An Initial Assessment of the California Performance Review by aqu16527


									                                                                           August 27, 2004

 6 0 Y E A R S O F S E RV I C E

    An Initial Assessment of
    The California
    Performance Review
ELIZABETH                         G.   HILL    •    L E G I S L AT I V E     A N A LY S T

                                        On August 3, 2004, the California Performance
                                        Review (CPR) released its report on reforming
                                        California’s state government, with the aim
                                        of making it more efficient and more respon-
                                        sive to its citizens. This report provides our ini-
                                        tial comments on the CPR report. Specifically,
                                        we: (1) provide an overview of its reorganiza-
                                        tion framework and other individual recommen-
                                        dations, (2) discuss the savings it assumes from
                                        its major proposals, and (3) raise key issues
                                        and considerations relating to CPR’s various
                                        proposals. ■
                                               AN LAO REPORT

              Table of Contents
              Introduction ..................................................................................3

              Section 1: Overview....................................................................4
              Section 2: CPR Reorganization.............................................. 11
              Section 3: Review of Key Proposals by Program Area ..... 20

                    K-12 Education ................................................................... 20
                    Higher Education ............................................................... 24
                    Health and Social Services—Crosscutting Issues ........ 28

                    Health Services .................................................................. 30
                    Social Services ................................................................... 31
                    Transportation .................................................................... 35

                    Resources, Environmental Protection, and Energy ..... 38
                    General Government........................................................ 42
                    Criminal Justice .................................................................. 47

                    Capital Outlay .................................................................... 51
                    Tax Administration and Revenue ................................... 53
              Conclusion ................................................................................. 57

    Acknowledgments                                                   LAO Publications
    This report was prepared by Brad Williams                         To request publications call (916) 445-4656.
    and Michael Cohen with the assistance of staff                    This report and others, as well as an E-mail
    throughout the Legislative Analyst’s Office                       subscription service, are available on the
    (LAO). The LAO is a nonpartisan office which                      LAO’s Internet site at The
    provides fiscal and policy information and                        LAO is located at 925 L Street, Suite 1000,
    advice to the Legislature.                                        Sacramento, CA 95814.

2                                                                    L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

     On August 3, 2004, the California Perfor-       to perform certain functions, and many of its
mance Review (CPR) released its report to the        fiscal savings estimates are overstated.
Governor on reforming California government.              For these reasons, it will be important for the
The report lays out a framework for reorganizing     Legislature to evaluate the merits of the propos-
and consolidating state entities, and contains       als individually, looking at their policy trade-offs,
278 issue areas and 1,200 individual recommen-       their likely effectiveness, and their fiscal implica-
dations aimed at making state government more        tions. The Legislature also may wish to consider
modern, efficient, accountable, and responsive       broadening the scope of reforms offered by CPR
to its citizens. The CPR also adopted the 239        to include a more comprehensive examination
proposals included in a report recently issued by    of the state and local tax system, the role of
the Corrections Independent Review Panel. The        constitutional officers, the state’s system of
CPR asserts that the state would achieve about       funding education, and the relationship between
$32 billion in savings over the next five years if   state and local government.
all of its recommendations were fully adopted.            Organization of This Report. This report,
     The CPR has four volumes. The first sets        which provides our initial reaction to the CPR
forth its major goals, the second lays out a         report, has three sections:
reorganization plan for state government, the           ➢ “Section 1” provides an overview of
third provides a budget and financial review of           CPR’s reorganization plan and its other
California state government, and the fourth               proposals, reviews CPR’s estimated
contains CPR’s individual proposals.                      savings from its proposals, and discusses
     LAO’s Bottom Line. The CPR provides the              key issues for the Legislature to consider
state with a valuable opportunity to comprehen-           in reviewing the plan.
sively examine how it does business. It has
made a serious effort at rethinking the current         ➢ “Section 2” looks at the reorganization
organization of state government and how it               framework in more detail and discusses
delivers services to the people of California. We         key principles that should guide a
find that many of its individual recommenda-              reorganization.
tions would move California toward a more
                                                        ➢ “Section 3” reviews CPR’s key proposals
efficient, effective, and accountable government.
                                                          in each of the major areas of the budget,
     At the same time, the rationale for some of
                                                          providing some context for the propos-
its reorganization proposals is not clear, it does
                                                          als and our initial reaction to them.
not examine whether the state should continue

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                            3
                                             AN LAO REPORT

    CPR’S MAJOR COMPONENTS                                    Board, Employment Development
        The CPR has two major components—a                    Department, and the Department of
    reorganization of state entities and other indi-          Motor Vehicles. The Board of Equaliza-
    vidual recommendations. Below we briefly                  tion (BOE), however, would be retained
    describe both of these components.                        as an independent entity.

                                                          ➢ Discontinuation of Many Boards and
    Reorganization of State Entities
                                                            Commissions. The report recommends
        The CPR proposes a major reshuffling of the
                                                            discontinuing 117 independent boards,
    state’s agencies, departments, boards, commis-
                                                            commissions, and task forces—including
    sions, and other entities. In reorganizing state
                                                            the Air Resources Board, Energy Com-
    government, the CPR proposal focuses on
                                                            mission, Student Aid Commission, Board
    aligning similar programs and consolidating
                                                            of Prison Terms, and Youth Authority
    administrative functions in order to eliminate
                                                            Board. For the majority of these
    duplication of effort and improve customer
                                                            discontinuations, the CPR consolidation
    service. The major components of the reorgani-
                                                            would move these entities’ activities
    zation are:
                                                            under one of the new mega-depart-
       ➢ Creation of 11 Mega-Departments. The               ments.
         core of the CPR reorganization is the
         creation of 11 large, mega-departments.       Individual Recommendations
         These mega-departments would merge
                                                            As noted above, the CPR identifies 278 issue
         the policy-setting function of agencies
                                                       areas and contains about 1,200 specific propos-
         with the program administration function
                                                       als affecting a wide range of government pro-
         of departments.
                                                       grams. Although the proposals cover a vast
       ➢ Office of Management and Budget. The          number of individual areas, they can be gener-
         CPR reorganization would also consoli-        ally placed into one or more of the following
         date the state’s policy and budget            five broad categories.
         oversight agencies into a unified Office         ➢ Enhancing Program Efficiencies and
         of Management and Budget (OMB). The                Service Levels. Some major examples in
         OMB would be responsible for oversight             this area are: (1) a major proposal to
         on budgetary, state employment and                 consolidate the eligibility determination
         retirement, technology, and regulatory             process for California Work and Respon-
         matters.                                           sibility to Kids (CalWORKs), Medi-Cal,
                                                            and food stamps; (2) both general and
       ➢ Tax Commission. The CPR proposes to
                                                            specific proposals relating to the state’s
         merge three of the state’s principal tax
                                                            workforce; (3) proposals to expand use
         collections agencies—the Franchise Tax

4                                                          L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

        of new technologies, such as SMART                  and service delivery, it does include
        cards for Medi-Cal, and electronic                  several proposals that involve significant
        benefit transfer cards; (4) proposals to            changes in underlying policies. Examples
        increase reliance on the Internet for such          include the imposition of a sales tax
        things as motor vehicle fee payments                credit for new business investment,
        and benefit and licensing applications;             changes in the regulation of timber and
        and (5) various contracting and procure-            other natural resources, expanded use of
        ment reforms.                                       high occupancy toll lanes, allowing
                                                            community colleges to offer bachelor
   ➢ Shifting Program Responsibilities and
                                                            degrees, expanding the lottery, and
     Funding. These include a targeted
                                                            changing the cutoff age for kindergarten
     realignment of state and local health and
     social services programs, as well as
     several proposals to shift costs away
                                                     CPR’S SAVINGS ESTIMATES
     from state government to other entities.
     These include (1) seeking additional                The CPR indicates that its proposals, if fully
     federal funds, (2) shifting property taxes      adopted, would generate savings of slightly over
     from enterprise special districts for the       $1 billion in 2004-05 and $32 billion over the
     benefit of the state, (3) shifting responsi-    next five years combined. According to CPR
     bility for certain highways from the state      estimates, about one-third of the cumulative
     to local governments, and (4) increasing        savings would accrue to the General Fund and
     student fees on out-of-state residents.         the remaining two-thirds would accrue to special
                                                     funds, federal funds, and local funds. Figure 1
   ➢ Privatization. These include the con-           (see next page) shows that on an annual basis,
     tracting out to the private sector such         savings to the General Fund are projected to be
     functions as child support administration,      in the range of $2 billion to $3 billion per year
     job training, and health care for prison        starting in 2005-06, while annual savings to
     inmates.                                        other funds are projected to average $5 billion
                                                     to $6 billion.
   ➢ Changes in Governance. These include
     the elimination of boards and commis-           Proposals With Major Fiscal Effects
     sions, the consolidation of county
                                                         As shown in Figure 2 (see page 7), proposals
     offices of education into regional bodies,
                                                     in 15 issue areas account for almost 88 percent
     the elimination of the community
                                                     of the total savings estimated by CPR for the
     colleges’ Board of Governors, and a new
                                                     next five years. Nearly one-half the total is
     structure for overseeing the state’s use of
                                                     related to just three broad proposals: one to
     information technology.
                                                     maximize federal grants ($8.2 billion), another to
   ➢ Changes in Policy. While CPR primarily          transform eligibility processing for Medi-Cal,
     focuses on issues related to efficiencies       CalWORKs, and food stamps ($4 billion), and

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                         5
                                         AN LAO REPORT

    the third related to the creation of a workforce    ➢ Savings Depend on Federal Actions
    plan for California state employees that would         Rather Than Specific CPR Recommen-
    result in fewer employees ($3.3 billion). Signifi-     dations. This applies to the proposal to
    cant savings are also scored for transportation        maximize grant funds from the federal
    funding proposals which include seeking higher         government, as well as the proposal to
    federal taxes on fuels containing ethanol,             seek a higher federal tax rate on fuels
    changes in enrollment cutoff dates for kindergar-      containing ethanol (which would result
    ten, biennial vehicle registration (mostly one-        in added transportation-related distribu-
    time revenues from the acceleration of fees paid       tions to California). California has long
    by motorists), increased lottery sales, and            argued for additional federal grants to
    increases in college and university tuition for        recognize such factors as its higher-than-
    out-of-state residents.                                average poverty levels and its higher-
        Savings Overstated. In many instances, the         than-average costs associated with illegal
    CPR was conservative in scoring savings from its       immigration. However, significant in-
    individual proposals—acknowledging that actual         creases in federal funds would require
    savings, while likely, simply could not be esti-       changes in federal funding formulas, with
    mated. However, in other instances, the CPR            potentially negative implications for
    scored savings that are uncertain or overstated.       other states. California is already lobby-
    This is especially the case with regard to many
    of the proposals with the
    largest identified savings       Figure 1
    shown in Figure 2.
                                     CPR Estimate of Savings From Its Proposals
    Specifically, we found
    that:                            (In Billions)
       ➢ Many of the
         Proposals Not           9           Other Funds

         Fully Developed.        8           General Fund
         This is particularly
         the case for the
         third proposal in
         Figure 2, where         5

         the CPR scores          4
         over $3 billion in
         savings from the        2

         development of          1
         an as-yet unspeci-
         fied workforce                2004-05       2005-06       2006-07        2007-08       2008-09

6                                                           L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                                         AN LAO REPORT

         ing Congress for increased federal taxes                                         information technology systems is one
         on fuels containing ethanol. It is not                                           such example.
         clear how the process change recom-
                                                                                ➢ Savings From Similar Proposals Have
         mended by CPR will result in the
                                                                                  Already Been Adopted in the 2004-05
         report’s assumed level of federal funds.
                                                                                  Budget. This is the case for the tax
     ➢ The Potential Savings Are Beyond What                                      amnesty, surplus property, nonresident
       Is Reasonably Achievable. This applies                                     student fee, and several corrections
       to several proposals involving consolida-                                  proposals.
       tions of eligibility determination and
                                                                                Taking into account these factors, we believe
       procurement processes, lottery savings,
                                                                            that a more realistic savings assumption attribut-
       and the proposed tax relief for new
                                                                            able to state actions would be less than one-half
       business equipment investment.
                                                                            of the $32 billion shown. While any estimate of
     ➢ Offsetting Costs Not Consistently                                    savings is highly uncertain, we believe that a
       Recognized. This is the case for many                                more reasonable cumulative estimate for all
       proposals which would require an initial                             funds over the next five years would be roughly
       expenditure of funds in order to realize                             $10 billion to $15 billion. In annual terms, this
       future savings. Implementation of new                                translates into $3 billion or less per year, divided

 Figure 2
 Fifteen CPR Proposals With Largest Fiscal Effects
 (CPR Estimates, Dollars in Millions)

                                                                                                     Five-Year Savings             Cumulative
            CPR                                                                                                                    Percent of
 Rank     Reference                                 Issue                                 General Fund Other Funds        Total      Total

