and Restitution Recovery Division to ensure the fiscal integrity of their procedures for processing victim claims, collecting restitution revenue and their relative efficiency. The BSA could also specifically examine if there are further actions the board could take to increase Restitution Fund collections, as discussed previously.

Accordingly, we recommend the adoption of the following supplemental report language:

Board Budget Display and Items. It is the intent of the Legislature that the Department of Finance, in preparing the 2009–10 budget plan for the California Victim Compensation and Government Claims Board, establish budget items and displays in the Governor’s January 10 budget plan that separate the administrative costs for the Victims Compensation Program from other expenditures for that program, and that similarly separate the administrative costs of the Government Claims Programs from other expenditures for that program. Administrative costs for these two programs shall also be displayed and budgeted separately.

Victim Compensation Program Audit. It is the intent of the Legislature to request that the Joint Legislative Audit Committee commission an audit of the Victim Compensation Program of the California Victim Compensation and Government Claims Board by September 15, 2008.

This audit shall assess the efficiency and effectiveness of the victim compensation process carried out by the program. This portion of the audit should include, but not be limited to, a review of the following matters:

—The relative efficiency of the board’s processing of victim claims.

—Recommendations as to how the board might reduce the administrative costs of processing victim claims.

This audit shall also assess the efficiency and effectiveness of the restitution recovery carried out on behalf of and by the board. The audit should include, but not be limited to, an assessment of the following:

—A determination of whether the efforts of the Quality Assurance and Restitution Recovery Division are efficient and cost–effective.

—A determination of whether improvements could be made in the restitution collection process in order to increase revenues.