 1       GG 07        Maximize Federal Grant Funds                                              —         $8,200          $8,200      26%
 2       HHS 01       Transform Eligibility Processing                                      $1,548         2,471           4,018      39
 3       SO 43        Work Force Plan for California State Employees                         1,646         1,646           3,293      49
 4       ETV 11       Change Enrollment Entry Date for Kindergartners                        1,880           820           2,700      58
 5       INF 15       Transportation Funding Initiatives                                        —          1,960           1,960      64
 6       GG 36        Biennial Vehicle Registration                                          1,259            —            1,259      68
 7       GG 06        Lottery Reforms                                                           —          1,024           1,024      71
 8       ETV 18       Increase College and University Tuition for Non-Resident Students         —          1,004           1,004      74
 9       SO 71        Performance-Based Contracting                                            485           485             970      77
 10      SO 72        Strategic Sourcing                                                       427           427             855      80
 11      INF 30       Decentralize Real Estate Services                                        410           410             819      83
 12      INF 13       Relinquish Highway Routes to Local Agencies                               —            432             432      84
 13      GG 01        Tax Amnesty                                                              384            15             399      85
 14      INF 11       Selling Surplus Property Assets                                          379            —              379      86
 15      GG 17        Tax Relief on Manufacturing Equipment                                    343            —              343      88
                      All Other CPR Proposals                                                2,029         1,921           3,950     100

                         Totals, All CPR Proposals                                         $10,791      $20,815          $31,606     100%

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                                                               7
                                            AN LAO REPORT

    roughly evenly between the General Fund and          the existing system and (2) there is a convincing
    other funds. Regarding the revised General Fund      reason to believe that the new system will
    total, nearly one-half of the savings would be       address the problem and, more generally,
    attributable to a single proposed change—the         enable the state to provide services more
    delay in the enrollment entry date for kindergart-   efficiently and effectively. We believe there are a
    ners who are less than five years old at the         number of areas that the CPR has identified
    beginning of the school year.                        where these fundamental criteria may apply. For
          Our lower overall savings estimate does not    instance, in the health area, the proposed
    make the goals or proposals offered by the CPR       centralization of a number of public health
    any less valid. The state would clearly benefit      programs could improve their effectiveness.
    from changes that enhance workforce productiv-            Yet, in many other areas, the reorganization
    ity, improve and streamline services, and reduce     plan lacks a strong rationale. As we discuss in
    inefficiencies in government—even if the savings     more detail in “Section 2,” among the problems
    were only a fraction of the CPR estimates. At the    we identify are:
    same time, it is important to recognize that even       ➢ The reorganization proposal often lacks
    if all the CPR’s recommendations were adopted,            sufficient detail to evaluate whether a
    the fiscal savings would only cover a relatively          proposed consolidation would improve
    small portion of the large structural shortfall           state government.
    facing California’s budget in the future. Stated
    another way, even if the proposals were                 ➢ In some cases, functions are proposed to
    adopted, the state will continue to face hard             be joined that are not particularly
    choices regarding program funding levels and              compatible.
    taxes in order to balance its future budgets.
                                                            ➢ In some cases, existing departments are
    ISSUES   AND    CONSIDERATIONS                            divided—with their component functions
                                                              distributed among several new depart-
        The CPR has developed an impressive list of
                                                              ments. This may create new coordina-
    proposals in a relatively short timeframe, which
                                                              tion problems.
    provides the state with a valuable opportunity to
    examine many aspects of how it does business.           ➢ By moving to mega-departments which
    At the same time, the report raises a large               would have wide-reaching responsibili-
    number of important policy issues which need              ties, the CPR risks making departments so
    to be considered.                                         large that they become unmanageable.

    Does a Massive Reorganization                           ➢ The proposed reorganization would
    Make Sense?                                               result in significant implementation
        California’s past successes and failures with         costs, particularly in the short term. In
    reorganization plans strongly suggest that                many cases, the fiscal estimates of the
    reorganizations should be undertaken only                 CPR do not take into account these
    when (1) there is a clearly defined problem with          expenses.

8                                                            L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

    Given these concerns, we recommend that             significant consideration in the context of the
the Legislature not focus its attention on the          CPR’s proposed reorganizations. As noted in
large-scale statewide reorganization that the           “Section 2” and “Section 3” of this report, the
CPR envisions. Instead, the Legislature should          future roles of the Superintendent of Public
seek out more specific opportunities to pursue          Instruction and the BOE—two constitutionally
consolidations on a smaller scale. Many of the          created entities—are left somewhat undefined in
current problems that CPR identified could be           the context of the restructured government
solved with simpler solutions. A combination of         proposed by the CPR.
limited consolidations and other types of solu-             Addressing these more fundamental issues
tions (such as improved leadership, policy              may have been beyond the scope of what the
changes, better coordination between depart-            CPR believed was its mission, especially given
ments, interagency agreements, and cross-               the relatively limited time it had to complete its
departmental training) offers a better chance of        review. However, the lack of reforms in these
improving the effectiveness of state government         areas inherently limits the amount of improve-
while limiting the risks involved.                      ment in governmental services that can be
                                                        achieved through the CPR.
Should the Scope of Reforms                                 For example, while some of the CPR propos-
Be Broadened?                                           als may improve efficiency and coordination of
     The CPR’s proposals encompass a broad              state functions, citizens may continue to be
range of issues. However, there are a number of         faced with the fragmentation of services be-
fundamental issues that were not considered in          tween state and local governments. Similarly,
the analysis. For example, while the CPR reorga-        while the creation of a new tax commission may
nization plan regroups and consolidates a vast          result in some added efficiencies in the collec-
number of existing functions of state govern-           tion and auditing of certain taxes, the exclusion
ment, the CPR does not examine the more                 of the BOE from the consolidation means that
fundamental question of which functions should          the state’s two largest taxes—the personal
continue to be provided by the state. In addi-          income tax and sales tax—will continue to be
tion, although the CPR presents a modest                administered by separate agencies. To address
realignment proposal, the report does not compre-       these issues, the Legislature may wish to
hensively address the state-local system of service     broaden the scope of reforms it considers.
delivery. Similarly, while including a single tax
incentive proposal, the CPR does not examine            What Is Next?
California’s overall system of state and local taxes.        The release of the CPR is intended to be a
     Finally, while the plan proposes specific          first step in a dialog on governmental reform. Its
changes to the Constitution as it relates to            specific proposals have not yet been embraced
transportation and a biennial budget, it does not       by the administration. Rather, the Governor has
address many other constitutional issues, such          directed the CPR commission to hold public
the role of constitutional officers and agencies in     hearings to seek input on the report’s recom-
the restructured government. The latter is a            mendations.

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                            9
                                             AN LAO REPORT

          Ultimately, the reorganization plan could be       ➢ Key Policy Tradeoffs. As noted earlier,
     proposed by the Governor through the specific             some of the CPR proposals would
     reorganization process provided for in state law          involve significant changes in state
     (and discussed in “Section 2”). Some of the               policies in the areas of education,
     other recommendations—such as those requiring             environmental regulation, and transpor-
     departments to develop performance mea-                   tation funding, which would need to be
     sures—could be implemented administratively by            weighed by the Legislature.
     the Governor. Other recommendations could
                                                             ➢ Oversight and Control. Some of the
     be included in the Governor’s 2005-06 or later
                                                               proposals would significantly reduce
     budgets, or proposed through separate legislation.
                                                               legislative oversight and control in key
          Thus, while some of the 1,200 CPR propos-
                                                               budget and policy matters. Examples
     als can be adopted administratively, many of
                                                               include the CPR’s proposal to eliminate
     them will require legislative approval in order to
                                                               numerous boards and commissions and
     be implemented. The merits of each proposal
                                                               its proposal to consolidate information
     would need to be weighed on its own. In
                                                               technology (IT) investments into a single
     “Section 3” we review some of the CPR’s key
                                                               “IT Investment Fund” which would
     proposals in major program areas and offer our
                                                               receive continuous appropriation of
     initial comments on them. Some of the recurring
                                                               state funds. Along similar lines, some of
     issues raised by our analyses are:
                                                               the proposed changes to the education
        ➢ More Details Needed. While many of
                                                               governance structure would have im-
          the more modest proposals are highly
                                                               pacts on state versus local control
          detailed, many major proposals are less
                                                               regarding community college spending.
          so. Also, the fiscal estimates associated
          with many of the proposals—including                For these reasons, it will be important for the
          their start-up costs—have not been              Legislature to weigh the merits of each pro-
          developed. As specific proposals are put        posal—taking into account its fiscal effects, its
          before the Legislature, these details will      policy implications, and whether it represents
          need to be included in order to be able         the most effective way of achieving the funda-
          to measure the proposals’ true costs and        mental goals of state government.

10                                                            L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

    One of the major components of the CPR          oversight roles in a particular policy area. Under
report is a reorganization of the state’s depart-   an agency’s supervision, departments imple-
ments, agencies, boards, and other entities.        ment programs. For instance, the Department of
Below, we describe this reorganization plan and     Financial Institutions (DFI) regulates banks and
then provide some of our initial observations.      credit unions under the guidance of the Busi-
                                                    ness, Transportation, and Housing Agency. The
PRINCIPLES OF THE                                   core of the CPR reorganization is the creation of
CPR REORGANIZATION                                  11 large, mega-departments. The proposed 11
    The CPR report puts forth two principles        departments are listed in Figure 3 (see next
that are at the center of its approach to reorga-   page). These mega-departments—called “depart-
nizing state entities:                              ments” by CPR—would merge the policy-setting
   ➢ Programs Should Be Aligned by Func-            function of agencies with the program adminis-
     tion. The report attempts to combine           tration function of departments.
     entities that work in the same policy               In most cases, these new departments
     area or provide similar services. This         would represent the merger of several existing
     approach aims to eliminate duplication         departments. For instance, both DFI and the
     and improve the performance of state           Department of Corporations would merge as a
     programs.                                      new Financial Services Division within the
                                                    proposed Commerce and Consumer Protection
   ➢ Administrative Services Should Be              Department. Other divisions within the same
     Consolidated. In addition, the report          department would include most functions from
     aims to unify support services within          existing departments such as the Department of
     each new department such as human              Motor Vehicles (DMV) and the Department of
     resources, legal affairs, and purchasing—      Real Estate. In other cases, existing departments
     with the goals of greater efficiencies and     are divided—with their component functions
     achieving “economies of scale.”                distributed among several new departments. For
    In addition to these principles, the report     example, functions from the Department of Fish
also emphasizes improving customer service          and Game would be distributed to the Environ-
and ensuring that the best and most effective       mental Protection, Natural Resources, and Public
practices of individual departments are used        Safety and Homeland Security Departments.
throughout state government.                             Discontinuation of Many Boards and
                                                    Commissions. The state has hundreds of boards,
COMPONENTS OF THE                                   commissions, and task forces which serve a
REORGANIZATION                                      variety of roles—including administering grant
   Mega-Departments. Currently, the state is        programs, regulating industries, and providing
organized with both agencies and departments.       policy advice. These entities generally are
Agencies generally perform policy-setting and       governed by a board appointed by the Gover-

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                        11
                                                AN LAO REPORT

     nor, Legislature, or other state officials. Some         be replaced with ad-hoc advisors on an as-
     board members receive full-time salaries while           needed basis.
     many others only receive reimbursements for                  Other New Entities. In addition to the
     their travel and other expenses. The CPR identi-         creation of the mega-departments, the CPR
     fied 339 existing boards, commissions, and task          proposes to create several other new entities in
     forces across state government. The report               state government, including:
     recommends discontinuing 117 of these entities,              ➢ Office of Management and Budget. The
     including the Air Resources Board, State Lands                   state currently has a number of “control”
     Commission, Energy Commission, State and                         agencies which provide policy and fiscal
     Regional Water Quality Boards, Student Aid                       oversight to the state’s other entities. For
     Commission, Victims Compensation and Gov-                        instance, the Department of Finance
     ernment Claims Board, Board of Prison Terms,                     (DOF) is the state’s fiscal and budget
     and Youth Authority Board. For the majority of                   review department. Likewise, the De-
     these discontinuations, the CPR consolidation                    partment of Personnel Administration
     would move these entities’ activities under one                  (DPA) provides departments with ser-
     of the new mega-departments. In other words,                     vices related to state employment. The
     the government activity
     would continue but be
     governed by a depart-          Figure 3

     mental secretary, rather       CPR’s 11 Mega-Departments
     than an independent             Proposed Department                       Major Departments Transferred
     board. On the other             Commerce and Consumer Protection       Financial Institutions, Consumer Affairs,
     hand, the CPR would                                                      Motor Vehicles
                                     Correctional Services                  Corrections, Youth Authority, Board of
     eliminate both the                                                       Prison Terms, Office of Inspector
     function and the entity                                                  General
                                     Education and Workforce Preparation    Community Colleges Chancellor, Board
     in about four dozen                                                      of Education, Student Aid Commission
     cases. Most of these            Environmental Protection               Water Quality Control Boards, Air
                                                                              Resources Board, Pesticide
     entities entirely elimi-                                                 Regulation
     nated provide policy            Food and Agriculture                   Food and Agriculture
     advice to the state             Health and Human Services              Health Services, Social Services, Mental
                                                                              Health, Developmental Services, Child
     (such as the Rural                                                       Support
     Health Policy Council           Infrastructure                         Transportation, State Water Project,
                                                                              Energy Commission, Bay-Delta
     and the 911 Advisory                                                     Authority
     Board) rather than              Labor and Economic Development         Industrial Relations, Employment
     administer programs.            Natural Resources                      Conservancies, Fish and Game,
     The report notes that                                                    Forestry (Resource Management),
                                                                              Parks and Recreation
     the elimination of these        Public Safety and Homeland Security    Emergency Services, Highway Patrol,
     advisory boards could                                                    Forestry (Fire Protection)
                                     Veterans Affairs                        Veterans Affairs

12                                                                 L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

        CPR proposes to consolidate these              but suggests the use of a centralized performance
        types of entities into a single Office of      review team to coordinate any consolidations.
        Management and Budget (OMB). The                   The Reorganization Process. State law
        OMB would be responsible for oversight         provides a specific process for the Governor to
        on budgetary, state employment and             propose reorganizations to the Legislature. Since
        retirement, technology, and regulatory         1968, various Governors have submitted 29
        matters. Functions from DOF, DPA, the          reorganization plans through this process. The
        state’s data centers, Department of            Legislature approved 18 of these plans. Figure 4
        General Services, and the Office of            (see next page) lists these plans, and the box
        Administrative Law would be transferred        (see pages 18-19) provides a historical perspec-
        to the OMB.                                    tive on reorganizing state government as it
                                                       relates to the health and social services area.
   ➢ Tax Commission. The CPR proposes that
                                                           Figure 5 (see page 15) provides a sample
     the state’s principal tax collection agen-
                                                       timeline for the reorganization process. In total,
     cies be consolidated into the California
                                                       a reorganization plan can take 90 days to
     Tax Commission. The commission would
                                                       become effective. Among the key components
     include components of the Franchise Tax
                                                       of the process are:
     Board, Employment Development
                                                          ➢ Goals. State law encourages the Gover-
     Department, and DMV. The report,
                                                            nor to seek reorganizations which
     however, indicates that the Board of
                                                            reduce expenditures, increase efficiency,
     Equalization would be retained as an
                                                            and eliminate duplications of effort.
     independent agency.
    Some Entities Largely Unaffected. In some             ➢ Little Hoover Commission. As part of
areas, the CPR proposes few, if any, changes to             the process, the Governor submits any
existing department structures. For instance,               plans to the Little Hoover Commission
constitutional officers are left largely unaffected.        for review and public hearings. The
In addition, the Military Department would                  Commission has 60 days to report any
remain an independent entity outside of the                 findings to the Governor and the Legisla-
mega-department structure. The Departments of               ture.
Food and Agriculture and Veterans Affairs would
                                                          ➢ Civil Service Transition. Plans must
be elevated to mega-departments, but their roles
                                                            provide for the transfer of existing state
and responsibilities would remain largely un-
                                                            employees from their original depart-
                                                            ment to a new entity carrying out the
IMPLEMENTATION                                              same function.

   The report acknowledges that fully imple-              ➢ Legislative Review. The statute provides
menting its governmental reorganization is an               for a 60-day legislative review period and
“ambitious” undertaking. The report provides                calls for policy committees in each
few details on a timeframe for implementation               house to issue a report on a plan. A plan

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                           13
                                                  AN LAO REPORT

     Figure 4
     Previous Executive Branch Reorganization Proposals
     Year       Governor                                    Description                                        Outcome

     1968   Reagan         • Establish four agencies: Business and Transportation, Resources, Human          Approved
                             Relations, and Agriculture and Services.
     1969   Reagan         • Eliminate various boards and commissions and transfer some functions to         Approved
                             other departments.
                           • Change the names of the Department of Harbors and Waterways and the             Approved
                             Harbors and Watercraft Commission.
                           • Change staff titles and organization names in the Department of Professional    Approved
                             and Vocational Standards (DPVS).
     1970   Reagan         • Create the Department of Health and consolidate three departments.              Approved
                           • Change DVPS to the Department of Consumer Affairs.                              Approved
     1971   Reagan         • Change the names of some of the water quality control boards.                   Failed
                           • Eliminate the State Board of Drycleaners.                                       Failed
                           • Change the name of the Resources Agency to Environment and Resources            Failed
                             Agency and create the Department of Environmental Protection.
     1975   Brown          • Consolidate air, water quality, and solid waste programs into the               Failed
                             Environmental Quality Agency.
                           • Consolidate the Divisions of Labor Law Enforcement and Industrial Welfare       Approved
                             into the Department of Industrial Relations (DIR).
     1976   Brown          • Consolidate air, water quality, and solid waste programs into the               Failed
                             Environmental Quality Agency.
                           • Consolidate the Office of Alcoholism with the Department of Alcoholic           Failed
                             Beverage Control (ABC) and transfer ABC to the Health and Welfare Agency.
     1977   Brown          • Transfer functions from the Office of Narcotics and Drug Abuse to a new         Approved
                             Department of Health Services (DHS) and create an Advisory Council on
                             Narcotics and Drug Abuse.
     1978   Brown          • Transfer industrial safety and occupational health functions from DHS to DIR.   Approved
     1979   Brown          • Transfer employment functions from DIR to State and Consumer Services           Approved
                             Agency and create the Department of Fair Employment and Housing.
                           • Create new central agency for personnel administration.                         Withdrawn
                           • Create the Youth and Adult Correctional Agency.                                 Approved
     1980   Brown          • Transfer mobilehome functions to the Department of Housing and                  Approved
                             Community Development.
     1981   Brown          • Create the Department of Personnel Administration (DPA).                        Approved
     1984   Deukmejian     • Transfer position classification functions from State Personnel Board to DPA.   Approved
     1985   Deukmejian     • Create the Department of Waste Management, State Waste Commission,              Failed
                             and three regional waste boards.
                           • Create a cabinet-level Department of Waste Management.                          Failed
     1991   Wilson         • Create the Environmental Protection Agency and transfer several                 Approved
                             departments and functions into the new agency.
     1995   Wilson         • Reorganize the California Energy Commission.                                    Failed
                           • Consolidate the State Police with the California Highway Patrol.                Approved
                           • Consolidate the State Fire Marshal with the Department of Forestry and Fire     Approved
     1998   Wilson         • Eliminate the Department of Corporations, create the Department of              Failed
                             Managed Care, and rename the Department of Financial Institutions.
     2002   Davis          • Create the California Labor and Workforce Development Agency and                Approved
                             transfer several departments into the new agency.

14                                                                     L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                                     AN LAO REPORT

         goes into effect after the 60-day period                           Opportunities for Greater Efficiencies Exist,
         unless the Legislature takes action to                        But More Details Needed. Consistent with the
         reject it. Either house can reject a plan                     CPR, we believe that many aspects of state
         by passing a resolution by a majority                         government’s organization can be improved.
         vote. The vote is “yes” or “no”—the plan                      Our initial review of the CPR’s consolidation
         cannot be amended by the Legislature.                         proposal finds that the report has correctly
                                                                       identified some good candidates for consolida-
LAO COMMENTS/KEY                                                       tion. For instance, in the health area, the pro-
CONSIDERATIONS                                                         posed centralization of a number of public
                                                                       health programs could improve their effective-
     In reviewing the CPR reorganization plan,
                                                                       ness. Likewise, the merger of the Departments
there are many considerations for the Legisla-
                                                                       of Mental Health and Alcohol and Drug Pro-
ture. Figure 6 (see next page) lists some of the
                                                                       grams could allow the state to better coordinate
criteria that we would suggest the Legislature
                                                                       services to those dually diagnosed patients who
use in evaluating any proposed reorganization.
                                                                       are currently served by both departments. At
Below, we outline some additional consider-
                                                                       this stage, however, the reorganization proposal
ations specific to the CPR and offer our initial
                                                                       often lacks sufficient detail to evaluate whether
comments on the proposed reorganization.
                                                                       a proposed consolidation would improve state
Later in this report, we provide more program-
                                                                       government. Until the full details of a proposed
specific comments on some of the more signifi-
                                                                       reorganization are put forth, drawing conclusions
cant components of the reorganization.
                                                                       about many of CPR’s suggestions is difficult.

  Figure 5

  Timeline for Reorganization Plansa

         0                                  30                                       60                    80              90

        Governor                    Governor submits                         Little Hoover    Legislative policy     Plan becomes
        submits                    reorganization plan                       Commission       committees issue      effective unless
     reorganization                  to Legislature.                       issues report on       reports.         either the Senate
       plan to: (1)                                                               plan.                               or Assembly
       Legislative                                                                                                      passes a
       Counsel for                                                                                                     resolution
   statutory drafting                                                                                               rejecting it by a
      and (2) Little                                                                                                 majority vote.
   Hoover Commis-
    sion for review.

  a Pursuant to Government Code Sections 8523 and 12080 through 12081.2.

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                                                       15
                                                  AN LAO REPORT

          Reshuffle or Change the Scope of Govern-                      Possible Unintended Consequences. We
     ment? For the most part, the CPR reorganization               recognize that any proposed overhaul of state
     is a reshuffling of existing state activities. Examin-        government on the scale of CPR would invite
     ing the organization of government services is a              many questions regarding why certain entities
     necessary and important task. It is not always                are proposed to be placed in one department
     clear, however, that CPR asked a more funda-                  versus another. In many instances, reasonable
     mental question—should the state continue to                  minds can differ over in which location a pro-
     perform its current functions and provide its                 gram would be most effective. That said, our
     current services? As such, the reorganization                 initial review raised some concerns with a
     plan may have missed the opportunity to rethink               number of CPR’s choices. The full implementa-
     what level of government should be responsible                tion of the CPR reorganization could lead to
     for each service or if certain government ser-                some unintended negative consequences. The
     vices are still necessary.                                    examples noted below are illustrative that the
          Is Changing the
     Organizational Struc-
     ture the Solution? As            Figure 6
     noted above, some of             Criteria for Considering the
     the proposed consoli-            Merits of a Reorganization Proposal
     dations offer promise
     to improve the quality
                                       As the Legislature considers the CPR and other future reorganization proposals, it
     of government ser-                may want to consider the following questions to help determine a proposal’s
     vices. In other cases,            merits.

     there may be more                       Effectiveness. Would the reorganization make the programs more
     simple solutions to a                   effective? Would the public receive better services as a result of the
     massive reorganization.
                                             Accountability. In the current and the new structures, who is responsible
     For instance, to increase
                                             for the program’s outcomes? Is the new structure likely to improve
     coordination between                    program accountability?
     two departments,
                                             Oversight. Will the new structure provide for effective, independent
     interagency agreements                  oversight by the executive and legislative branches?
     could be developed in
                                             Efficiency. Would the reorganization improve the use of limited
     place of a full merger. In              resources? Are there reasons to believe that the programs can be
                                             administered more efficiently? Do existing programs exhibit duplication of
     addition, the administra-               effort or lack of coordination?
     tion could use cross-
                                             Other Options. What is the problem that is being addressed? Is a
     departmental training to                reorganization the best approach to solve that problem? Could improved
     spread those manage-                    leadership, changes in policy, better coordination between departments,
                                             or other solutions provide a better result?
     ment and other prac-
     tices it has identified as              Implementation. Do the expected long-term benefits outweigh the short-
                                             term costs and disruptions from the implementation of the reorganization?
     particularly effective.                 Will the public experience a disruption in services? Does the
                                              implementation need to occur now, or can it be phased in over time?

16                                                                    L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

Legislature will need to carefully examine each              coordination problems. For example, the
consolidation component in detail.                           DMV’s investigators, who focus on
   ➢ Functions May Not Be Compatible. In                     identity theft and fraud, would be sent to
        its reshuffling of state departments, the            the Public Safety and Homeland Secu-
        CPR in some cases may have joined                    rity Department and separated from the
        functions that are not particularly com-             rest of the department. As a result, these
        patible. For example, the CALFED Bay-                investigators could become discon-
        Delta Program (overseen by the Califor-              nected from the DMV field offices that
        nia Bay-Delta Authority) is designed to              can often help prevent such problems
        approach the Delta from a variety of                 from developing in the first place.
        resource protection perspectives. By
                                                         ➢ Mega-Departments May Become
        moving the authority from the current
                                                             Unmanageable. By moving to mega-
        Resources Agency to the new Infrastruc-
                                                             departments which would have wide-
        ture Department, the CPR could shift the
                                                             reaching responsibilities, the CPR risks
        program’s focus towards water infrastruc-
                                                             making departments so large that they
        ture issues and away from other re-
                                                             become unmanageable. In particular,
        sources issues. Such a shift would
                                                             some of the mega-departments would
        represent a significant policy choice for
                                                             have such expansive goals, missions, and
        the Legislature. In addition, the CPR
                                                             “span of control” that they may find it
        proposes to integrate the Department of
                                                             difficult to administer their day-to-day
        Managed Health Care (DMHC) with other
        health programs within the new Health
        and Human Services Department. These              Missed Opportunities. While the CPR
        other health programs contract for services   reorganization affects most state entities, the
        with health maintenance organizations         Legislature should not consider the plan an
        (HMOs). These are the same HMO                exhaustive list of possibilities. In some areas,
        entities that the DMHC regulates. By          there appears to be additional room for consoli-
        having a single department regulate and       dations to improve state government. For
        conduct business with HMOs, there is a        instance, by keeping the Department of Veter-
        potential for conflicting goals.              ans Affairs outside of most of the reorganization
                                                      plan, CPR may not have considered the option
   ➢ Possibility of Creating New Coordina-            of merging the veterans’ homes with the state’s
     tion Problems. In some cases, the CPR            other 24-hour care facilities. Similarly, CPR
     proposes to divide current departments           aimed to consolidate all education programs
     and send their various components to             within the Education and Workforce Preparation
     multiple mega-departments. In doing so,          Department. Yet, the CPR maintains the existing
     the CPR aims to better align various             roles and responsibilities of the Superintendent
     functions. The splintering of existing           of Public Instruction (SPI). Maintaining the
     departments, however, could create new           overlapping responsibilities of the SPI and other

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                         17
                                               AN LAO REPORT

     education administrators represents a missed               ➢ Boards can include experts in the policy
     opportunity to repair a central governance issue             field and offer a variety of policy per-
     in K-12 education.                                           spectives.
         Considering the Merits of Independent
                                                                ➢ Boards may offer more independent,
     Boards. The CPR reorganization emphasizes a
                                                                  forward-thinking proposals than might
     transition away from independent boards and
                                                                  be typical from a state department.
     commissions and towards executive program
     management. In evaluating these types of                   ➢ Board meetings are more open to the
     decisions, the Legislature should consider both              public than the department decision-
     the benefits and drawbacks regarding the use of              making process.
     independent boards. Among the benefits of
     independent boards are:

        Reorganizations: Then and Now
             Reorganizing state government by consolidating departments, or breaking them apart, is
        not new. One of the major differences between prior reorganizations and the CPR proposal is
        its sheer scope. Previous reorganization proposals have focused on a limited number of
        related departments and programs. These have included, for example, combining labor and
        employment departments under one agency in 2002; placing various environmental depart-
        ments under one agency in 1991; and merging health and certain social services programs
        into a single department in 1970. The CPR proposal, by contrast, envisions a reorganization of
        the entire state government, involving virtually every state department and generally consoli-
        dating them into larger state entities.

        Health and Social Services Experience
            Consolidation of Departments in 1973. The CPR’s proposal to reorganize health and
        social services departments into one mega-department is similar—but larger in scope—to one
        adopted by the Legislature and then subsequently disbanded in the late 1970s. In 1970,
        Governor Reagan proposed the creation of a unified Department of Health in order to im-
        prove the integration of health and related programs, reduce program fragmentation, and
        further program coordination. In submitting his reorganization plan to the Legislature, Gover-
        nor Reagan noted: “The Plan that I am submitting to you will enable us to eliminate much of
        the fragmentation that exists in such fields as mental retardation, alcoholism, and facilities
        licensing. . . . It will encourage integration of health and related services, replacing the present
        system under which the consumer must find his way through a maze of uncoordinated services.”

18                                                               L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

   ➢ The Legislature often has the ability to             ➢ A department can often shuffle re-
     oversee a board’s management through                   sources among multiple programs as
     the nomination approval process. In                    dictated by workload. In contrast, since
     other cases (such as the High Speed Rail               they administer individual programs,
     Authority), the Legislature has the author-            boards typically do not have the same
     ity to appoint board members directly.                 degree of flexibility.

   On the other hand, independent boards also             ➢ Boards may have difficulty in coordinat-
may have some disadvantages, including:                     ing their work with state departments
   ➢ Boards may cost more to operate, due to                when their program responsibilities
     the salaries and associated costs of                   overlap. When programs all report to the
     board members.                                         same director under a single depart-
                                                            ment, coordination may improve.

       In response to Governor Reagan’s proposal, the Department of Health was created
   effective July 1, 1973 by combining the former Departments of Mental Hygiene, Public Health,
   and Health Care Services together with the social service functions of the Department of
   Social Welfare. Among other programs, the new department was responsible for: Medi-Cal,
   public health, mental health, drug and alcohol, developmental disabilities, licensing and
   certification of health facilities, and various social services for welfare recipients. (The depart-
   ment was not responsible for providing welfare cash grants, which was assigned to a new
   Department of Benefit Payments.)
       Separation of Departments in 1978. For a variety of reasons, the unified Department of
   Health was unable to fulfill its promise, leading to the enactment of Chapter 1252, Statutes of
   1977 (SB 363, Gregorio), which created five new departments and one new office. In enact-
   ing Chapter 1252, the Legislature declared that it was separating the Department of Health
   into distinct departments in order “to increase individual program visibility, to improve pro-
   gram policy direction and to provide needed public accountability.” The new departments
   were Health Services, Social Services, Mental Health, Developmental Disabilities, and Alcohol
   and Drug Abuse. The new office was the Office of Statewide Health Planning and Develop-
       Implications for CPR Proposal. The fact that a large consolidated department did not
   work the last time around does not mean that the current CPR proposal to establish a consoli-
   dated Health and Human Services Department should be rejected automatically. Rather, it
   provides a cautionary warning that reminds the Legislature and administration that they will
   need to (1) determine whether there are any lessons to be learned from the state’s previous
   experience, and (2) assess how the new proposed reorganization meets their criteria for
   improving the delivery of state services.

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                         19
                                             AN LAO REPORT

         Unknown Implementation Costs. The                nullifying most of the savings for the first year.
     proposed reorganization, if implemented, would       While these types of implementation costs
     result in significant implementation costs,          typically do not provide sufficient justification
     particularly in the short term. In many cases, the   on their own to dismiss a proposed reorganiza-
     fiscal estimates of the CPR do not take into         tion, the Legislature should be aware of them in
     account these expenses, such as the costs for        making its decisions. This is particularly true in
     integrating data and budget systems and relocat-     the cases when the recommendations are being
     ing offices. As an example, the recent closing of    implemented primarily to generate budget
     the Technology, Trade, and Commerce Agency           savings.
     cost millions of dollars in shutdown expenses—

         This section discusses key CPR proposals in      cover a variety of policy areas. Seven of the
     major program areas. Given the number of             fourteen recommendations seek changes to
     recommendations included in the CPR report,          help the state department or school districts
     we have identified the recommendation by the         operate in a more cost-effective manner. Four
     number used in the report to the Governor            recommendations propose specific K-12 poli-
     (such as GG 05 referring to General Govern-          cies that are designed to help districts meet
     ment recommendation 5) to assist the reader. In      student needs more effectively. The remaining
     the case of criminal justice, CPR has incorpo-       three recommendations would make structural
     rated the recommendations of the Corrections         changes to the roles and responsibilities of state
     Independent Review Panel (CIRP) and we have          and county educational agencies.
     referenced chapter numbers in the CIRP as                Restructure the Role of the Secretary for
     appropriate. Following each programmatic             Education. The CPR proposes to expand the
     discussion is a figure summarizing the fiscal        role of the Secretary for Education by assigning
     effect, as estimated by CPR, for the key propos-     it policy and coordinating responsibilities as the
     als discussed. When the CPR could not make an        head of a new Department of Education and
     estimate, we have adopted its nomenclature of        Workforce Preparation (ETV 01). The recom-
     “cannot be estimated” (CBE) for consistency          mendation would place six existing state depart-
     purposes. We offer initial comments on the           ments under the Secretary, including the State
     major proposals to assist legislative consider-      Department of Education, California Community
     ation of these proposals.                            Colleges (CCC), California Student Aid Commis-
                                                          sion (CSAC), and Commission on Teacher
     K-12 EDUCATION                                       Credentialing. The Secretary would focus on
         The CPR makes 14 recommendations that            developing educational policy (pre-kindergarten
     affect K-12 education. These recommendations         through college), implementing higher educa-

20                                                            L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

tion policy, and aligning education with                   Regionalize K-12 Educational Infrastruc-
workforce needs. The Superintendent of Public          ture. The CPR proposes to eliminate county
Instruction (SPI) would remain an elected              superintendents and county boards of educa-
position.                                              tion from the State Constitution and, instead,
     LAO Comments. Reorganizing state govern-          statutorily create a system of regional superin-
ment with the aim of increasing system coher-          tendents and boards to provide services cur-
ence is a worthy goal. The Governor has little         rently administered by county offices of educa-
institutional capacity to plan and coordinate          tion (ETV 05). The report questions the need for
educational policies. In the social services area,     a county aligned structure, based on the num-
for instance, these functions are provided by the      ber and configuration of counties in California,
Health and Human Services Agency. The                  the number of counties with fewer than 6,999 K-
creation of the Secretary for Education ad-            12 students, and the variability of services
dressed this capacity issue to some extent.            provided by the different county offices.
Because many of the state’s educational agen-              LAO Comments. The report does not
cies report to independent boards or constitu-         discuss what role county offices—or regional
tional officers, however, the Secretary has little     agencies—should play in the provision of K-12
institutional leverage to ensure cooperation over      services. This is an important omission, as the
policy matters from these entities.                    structure of the service delivery system should
     The report, however, does not adequately          support the desired program objectives of the
address a central governance issue in K-12             system. Current law assigns a wide variety of
education. By maintaining the existing roles and       functions to county offices, including:
responsibilities of the SPI, the CPR recommen-            ➢ Direct student services (such as alterna-
dation fails to untangle overlapping responsibili-          tive education programs for expelled or
ties for policy making that are statutorily as-             probation-referred students).
signed to the elected SPI and the Governor-
appointed State Board of Education. In our 1999           ➢ Direct services to districts (such as
report, A K-12 Master Plan, we recommended                  accounting and payroll).
restructuring the SPI’s scope of responsibilities
                                                          ➢ Technical assistance to districts (educa-
to take advantage of the office’s independent
                                                            tional technology, for example).
voice to promote accountability and local
control. Under our master plan, the Secretary             ➢ State oversight functions (such as review
for Education would assume most program                     of district budgets and finances).
responsibilities currently administered by the
                                                           In general, we agree with the 1996 recom-
SPI. By creating complementary roles for the SPI
                                                       mendation of the California Constitutional
and the Governor, the Legislature could create
                                                       Revision Commission to make districts respon-
greater accountability for state K-12 policies and
                                                       sible for obtaining most services currently
take advantage of the independence of the SPI
                                                       provided by county offices from whatever
to represent the interests of districts and parents.
                                                       source is most efficient and effective. This would

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                           21
                                             AN LAO REPORT

     give districts more latitude to purchase the types   the fiscal and program incentives of districts.
     and levels of services that best meet each           Greater local flexibility can be afforded when
     district’s needs. In addition, it would strengthen   districts are clearly accountable for their decisions.
     district accountability for students who currently   A larger state role is needed when districts can shift
     are served in county office programs.                the consequences of local decisions to others.
           Such an approach would leave a relative             The report does not provide any details on
     handful of services that county offices or re-       how the performance contract would work.
     gional agencies would provide for the state. This    Without specifics on the proposed performance
     includes educational services for students           contract, however, we are unable to assess the
     residing in juvenile court, district budget and      merits of the CPR recommendation. Even with a
     fiscal review, and adjudicating student expulsion    well-specified contract, however, we are skepti-
     appeals and district reorganizations. We think       cal that combining all categorical funds into one
     county offices could effectively provide these       block grant makes sense. This is because restrict-
     services with appropriate state oversight. While     ing funding to specific uses is central to altering
     it is possible that regional agencies could func-    district incentives in some cases. This is not a
     tion at a lower cost, the size of the CPR’s esti-    fatal flaw—combining funds into several block
     mated savings—$18 million a year, or an average      grants (with appropriate accountability features)
     of $300,000 per county—are not large enough          does not significantly weaken the CPR’s ap-
     to justify the regional approach based solely on     proach. In fact, we made a very similar recom-
     cost savings.                                        mendation in our Analysis of the 2003-04 Budget
           Performance-Based Contracts. The CPR           Bill, where we encouraged creation of five block
     proposes to test whether distributing K-12           grants that combined funding from 62 programs.
     categorical support as part of a performance-        Each block grant focused on a broad K-12
     based contract between the state and K-12            program area (compensatory education, school
     school districts would provide greater local         improvement, etc.) and contained outcome
     flexibility and encourage districts to meet          measures designed to increase district account-
     student needs more effectively (ETV 10). The         ability for services funded from the block grant.
     report finds the existing system of categorical           Change Kindergarten Enrollment Entry
     programs is “inequitable, ineffective, burden-       Date. The CPR proposes to change the kinder-
     some” and “focuses on spending rather than on        garten entry date (that is, the date by which a
     student outcomes.” It proposes a five-year pilot     child must have reached five years of age) from
     program in which categorical funds would be          December 2 to September 1. The CPR proposes
     merged into one block grant.                         to implement this change in 2005-06 (ETV 11).
           LAO Comments. The CPR’s emphasis on            The CPR estimates five-year savings from its
     flexibility (a block grant in lieu of individual     proposal of $2.7 billion. The date change would
     programs) in exchange for greater outcome            create two types of savings. First, the change
     accountability (through a performance contract)      would reduce the Proposition 98 minimum
     is an appropriate approach to reform. Categori-      funding guarantee by $1.88 billion over the five-
     cal reform requires understanding and improving      year period, resulting in savings to the General

22                                                            L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                            AN LAO REPORT

Fund. Second, an additional $820 million (about           the average cost of half-day preschool programs
$200 million annually) in savings within the              administered by the State Department of Educa-
Proposition 98 guarantee would be “freed-up”              tion, $200 million would be sufficient to fund an
and available for other K-14 purposes.                    additional 63,000 child care “slots” annually, or
     LAO Comments. In our view, actual Proposi-           about 65 percent of the displaced students.
tion 98 savings during the first year of imple-                Balance Career Technical Education and
mentation would be less than the CPR projects.            College Preparation in High Schools. The CPR
Many districts already are experiencing declin-           recommends strengthening high school voca-
ing elementary school enrollments, and state              tional programs by creating two paths to high
law allows one-year “hold-harmless” funding for           school graduation—one focused on admission to
districts experiencing enrollment reductions.             a four-year college or university and a second
     While we think the CPR proposal has merit,           that prepares students for employment or post-
several other issues warrant further discussion.          secondary vocational study (ETV 25). The report
The report bases its recommendation on studies            estimates that these changes would cost about
showing that students who are older when they             $300,000 annually.
enter kindergarten are more likely to succeed in               The report suggests two major changes to
school. It further notes that 38 states have              implement this recommendation. First, the CPR
kindergarten entry dates prior to California’s            recommends modifying the state law that
December date. Research on the merits of                  specifies the courses students must take to
changing the kindergarten entry date, however,            graduate from high school. Both the university
is more mixed than suggested by the report.               and career “pathways” would require students
     In addition, the report excludes any discus-         to take more core academic courses than
sion of the impact of the date change on school           existing law. The career pathway would require
districts and on families. The CPR’s proposal             students to take at least five vocational—or
presents difficult logistical issues for districts, and   career technical—courses. The university path-
magnifies the fiscal issues districts face from           way course requirements are consistent with the
declining student enrollment. If the change in            admissions criteria set by the University of Califor-
entry date is adopted, the Legislature should             nia (UC) and California State University (CSU).
consider giving districts flexibility to implement             Second, the report recommends including
the change in one year or to phase-in the                 career technical education in the state’s Aca-
change over a longer period (up to three years).          demic Performance Index (API). The API is part
     Changing the kindergarten entry date may             of the state’s accountability system and is used
also create additional demand for preschool or            to rank school and district performance based
child care for those students whose birth dates           on student test scores.
fall between September 1 and December 2. The                   LAO Comments. Vocational education is an
Legislature could choose to redirect all or part of       important part of secondary education. For
the $200 million annual Proposition 98 savings            many students, high school is their last formal
to provide child care for children displaced by           educational opportunity. Moreover, many
the change in the kindergarten entry date. Using          college students work while in school. Voca-

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                                 23
                                                 AN LAO REPORT

     tional education can give an advantage to both             academic skills required of university students.
     groups of students in the labor market. It is not a        Reinvigorating vocational education is part of
     cure-all remedy, though, and the CPR may                   the solution to these problems—and the CPR
     overstate the benefits from its proposed recom-            recommendations warrant consideration. By
     mendations. A 2004 federal report on voca-                 themselves, however, it is unlikely that altering
     tional education, for instance, concluded that             the “seat time” requirements for high school
     typical vocational education courses have no               graduation will achieve the report’s goal. In
     effect on academic achievement, little or no               addition, school districts would likely experience
     effect on graduation rates, and only a modest              significant mandated costs to restructure local
     increase in post-graduation earnings (due to higher        course offerings. These costs would be sup-
     levels of employment, not higher earnings).                ported with Proposition 98 funds, and therefore
         High schools face tremendous challenges. A             would not increase state General Fund costs.
     large proportion of entering 9th grade students
     are ill prepared or motivated to engage in a               HIGHER EDUCATION
     rigorous high school education. Another large                  The CPR recommendations concerning
     percentage of students enroll in college despite           higher education generally involve a major
     the fact they have not achieved the minimum                proposal to consolidate various higher educa-

      Figure 7
      Major K-12 Recommendations
                                                                                                     CPR Five-Year
       CPR                                                                       CPR 2004-05          Cumulative
       Reference                   CPR Recommendation                            Fiscal Effect        Fiscal Effect

      ETV 01        Restructure the Role of the Secretary for                 None               None
                    Education—Strengthen the role of the Secretary in
                    developing and coordinating K-12 education, higher
                    education, and workforce preparation policies.
      ETV 05        Regionalize K-12 Educational Infrastructure—              None               Savings of
                    Replace county offices of education with regional                            $45 million
                    agencies.                                                                    Proposition 98
      ETV 10        Establish Performance-Based Contracts Between             CBE                CBE
                    State and K-12 School Districts—Test whether
                    providing categorical funds as part of performance-
                    based contracts improves student outcomes.
      ETV 11        Change Enrollment Entry Date for                          None               Savings of
                    Kindergartners—Enroll in kindergarten only children                          $820 million
                    who reach age 5 by September 1.                                              Proposition 98
                                                                                                 $1.9 billion
                                                                                                 non-Proposition 98
      ETV 25        Balance Career Technical Education and College            Costs of           Costs of
                    Preparation in High Schools—Alter graduation and          $100,000           $1.7 million
                    accountability policies to strengthen high school         Proposition 98     Proposition 98
                    vocational education programs.

24                                                                      L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

tion agencies and various proposals concerning           Three of the agencies to be consolidated
student enrollment and higher education finance.     (CPEC, CSAC, and CCC Chancellor’s Office) are
                                                     currently governed by boards or commissions
Organizational Structure                             that are appointed by the Governor and the
     Consolidation of Higher Education Agen-         Legislature. It is unclear what role, if any, those
cies (ETV 03). One of the most significant           boards and commissions would retain under this
structural changes proposed for higher educa-        proposal.
tion is to consolidate the Chancellor’s Office of        While the Legislature has in recent years
the CCC, the California Postsecondary Educa-         expressed interest in reorganizing the agencies
tion Commission (CPEC), CSAC, and the Bureau         targeted by this CPR proposal, there have been
for Private Postsecondary Education (BPPE) into      no significant efforts to combine higher educa-
a single, unified “ Higher Education Division.”      tion agencies that perform statewide functions
The division would be led by a Deputy Secre-         with an office that governs a public segment of
tary for Education, appointed by the Governor        higher education. It is unclear why the CCC
and reporting to the Secretary for Education.        Chancellor’s Office was included as part of the
The division would be responsible for strategic      CPR’s proposed consolidation, especially when
planning and policy coordination among the           the other two public segments (the UC and the
four consolidated entities. This recommendation      CSU) were not included. At the same time, the
is expected to result in annual savings of about     report raises important questions about the
$1.5 million in General Fund support and             structure and function of CCC’s Chancellor’s
another $1.5 million in special funds, largely due   Office and the Board of Governors to which it
to the elimination of staff positions.               currently reports. This topic has also been raised
     LAO Comments. Parts of this recommenda-         by the Joint Committee to Develop a Master
tion have been proposed before or are being          Plan for Education and other legislative commit-
considered in legislation. For example, in the       tees and Members.
2003-04 May Revision the previous administra-
tion had proposed the consolidation of CPEC          Modifying Policies Concerning
and CSAC. Although that budget-related pro-          Student Enrollment
posal was rejected by the Legislature, the               The CPR report includes a number of
Legislature considered a bill (AB 655, Liu) that     proposals affecting student enrollment. Major
would have consolidated CPEC, CSAC, and              recommendations include:
BPPE into a single entity. All provisions relating       CCC Concurrent Enrollment (ETV 08) and
to that consolidation, however, were amended         Enrollment Priorities (ETV 19). The CPR report
out of AB 655 in July 2004. Other legislation,       proposes various policy changes concerning the
some of which was pending at the time this           enrollment of high school students at commu-
report was written, would make significant           nity colleges. The CPR proposal would both
changes to the structure of and mission of CPEC      remove some limitations on concurrent enroll-
and CSAC, and would extend the BPPE beyond           ment (such as the requirement for high school
its current 2005 sunset date.                        permission to be granted) and impose some

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                          25
                                              AN LAO REPORT

     new ones (such as limiting the number and type             Increase Nonresident Tuition (ETV 18). The
     of student concurrent enrollments).                   report recommends that nonresident students at
          In a separate recommendation (ETV 19), the       all three segments be charged tuition that is
     report calls on CCC to adopt enrollment priori-       45 percent higher than the 2003-04 level.
     ties that would give preference to students who            Contract Out CSAC’s Loan Guarantee
     have not taken an “excessive” number of units,        Function (ETV 22). The CPR report calls for
     ensuring that limited course spaces be available      CSAC to contract with a private entity to per-
     to newer students who have not yet made               form CSAC’s federally imposed administrative
     extensive use of higher education opportunities.      obligations concerning student loan guarantees.
          Facilitating Student Transfer (ETV 15). The      It would also seek legislation to permit EdFund
     CPR report proposes the development of lower          to compete as a provider of student loan guar-
     division, general education, and major require-       antee services.
     ments that would be common to all public                   LAO Comments. In recent publications we
     universities. Such standardization would be           have recommended reforms to the state’s
     intended to help students transfer among the          financial aid programs and the adoption of a
     various segments and campuses of higher educa-        long-term student fee policy. We believe that,
     tion without facing varying course requirements.      because fees and various financial aid programs
          LAO Comments. The objectives of the              are interlinked, modifications to individual
     above proposals merit legislative consideration.      elements of these programs should be consid-
     In general, there is a need to better ensure that     ered in the broader context of affordability and
     students are enrolling in appropriate classes         access.
     consistent with their educational objectives and           As regards the recommendation to raise
     that the entire higher education system is            nonresident tuition 45 percent above the
     sufficiently integrated and coordinated.              2003-04 level, we note that for 2004-05, non-
                                                           resident tuition at UC and CSU increased
      Modifying Policies Concerning                        20 percent above the 2003-04 level. Concerning
     Fees and Financial Aid                                the proposed changes to the Cal Grant pro-
         The CPR report makes a number of recom-           grams, it is unclear what would happen to the
     mendations concerning student financial aid,          nonfee (subsistence) portions of the Cal Grant B
     student fees, and tuition. Major proposals include:   awards. Specifically, would students still receive
         Cal Grant Programs (ETV 16). The CPR              funding to help cover related costs such as
     report recommends that portions of the existing       books and housing?
     Cal Grant program (which provides funds to
     students for fees and other higher education          Other Major Proposals
     expenses) be replaced with a fee waiver program          The CPR report makes a number of other
     at UC and CSU. Administration of Cal Grant            proposals concerning higher education, the
     awards for community college students would also      most significant of which are identified below.
     be decentralized to the CCC campuses.                    Higher Education Accountability (ETV 21).
                                                           The report recommends that the Governor set

26                                                             L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

clear statewide goals and expectations for                 ability requires the development of outcome
higher education through an executive order. It            standards. In California, there has as yet been
further calls for the development of “an enforce-          little progress in developing such standards.
able state-level accountability system” to foster          Pending legislation (SB 1331, Alpert) would
progress on those goals.                                   create a higher education data system to track
     Permit CCC to Offer Baccalaureate De-                 higher education performance using selected
grees (ETV 23). The CPR report recommends                  outcome measures. The CPR report recom-
that a pilot program be developed that allows              mends the Governor support the concepts
certain community colleges to offer baccalaure-            contained in this bill, which might serve as a
ate degrees, with the goal of increasing opportu-          starting point for an accountability structure.
nities for students to earn such degrees.                        The proposal to permit community colleges
     Modify CCC’s Full-Time Faculty Require-               to offer baccalaureate degrees runs counter to
ment (ETV 27). The CPR report recommends                   state law and the state Master Plan for Higher
that career-technical courses be excluded from             Education, which assigns CCC the role of
the statutory requirement that full-time faculty           offering lower-division instruction to students,
constitute at least 75 percent of community                who then may wish to transfer to a university to
colleges’ faculty.                                         earn a baccalaureate degree. State law assigns
     LAO Comments. Accountability measures                 to CCC a variety of other responsibilities as well,
and mechanisms in recent years have been                   such as vocational education, remedial educa-
developed for K-12 systems nationwide. This                tion, and local economic development. Consid-
trend is now beginning to extend to higher                 eration of this proposal raises broader issues of
education. As a first step, promoting account-             the Master Plan’s basic division of responsibility

 Figure 8
 Major Higher Education Recommendations
                                                                                         CPR Five-Year
  CPR Reference               CPR Recommendation             2004-05 Fiscal Effect    Cumulative Fiscal Effect

 ETV 03                  Consolidation—Consolidate         None                      Savings of
                         selected state higher education                             $5.3 million General Fund
                         agencies.                                                   $5.3 million special funds
 ETV 08                  Student Enrollment—Modify         None                      Savings of
 ETV 15                  policies concerning student                                 $175 million Proposition 98
 ETV 19                  enrollment.                                                 Unknown General Fund

 ETV 16                  Fees/Financial Aid—Modify         Savings of                 Savings of
 ETV 18                  policies concerning               $5.6 million Student Loan $32 million Student Loan
 ETV 22                  fees and financial aid.            Operating Fund             Operating Fund
                                                           $48.8 million student fees $1 billion student fees
                                                                                      Unknown General Fund
 ETV 21                  Other Major Proposals.            None                      Unknown General Fund
 ETV 23                                                                               savings.
 ETV 27

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                                  27
                                             AN LAO REPORT

     among the three public segments of higher            mated. However, it is highly uncertain if the
     education.                                           proposed level of savings would be achieved.
         Concerning the full-time faculty requirement,    Our Analysis of the 2003-04 Budget Bill, similarly
     our office has recommended in the past that the      recommended the Legislature consider centraliz-
     75 percent requirement should be eliminated.         ing the eligibility determination process for
     Instead, we believe that individual colleges         Medi-Cal, but cautioned that the level of savings
     should be permitted to select the mix of full- and   was unknown and that transferring this responsi-
     part-time faculty that they believe would result     bility from the counties would be a difficult and
     in the best education for their students given       complex task. Such a transfer would require
     their available financial resources. (See our        changes in state law, the waiver of federal laws,
     Analysis of the 2001-02 Budget, pages 215-216.)      and negotiation with state and county unions. It
                                                          would also require the implementation of a
     HEALTH AND SOCIAL SERVICES—                          significant IT project which could be risky and
     CROSSCUTTING ISSUES                                  costly given the state’s history with developing
          Transform Eligibility Processing (HHS 01).      large IT systems. Implementation of a state-
     The CPR recommends changing eligibility              operated system would likely take longer than
     processing for Medi-Cal, California Work Oppor-      the CPR proposed and a staged implementation
     tunity and Responsibility to Kids (CalWORKs),        over several years should be considered to
     and Food Stamp programs from a paper-inten-          ensure that potentially adverse impacts could be
     sive system operated by 58 individual county         addressed. In addition, any simplification of the
     welfare departments into a consolidated system       eligibility determination process might increase
     operated at the state level. The state would hire    program utilization resulting in greater costs.
     a contractor to develop a new system that                 Despite the complexity of such an undertak-
     would take advantage of information technology       ing, this proposal also has programmatic advan-
     (IT) and accept applications via the Internet,       tages, in addition to the potential to achieve
     telephone, and mail. According to CPR, this          savings. For example, adopting a single eligibility
     proposal would achieve additional efficiencies       determination system would ensure greater
     by eliminating the asset test for most applicants    uniformity in processing applications. Self-
     and allowing people to self-certify their assets     certification of assets would make eligibility
     under penalty of perjury. The state would also       requirements for these programs more consis-
     operate a public awareness program and pay           tent with the Healthy Families Program (which
     $50 per application to assistants to help ensure     serves persons with greater income levels).
     that people submit complete applications. The        However, the Legislature should weigh the likeli-
     CPR estimates that the proposal would result in      hood of achieving the estimated savings versus
     costs of $1 million are anticipated in 2004-05       potential increases in costs from greater caseloads.
     and net cumulative savings of $4 billion                  Realignment of State and County Responsi-
     ($1.5 billion General Fund) over five years.         bilities (HHS 02). Currently, counties are
          LAO Comments. This proposal is compelling       100 percent responsible for the Medically
     given the significant amount of savings esti-

28                                                            L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                                AN LAO REPORT

Indigent Adult (MIA) Program and many mental                     long-term care, it makes sense to have both
health programs. However, the state is respon-                   programs operated at the same level of govern-
sible for roughly 90 percent of the Early and                    ment. Giving counties control over the full array
Periodic Screening, Diagnosis, and Treatment                     of children’s services makes sense in that they
(EPSDT) program and 100 percent responsible                      would control the interactive process of child
for certain Medi-Cal mental health benefits. In                  welfare services and foster care. Given the
addition, counties are responsible for about                     generally positive results of the 1991 mental
35 percent of the costs of In-Home Supportive                    health realignment, providing the counties with
Services (IHSS), 40 percent of the cost of foster                financial responsibility and program control for
care, and 30 percent of the costs of child wel-                  the remaining mental health programs makes
fare. The CPR proposes that the state be                         sense.
100 percent responsible for both the MIA and                          Although the report states that MIA program
IHSS programs. The CPR also proposes that the                    costs are unknown, the CPR assumes MIA costs
counties be 100 percent responsible for child                    are $1.5 billion. To the extent that MIA costs
welfare services, foster care, and all mental                    differ from $1.5 billion, the realignment proposal
health programs, including EPSDT. The CPR                        may not be cost neutral. Further, moving the
estimates that the proposed realignment is                       MIA program into Medi-Cal requires federal
roughly budget neutral, resulting in estimated                   approval and could lead to unanticipated
annual net state costs of $29 million and identi-                caseload increases because federal approval of
cal county savings.                                              Medicaid expansions may require the state to
    LAO Comments. Generally, the proposed                        expand eligibility for other low-income Califor-
realignment is consistent with previous recom-                   nians. In addition, increased costs to any county
mendations we have made regarding which                          resulting from the transfer of program and
level of government should have financial                        funding responsibility likely would be consid-
responsibility and program control for various                   ered a reimbursable state mandate, particularly if
health and social services programs. Given the                   voters approve Proposition 1A on the Novem-
intended role of IHSS in preventing the need for                 ber 2 ballot.

 Figure 9
 Major Health and Social Services
 Crosscutting Recommendations
  CPR                                                                    CPR 2004-05          CPR Five-Year
  Reference                CPR Recommendation                            Fiscal Effect     Cumulative Fiscal Effect

 HHS 01       Transform Eligibility Processing—Reduce             Costs of               Savings of
              costs by centralizing eligibility determinations    $625,000 General Fund $1.5 billion General Fund
              for Medi-Cal, CalWORKs, and Food Stamp              $375,000 federal funds $2 billion federal funds
              programs at the state level.                                               $472 million county funds
 HHS 02       Realignment—Shift IHSS and Medically                None                    Costs of
              Indigent Adult programs to the state. Shift child                           $116 million General Fund
              welfare services and mental health to the counties.                         Identical county savings

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                                     29
                                            AN LAO REPORT

     HEALTH SERVICES                                     law enforcement agencies. Shifting the positions
                                                         is expected to increase federal funds, address
     Medi-Cal                                            management and training problems, and allow
          Intermediate Care Facilities for the Devel-    for greater coordination of statewide law en-
     opmentally Disabled (HHS 24). The CPR               forcement efforts. The CPR also recommends
     recommends that the state submit a state            the Medi-Cal Program pilot the use of ”smart
     Medicaid plan amendment from the federal            cards” that use computer chips to store a
     Centers for Medicare and Medicaid Services to       beneficiary’s health and personal data in order
     more broadly define the services provided by an     to improve its ability to identify fraud. Finally, the
     Intermediate Care Facility for the Developmen-      CPR recommends the Medi-Cal Program ensure
     tally Disabled (ICF/DD). This would allow the       that its antifraud efforts are most effective by
     state to increase federal funding for these         using strategies that are driven by data and
     services and reduce General Fund expenditures       target areas where the most savings can be
     by $152 million over five years.                    generated and beneficiaries protected.
          Other Health Coverage (OHC) for Medi-               LAO Comments. The CPR recommendation
     Cal Beneficiaries (HHS 27). Federal law requires    to draw down additional federal funds to offset
     that the Medi-Cal Program be the payer of last      the state cost of services provided to residents
     resort and ensure that the state does not pay       of ICF/DDs should be pursued as recom-
     claims for health care services when a benefi-      mended in our Analysis of the 2004-05 Budget
     ciary has another source of health coverage (for    Bill. The CPR estimate of savings does not adjust
     example, eligibility for Medicare). This proposal   for annual increases in caseload and utilization
     would disenroll from Medi-Cal managed care          that have been rapidly growing in recent years
     plans approximately 76,000 Medi-Cal enrollees       and as a result savings may potentially be higher.
     who have another source of health coverage,         The proposal to identify OHC has merit in order
     employ a contractor on a contingency fee basis      to ensure that the Medi-Cal Program is the payer
     to identify persons with OHC, and reduce the        of last resort. However, the ability to achieve the
     number of state staff by nine. These combined       estimated level of savings is uncertain because it
     actions result in annual net savings beginning in   is unclear if the CPR estimate considers various
     2005-06 of $53.7 million ($26.8 million General     potential cost increases such as the state paying
     Fund).                                              monthly premiums for OHC. Finally, regarding
          Medi-Cal Antifraud Program (HHS 28,            the fraud recommendations, DHS is required to
     HHS 31, PS 08, PS 12). Two of the four changes      complete an error rate study by November 2004
     the CPR recommended in the Medi-Cal anti-           that will measure the major types of Medi-Cal
     fraud program would shift existing positions        fraud. Any reorganization of the Medi-Cal
     from the Department of Health Services (DHS)        antifraud program should await the outcome of
     to the Department of Justice and to the pro-        the study so the state will have the information
     posed Department of Public Safety and Home-         necessary to focus its resources on combating
     land Security that would consolidate existing       the most serious fraud problems.

30                                                           L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

Public Health                                        ments would benefit financially from this pro-
     Public Health Funding Agreements                posal because they would have fewer reporting
(HHS 12). The CPR recommends that DHS                requirements and applications for grants that
simplify its public health funding agreements        they must submit. Previous attempts to change
with city and county health departments by           the HIV reporting system to a name-based one
reducing the number of contracts written and         have failed partially due to concerns about
processed and by using web-based applications        confidentiality. Also, the CPR has raised the
to facilitate the contracting process.               concern that the existing reporting system might
     California’s HIV and AIDS Reporting             not meet federal standards in the future.
Systems (HHS 14). The report includes a pro-         Lastly, maximizing revenue collections would
posal to convert the state’s HIV reporting system    potentially increase funds for various fee-sup-
from a code-based to a name-based format and         ported programs and strengthen oversight by
to expand laboratory reporting requirements to       prioritizing and dedicating a single unit to this
include the reporting of low T-cell (or white        activity. However, the Legislature should ensure
blood cell) counts. The CPR asserts that the         the redirection of program staff does not impair
change in HIV reporting is warranted given the       licensure, certification, and enforcement activities.
possibility of losing federal funding and the work
                                                     SOCIAL SERVICES
required by laboratories and local health depart-
ments to maintain the system.                        Department of Child Support
     Revenue Collections in DHS (HSS 20). The
                                                         Competitive Bidding Process (HHS 03). This
CPR further recommends the consolidation of
                                                     recommendation requires the Department of
revenue collection activities and the redirection
                                                     Child Support to conduct a competitive bidding
of staff associated with DHS’s licensure, certifi-
                                                     process which allows public and private provid-
cation, and enforcement programs and the
                                                     ers to compete to provide child support collec-
pursuit of web-based technology to streamline
                                                     tion services at the local level. The selection of
revenue transactions.
                                                     local vendors would be done at the state level,
     LAO Comments. Many of the CPR recom-
                                                     not the county level. This recommendation is
mendations for streamlining administrative
                                                     intended to address the state’s continued poor
activities in public health programs lack an
                                                     performance on the federal child support
estimate of the net fiscal impact making it
                                                     outcome measures.
difficult to assess and prioritize the recommen-
                                                         LAO Comments. This recommendation
dations. Also, proposals requiring the develop-
                                                     significantly increases state control since the
ment of IT systems have unknown costs that
                                                     state would select the vendor. Local child
potentially would offset any savings achieved
                                                     support agencies, except to the extent that they
during the initial years.
                                                     successfully bid for the contract, would no
     The recommendation to consolidate the
                                                     longer have a role in the program. The existence
public health contracts would relieve workload
                                                     of strong performance measures makes
pressure on DHS, but primarily local govern-
                                                     privatization a potentially viable option for this

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                            31
                                                    AN LAO REPORT

     program because such measures would enable                    Licensing and Certification
     the state to track the performance of various                     The CPR proposes two significant reforms in
     vendors and adjust contract terms and payment                 the area of licensing and background checks for
     rates as necessary. Nevertheless, the same                    health and social services programs. The first
     measures could be used in a county-run perfor-                recommendation is a policy reform that stan-
     mance-based system. Privatization raises two                  dardizes background checks within the pro-
     additional questions: (1) can the state complete              posed Health and Human Services Department
     and successfully operate the federally required               (HHSD). The second recommendation is a
     statewide automation system in a privatized                   structural reform which consolidates within one
     environment and (2) are there private firms                   office of the restructured HHSD all of the
     willing to bid on the entire array of child support           licensing and certification functions which
     services. The savings ($29 million General Fund               currently exist within various departments.
     over five years) assumed for this recommenda-                     Standardizing Background Checks
     tion appear to be reasonable.                                 (HHS 19). Several departments within the
                                                                   Health and Human Services Agency conduct

      Figure 10
      Major Health Recommendations
       CPR                                                                      CPR 2004-05          CPR Five-Year
       Reference                 CPR Recommendation                             Fiscal Effect     Cumulative Fiscal Effect

      HHS 24       Intermediate Care Facilities for the                   None                    Savings of
                   Developmentally Disabled—Increase federal                                      $152 million General Fund
                   funds by broadening definition of eligible services.
      HHS 27       Other Health Coverage—Automate identification          None                 Savings of
                   of other sources of health coverage to ensure that                          $107 million General Fund
                   Medi-Cal is the payer of last resort.                                       $108 million federal funds
      HHS 28       Smart Cards—Reduce the amount of fraud and             Cost of              Savings of
                   abuse in Medi-Cal through the use of smart cards.      $75,000 General Fund $78 million General Fund
      HHS 31       Medi-Cal Fraud Targeting—Redirect fraud                CBE                  CBE
                   efforts to achieve greatest savings.
      PS 08        Medi-Cal Fraud Investigations Branch—                  CBE                     CBE
                   Transfer this branch to the Department of Public
                   Safety and Homeland Security in order to improve
                   management, training, and coordination.
      PS 12        Medi-Cal Provider Fraud Investigations—                Increased federal funds Increased federal funds of
                   Transfer these activities to the Department of         of $1 million           $8 million
                   Justice thereby increasing federal funds and
                   reducing General Fund costs.
      HHS 12       Simplify Public Health Funding Agreements—             CBE                     CBE
                   Streamline contracting for local governments.
      HHS 14       California’s HIV and AIDS Reporting Systems—           CBE                     CBE
                   Convert to a name-based HIV reporting system.
      HHS 20       Maximize Revenue Collections in DHS—                   CBE                     CBE
                   Centralize and automate revenue collection.

32                                                                        L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

background checks and fingerprint clearances        associated with conducting more background
for individuals seeking jobs assisting vulnerable   investigations (pursuant to the proposed stan-
children and adults. Currently, there is no         dardization), we believe CPR has overstated the
uniformity in terms of (1) which individuals must   number of necessary investigators by about
have a background check, (2) whether depart-        75 percent. (We base this estimate on workload
ments have discretion to approve workers            ratios in the Department of Social Services [DSS].)
convicted of certain crimes, (3) whether indi-
viduals can begin employment before their           Child Care
background checks are complete, and                      Simplify the Subsidized Child Care System
(4) whether departments investigate individuals     (HHS 04). The CPR recommends a number of
with subsequent arrests. This recommendation        measures to streamline child care program
requires the standardization of the entire back-    administration, including merging the administra-
ground checking process throughout the various      tion of child care for California Work Opportu-
departments.                                        nity and Responsibility to Kids (CalWORKs)
     Consolidating Licensing and Certification      families on cash aid, eliminating CalWORKs
(HHS 21). The CPR recommends consolidating          Stage 3 child care, and reforming the State
the licensing functions within the proposed         Department of Education (SDE) child care
HHSD. Currently, six departments within the         provider contract process. Under the CPR
existing Health and Human Services Agency are       proposal, child care for families on cash assis-
responsible for conducting their own licensing      tance would be administered by county welfare
and background clearances. This consolidation       offices through DSS, with all other child care
would create administrative efficiencies, reduce    programs administered by SDE. The CPR recom-
the duplication of background checks as indi-       mends establishing a set-aside to provide two
viduals move among different types of care-         years of transitional child care to families who
giving jobs, and would allow for a consolidated     have left cash aid.
database for all background clearances and               The CPR further recommends making
investigations. In addition, the CPR consolidates   waiting lists “first come, first served” for those
all foster care background checks at the state      families with incomes at or below 50 percent of
level rather than allowing counties to conduct      the State Median Income (SMI) level. Once
their own checks (HSS 06).                          former CalWORKs families have been off of aid
     LAO Comments. These recommendations            for two years (after exhausting their time in the
have a great deal of merit. The proposal is         set-aside funded program) their status on the
consistent with the social services trailer bill,   wait lists would be evaluated based on the date
Chapter 229, Statutes of 2004 (SB 1104, Com-        they started CalWORKs, not the date they left
mittee on Budget), that would require the           the set-aside funded program.
Health and Human Services Agency to look at              LAO Comments on Simplifying Subsidized
ways of streamlining and standardizing the          Child Care System. Consolidating the adminis-
background checking process throughout its          tration of child care for families on cash assis-
departments. With respect to the workload           tance creates a more logical division of child

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                         33
                                                 AN LAO REPORT

     care administrative responsibilities. However, the             taking steps to make child care provider reim-
     CPR recommendation does not resolve the                        bursement commensurate with quality of care
     fundamental problem of divided administrative                  provided. It proposes to do this by reducing the
     responsibility (DSS and SDE would share child                  maximum reimbursement rates from the 85th
     care program responsibility), which contributes to             percentile to 50 percent of the Regional Market
     programmatic and administrative complexities.                  Rate (RMR) for unlicensed providers and making
         The CPR recommendation to eliminate                        other provider rate changes. During 2005-06
     Stage 3 is consistent with the LAO position to                 and 2006-07, the CPR estimates that the rate
     minimize differential treatment of former                      adjustments would result in savings of $108 mil-
     CalWORKs families and other similarly situated                 lion General Fund, and $108 million in federal
     low-income families. Under the proposed set-                   block grant funds. In later years, the savings
     aside and wait-list structure, former CalWORKs                 would be redirected to fund provider training
     families with incomes less than 50 percent of                  and to pay higher average reimbursement rates
     SMI would have priority access to subsidized                   because providers are likely to obtain higher
     child care after they have been off of aid for two             levels of certification in order to receive the
     years. However, families leaving the set-aside                 higher rates. Thus, the CPR estimates no long-
     funded program with incomes above 50 percent                   term savings. Additionally, the CPR recommends
     of the SMI, may, like other similarly situated                 a number of changes to prevent payments to
     families, have difficulties securing subsidized                ineligible providers who have been convicted of
     child care.                                                    certain crimes.
         Increase Subsidized Child Care Quality                          LAO Comments on Child Care Quality. The
     (HHS 05 and HHS 07). The CPR recommends                        concept of differential provider reimbursement

      Figure 11
      Major Social Services Recommendations
                                                                            CPR 2004-05             CPR Five-Year
      CPR Reference            CPR Recommendation                           Fiscal Effect        Cumulative Fiscal Effect

      HHS 03          Improve Child Support Performance—             None                       Savings of
                      Replace county-run system with state                                      $29 million General Fund
                      contracts with private and public entities.                               $57 million federal funds
      HHS 04          Child Care—Simplify the system by              None                       Savings of
      HHS 05          merging child care administration for cash-                               $108 million General Fund
      HHS 07          aided families, creating set-aside funding                                $108 million federal funds
                      for families off cash aid for two years,                                   in 2005-06 and 2006-07
                      eliminating Stage 3, and implementing                                      No ongoing savings
                      contract reform. Improve quality through
                      differential provider reimbursement rates
                      based on levels of health, education, and
                      safety standards.
      HHS 06          Criminal Background Check and                  Cost of                    Savings of
      HHS 19          Licensing Process—Standardize                  $2.1 million General Fund $2.4 million General Fund
      HHS 21          background clearance process and unify         $2.1 million federal funds $31.7 million in federal and
                      these functions within one department.                                     special funds

34                                                                      L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

based on different levels of health and safety              Other Transportation Issues. The CPR’s
standards, and education and training is consis-       other recommendations for Caltrans include
tent with previous LAO positions, most recently        several proposals to reduce expenditures or to
in our 2004-05 Analysis of the Budget Bill.            improve Caltrans’ operations or management.
However, reducing reimbursement to 50 per-             Among the more significant recommendations
cent of the RMR is a substantial decrease in           are:
reimbursement rates for unlicensed providers,             ➢ Implement Performance Measures for
and could reduce the supply of child care                   Traffic Operations (INF 04). Implement
providers.                                                  a plan developed by Caltrans that would
                                                            increase funding for traffic operations
                                                            activities (including such things as the
Department of Transportation                                Freeway Service Patrol and freeway
                                                            ramp metering lights) while setting
     Transportation Funding. The CPR presents
                                                            performance measures, at a total cost of
several issues related to the Department of
                                                            $550 million over five years.
Transportation (Caltrans) in its chapter on
infrastructure. One of these issues (INF 15)              ➢ Expand High-Occupancy/Toll (HOT)
contains several recommendations, including (1)             Lanes (INF 05). Create more high
a ballot measure to protect the transfer of                 occupancy vehicle lanes that single
gasoline sales tax revenue to transportation, (2)           occupancy vehicles can use for a fee.
a pilot project to test the feasibility of road user
fees as a funding source, and (3) a letter to be          ➢ Relinquish Routes to Local Agencies
sent from the Governor to the California Con-               (INF 13). Transfer ownership of 6,500
gressional delegation supporting efforts to raise           lane-miles of the state highway system to
the federal tax on fuel containing ethanol.                 local agencies, saving the state $432 mil-
     A second issue (INF 16) states that federal            lion in maintenance costs over five years.
transportation funding falls short of the state’s
                                                          ➢ Address Poor Highway Quality
needs and contains two recommendations to
                                                            (INF 20). Identify full lifecycle costs for
secure more federal funding. These recommen-
                                                            new projects so that (1) future mainte-
dations are to write two letters to the California
                                                            nance costs are considered when
Congressional delegation requesting (1) ear-
                                                            choosing new projects and (2) adequate
marked funds from Congress for high-priority
                                                            maintenance funding can be provided.
transportation projects and (2) more homeland
                                                            Establish performance measures for state
security funding for “lifeline routes” that must
                                                            highway system maintenance.
remain open after a disaster.
     Of all of the funding-related recommenda-            ➢ Improve Project Management (INF 32).
tions discussed above, the CPR attaches a dollar            Give Caltrans project managers more
amount—$1.96 billion over five years—only to                decision-making authority and move
the effort to raise the federal tax on ethanol fuel.        project delivery staff from headquarters

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                         35
                                              AN LAO REPORT

             to the districts. Stabilize state staff by    maintenance costs for the relinquished roads
             tying staffing levels to more predictable     would be borne by the local agencies, poten-
             workload and contracting out for less         tially at the expense of other local programs
             predictable workload.                         unless additional revenues are raised for this
                                                           purpose. Finally, we agree with the general
          LAO Comments. As noted above, the CPR’s
                                                           concepts of expanding the use of HOT lanes in
     only transportation funding recommendation in
                                                           the state (INF 05), providing adequate mainte-
     INF 15 and INF 16 with an associated dollar
                                                           nance funding and improving performance
     amount is the effort to raise the federal tax on
                                                           measures (INF 20), and improving project
     fuel containing ethanol. We believe that the
                                                           delivery and stabilizing state staff (INF 32). We
     $1.96 billion associated with this change over
                                                           have made similar recommendations in these
     five years is an accurate estimate of the addi-
                                                           areas in recent years. However, the Legislature
     tional funds available for transportation if the
                                                           will need further details on these CPR recom-
     federal government made this change in tax law.
                                                           mendations in order to adequately assess them.
     However, we question the reasonableness of
     attributing to CPR the fiscal effect of a statutory
                                                           California Highway Patrol
     change in federal tax policy.
                                                                Traffic Enforcement in Freeway Work Zones
          One of the CPR’s funding recommendations
                                                           (INF 12). Currently, Caltrans contracts with the
     is a ballot measure to protect the transfer of
                                                           California Highway Patrol (CHP) to provide
     gasoline sales tax revenue to transportation.
                                                           traffic enforcement services at various construc-
     While the details of such a ballot measure are
                                                           tion and maintenance areas along state free-
     not specified, if the measure were to remove the
                                                           ways. These additional patrols are staffed by off-
     ability of the Legislature to keep gasoline sales
                                                           duty CHP officers, who are paid at the officers’
     tax money in the General Fund under certain
                                                           overtime rate. Caltrans reimburses CHP about
     circumstances, the proposal could have a
                                                           $17 million annually for all equipment and
     negative effect on the General Fund.
                                                           personnel costs incurred under this program
          Regarding the other recommendations, we
                                                           using funds from the State Highway Account.
     agree that there is a need for Caltrans to focus
                                                                The CPR notes two problems with the current
     more attention on traffic operations (INF 04).
                                                           arrangement. First, CHP has been unable at times
     However, the plan referred to by CPR that
                                                           to provide Caltrans with the requested number of
     would cost $550 million in the first five years has
                                                           traffic officers for enforcement duties due to
     not yet been released to the Legislature. There-
                                                           reduced staffing levels and increased workload.
     fore, the Legislature cannot determine the
                                                           Second, CPR contends that paying overtime for
     appropriateness of the specific recommenda-
                                                           these services is not cost-effective.
     tions in the plan or the total cost of the plan’s
                                                                As a solution, CPR proposes that CHP hire
     implementation. As regards relinquishing parts
                                                           78 additional full-time traffic officers and pur-
     of the state highway system to local agencies
                                                           chase supporting equipment, at a total annual
     (INF 13), it would certainly save the state
                                                           cost of about $11 million, to be available for
     money, and it may be appropriate to do so for
                                                           traffic enforcement duties in freeway work
     the types of roads discussed by CPR. However,

36                                                             L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

zones. In so doing, approximately $6 million          which CPR believes would allow DMV to cut
would be saved annually in overtime-related           costs and reduce wait times at field offices. In
costs, since officers assigned to freeway work        addition, by implementing the proposal over a
areas would work on a regular time basis. In          two-year period, the CPR report projects that
addition, CPR notes that these officers would be      the state would receive a one-time revenue
available for other duties, such as regular patrol    “windfall” of about $2.1 billion, including about
activities, whenever there are no construction or     $1.3 billion in Vehicle License Fee (VLF) rev-
maintenance projects scheduled in the areas to        enues. According to CPR, this windfall results
which they are assigned.                              because in the first year of the plan’s implemen-
     LAO Comments. While this proposal merits         tation, one-half of the motorists in the state
further consideration, it is uncertain how from       would pay one year’s worth of fees and taxes on
year to year the additional staff resources will be   their vehicles, while the other half would pay
matched to the changing location of project           two years of fees and taxes. The CPR proposes
sites. The CPR proposes that in the first year,       to transfer the VLF windfall monies to the
Caltrans would provide CHP with a list of             General Fund, rather than distributing them to
anticipated projects requiring enforcement            cities and counties.
patrols that year, including their location in the         LAO Comments. Our review suggests that
state and anticipated start and end dates. Based      the one-time VLF revenue windfall is likely to be
on this information, CHP would deploy the             about $1 billion rather than $1.3 billion. Regard-
appropriate number of newly hired officers to         less, it would appear that the proposed transfer
the areas of the state requiring enforcement          of all VLF windfall revenues to the General Fund
services that year. In subsequent years, however,     would require a constitutional change. This is
CHP could be faced with the need to reallocate        because VLF revenues are constitutionally
staff to other areas of the state based on            designated for distribution to local governments.
changes in Caltrans’ workload requirements.           Also, the VLF windfall that would result from the
Alternatively, CHP supervisors in areas requiring     proposal’s implementation could be construed
new construction and maintenance work would           as a one-time tax increase, since in the first year
have to pull officers from their existing assign-     of the plan’s implementation about $1 billion
ments in order to provide the necessary enforce-      more would be collected from state motorists
ment coverage at freeway work sites.                  than would otherwise be the case.
                                                           Since the CPR was issued, the DMV has
Department of Motor Vehicles                          estimated that reduced workload from the
    Biennial Vehicle Registration (GG 36).            proposal would allow the department to elimi-
Currently, motorists must register their vehicles     nate or redirect about 225 positions. In addition,
with the Department of Motor Vehicles (DMV)           the proposal would involve significant one-time
annually. The CPR proposes to require most            costs to DMV, potentially up to $20 million, to
owners to register their vehicles every two years.    convert the department’s vehicle registration
In so doing, DMV’s annual vehicle registration        database and fee collection programs to a
workload would be reduced by about half,              biennial system.

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                           37
                                               AN LAO REPORT

      Figure 12
      Major Transportation Recommendations
       CPR                                                               CPR 2004-05     CPR Five-Year Cumulative
       Reference                 CPR Recommendation                      Fiscal Effect         Fiscal Effect

      INF 04       Traffic Operations Performance Measures—Fund         None             Cost of
                   a Caltrans operations plan and implement                              $550 million special funds
                   performance measures.
      INF 05       HOT Lanes—Expand use of high-occupancy/toll          CBE              CBE
      INF 13       Relinquish Routes—Transfer ownership and             None             Savings of
                   maintenance of some highways to locals.                               $432 million special funds
      INF 15       Increase Revenues—Request higher federal             None             Increased revenues of
                   ethanol tax, protect sales tax revenues for                           $1.96 billion federal funds
                   transportation, test road user fees.
      INF 16       Increase Federal Funding—Request earmarks for        CBE              CBE
                   high-priority projects, request homeland security
                   funds for “lifeline” routes.
      INF 20       Improve Highway Quality—Identify and fund full       CBE              CBE
                   maintenance costs for new projects, establish road
                   quality performance measures.
      INF 32       Improve Project Management—Transfer authority        CBE              CBE
                   and staff from Caltrans headquarters to districts,
                   stabilize state staffing.
      INF 12       Traffic Enforcement Program in Freeway Work          None             Savings of
                   Zones—Use on-duty CHP officers, directly funded                       $22.4 million special funds
                   from the State Highway Account, to provide traffic                    ($5.6 million annually for
                   enforcement services in freeway work zones.                             four years)
      GG 36        Biennial Vehicle Registration—Require most           None             Increased revenues of
                   owners to register their vehicles every two years,                    $1.259 billion General Fund
                   rather than annually.

     RESOURCES, ENVIRONMENTAL                                consolidating land acquisition functions for
     PROTECTION, AND ENERGY                                  resources-related purchases into a “Resource
                                                             Conservation Board” which would have the
     Land Acquisition and Conservation
                                                             broad authority to approve and fund all re-
         The CPR contains a number of recommen-              sources-related acquisitions. The CPR also
     dations related to how the state acquires and           recommends changing the current appraisal
     conserves land for resources-related purposes.          process to allow the appraisal review function
     In general, these recommendations involve               currently done by the Department of General
     consolidating processes to create efficiencies,         Services to be handled by an independent
     improve consistency, and make the review                appraisal expert on behalf of the new board.
     process more timely. The CPR also contains                   Restructuring Land Conservancies (RES 12).
     policy statements about preferred tools for             The CPR recommends devolving five state
     meeting resource conservation objectives.               conservancies of a “regional” nature (Baldwin
         Consolidating Resource Land Acquisition             Hills Conservancy, Coachella Valley Mountains
     Processes (RES 13). The CPR recommends                  Conservancy, San Diego River Conservancy,

38                                                                L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

San Gabriel and Lower Los Angeles Rivers and          addition, the use of easements raises monitoring
Mountains Conservancy, and San Joaquin River          and enforcement issues. While conservation
Conservancy) into local joint powers authorities      easements are already used by state agencies, a
and eliminating current state funding for staff       significant increase in their use would represent
support of these conservancies. The CPR also          an important policy change for the Legislature
recommends that the Resources Agency (or its          to evaluate.
successor) develop a statewide master plan for
land acquisition and resource protection for          Forestry-Related Policy Shifts
habitat and recreational purposes.                        The CPR contains some forestry-related
     Increased Use of Conservation Easements          recommendations which contain policy changes
(RES 35). The CPR recommends increasing the           that are appropriate for legislative evaluation
use of conservation easements, as opposed to          before implementation.
land acquisitions that can involve significant            Changes to the Timber Harvest Plan Review
development costs, to protect natural resources       Process (RES 21). The CPR recommends a
and improve open space.                               number of changes to the timber harvest plan
     LAO Comments. Overall, we find these             (THP) review process. These include allowing
recommendations merit serious consideration.          exemptions from the THP review process for
We have previously raised concern about the           certain types of projects that are considered
multiplicity of state agencies with resources-        “low consequence” and the use of privately
related land acquisition functions (see, for          developed forestry standards to approve THPs.
example, California’s Land Conservation Efforts:          Separating Wildland Fire Protection From
The Role of State Conservancies [2001]). We           Forest Resource Management (PS 03). The CPR
think that a comprehensive evaluation of              recommends consolidating all roles, functions,
California’s land conservation programs could         and responsibilities for statewide fire protection
present opportunities to significantly improve        and emergency management into a new divi-
the effectiveness of the state’s land acquisition     sion of Fire Protection and Emergency Manage-
and resource protection efforts.                      ment within the proposed Department of Public
     However, we also find that some of the           Safety and Homeland Security (DPSHS). The
recommendations include important trade-offs          remaining forestry-related activities and func-
for the Legislature to consider. For example,         tions would be placed in a different department,
while the proposed changes to the appraisal           the new Department of Natural Resources.
process may produce efficiencies, the proposal            LAO Comments. The proposed changes to
may also reduce the state’s oversight and             the THP review process represent significant
accountability of this process. Similarly, although   policy changes that are similar to the Governor’s
acquiring conservation easements may be less          THP reform proposals of this past spring. In-
expensive than acquiring land in title, easements     creasing the use of exemptions to the THP
may provide the state with fewer benefits when        review process may promote greater efficiency
compared to outright land acquisitions, such as       and reduce state costs, but it could also increase
less public access or less resource protection. In    the risk that a proposed project may have

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                          39
                                              AN LAO REPORT

     significant impact on the state’s natural re-         revenues for a number of environmental fees is
     sources. Approving THPs pursuant to privately         narrowly defined in statute, thereby constraining
     developed standards may have merit in concept,        the ability to use these fee revenues to address
     depending upon the quality of the standards           other unmet, high priority environmental needs.
     selected.                                             Fees falling into this category include waste tire
         We find that the proposal to consolidate          and used oil recycling fees. The CPR’s solution
     emergency management functions into the               to this issue is to broaden the statutorily autho-
     DPSHS lacks sufficient information regarding          rized uses of various fee revenues.
     how it would improve wildland fire protection or          Improve Collection of Fish and Game
     reduce costs associated with wildland fires.          Environmental Filing Fees (RES 34). The CPR
     Since an important cost driver of wildland fire       recommends adjusting the current fee levels for
     protection expenditures is fuel conditions in         environmental filing fees in order that they
     wildlands, the separation of the Department of        better reflect the complexity and potential
     Forestry and Fire Protection’s current fire protec-   impact of projects subject to the fee. The CPR
     tion functions from its forest resource manage-       also recommends providing a fiscal incentive to
     ment functions (which would be retained) could        encourage local agencies, which are responsible
     be problematic. The proposed restructuring of         for collecting the fees on behalf of the Depart-
     functions involves important policy decisions         ment of Fish and Game (DFG), to increase
     about the mission of the state’s forestry agency      collection efforts.
     and how best to achieve that mission.                     LAO Comments. While there may be
                                                           legitimate opportunities to broaden the autho-
     Resources-Related Fees                                rized uses of existing environmental fees as CPR
         The CPR includes a handful of recommenda-         suggests, there are legal constraints that may
     tions concerning resources-related fees. In           limit the ability to do this. The legal characteriza-
     general, these recommendations do not involve         tion of an assessment as a fee (as opposed to a
     new or increased fees, but rather concern the         tax) is dependent on there being a sufficient
     use of or improving the collection of existing        “nexus” between the fee payer and the activities
     fees. One notable exception to this is found in       funded from the fee.
     the recommendation to consolidate siting                  With regard to the collection of existing fees,
     responsibilities for energy infrastructure (dis-      we have previously identified concerns with the
     cussed later). Under this recommendation, CPR         collection of DFG’s environmental filing fees.
     recommends that applicants be charged siting          (Please see Improving Fish and Game’s CEQA
     and compliance fees that reflect the actual costs     Review [2002] and the Analysis of the 2002-03
     of processing the application. Currently, some of     Budget Bill, page B-64.) While the department
     these costs are borne by energy utility               has taken steps to improve the collection of
     ratepayers.                                           these fees, we think the CPR’s proposal to
         Broaden Use of Specified Environmental            improve collection efforts has merit.
     Fees (RES 32). The CPR finds that the use of

40                                                             L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

Cal-EPA Administrative Functions                     new siting authority would also be responsible
     Cal-EPA Administrative Consolidation (RES       for permitting oil refineries, pipelines, and
07). The CPR recommends consolidating the            marine petroleum product terminals—currently
administrative divisions of the six constituent      functions that are a local responsibility.
boards and departments in the California Envi-            Streamline Permitting of Petroleum Infra-
ronmental Protection Agency (Cal-EPA) into a         structure (RES 14). The CPR proposes that
single office. The administrative functions to be    “unnecessary” regulations that may prevent the
consolidated would include such functions as         expansion or new construction of oil refineries
personnel management, accounting, and bud-           be identified and removed. The CPR also recom-
geting. The CPR projects that such consolidation     mends streamlining the petroleum infrastructure
will result in among the largest savings from        permitting processes by adopting air district best
CPR’s resources-related recommendations—             management practices on a statewide basis and
$53.6 million (mainly special funds) cumulatively    by creating a single state entity to coordinate
over a five-year period.                             multi-jurisdictional permitting processes.
     LAO Comments. Budget trailer legislation—            Consolidation of Energy Policy Develop-
Chapter 230, Statutes of 2004 (SB 1107, Com-         ment and Energy Efficiency Program Imple-
mittee on Budget and Fiscal Review)—already          mentation (INF 23). The CPR recommends
directs the Secretary for Environmental Protec-      consolidating energy planning and policy
tion to consolidate administrative functions         development and the implementation of energy
common among the Cal-EPA boards and depart-          efficiency programs—all currently involving
ments to the extent that doing so will achieve       multiple state agencies—under one agency.
actual budget savings. While the savings pro-             Development of Comprehensive Transpor-
jected by CPR appear on the high side, signifi-      tation Fuels Strategy (INF 24). The CPR recom-
cant budget savings from the proposed consoli-       mends that there be a comprehensive transporta-
dation are likely.                                   tion fuels strategy developed under a single entity.
                                                     The CPR finds that 17 different departments have
Energy Infrastructure                                fuel strategy efforts. In addition, the CPR recom-
     The CPR makes a number of recommenda-           mends that incentives be increased to encourage
tions designed to facilitate energy-related infra-   the use of alternative and emerging fuels.
structure development in the state and to                 LAO Comments. We have commented
provide for increased coordination in energy         previously on issues raised by the multiplicity of
policymaking and program implementation.             state energy-related agencies. (Please see The
     Consolidation of Energy Infrastructure          2002-03 Budget: Perspectives and Issues, page
Siting Functions (INF 22). The CPR recom-            113.) While there is likely merit to consolidating
mends consolidating energy-related siting            some energy-related permitting authorities, we
functions of the California Energy Commission        think that any restructuring of permitting func-
and the Public Utilities Commission (including       tions should follow the structure of the energy
power plant siting and power transmission line       market (for example, the extent to which the
siting) under one department. In addition, the       market is deregulated). This is because the

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                           41
                                               AN LAO REPORT

     energy market structure will determine the roles         that both of these make sense from the stand-
     and responsibilities of the state’s energy agen-         point of program effectiveness.
     cies. Since the energy market structure is cur-
     rently uncertain, we think that it is premature to       GENERAL GOVERNMENT
     reorganize the state’s energy functions. As
                                                              Federal Funds
     regards a unified state policy for energy effi-
                                                                  Increased Federal Funds. Currently, each
     ciency and developing a coordinated, compre-
                                                              state agency pursues federal grant money for its
     hensive transportation fuels strategy, we believe

      Figure 13
      Major Resources, Environmental Protection, and
      Energy Recommendations
                                                                                                 CPR Five-Year
       CPR                                                               CPR 2004-05              Cumulative
       Reference              CPR Recommendation                         Fiscal Effect            Fiscal Effect

      RES 13         Resources-Related Land Acquisition           CBE                      CBE
                     Process—Consolidate land acquisition
                     functions into new board.
      RES 12         Land Conservancy Governance—                 Savings of               Savings of
                     Devolve five of current eight state          $1 million special and   $9.4 million special and
                     conservancies into local entities.           bond funds                bond funds
      RES 35         Resource Conservation Methods—Make           None                     Savings of
                     greater use of conservation easements,                                $184.5 million (mostly
                     rather than land acquisitions.                                         bond funds)
      RES 21         Timber Harvest Plan Review—Streamline        CBE                      CBE
                     review process.
      PS 03          Fire Protection Services—Consolidate         CBE                      CBE
                     fire protection functions within proposed
                     state emergency management entity.
      RES 32         Uses of Environmental Fees—Broaden           CBE                      CBE
                     eligible uses of environmental fees.
      RES 34         Fish and Game Environmental Review           None                     Savings of
                     Fees—Clarify law and regulation to                                    $18.8 million General Fund
                     improve fee collection.
      RES 07         Administrative Functions of Cal-EPA          Savings of               Savings of
                     Departments—Consolidate administrative       $25,000 General Fund     $2.9 million General Fund
                     functions into single office.                $480,000 special funds   $53.6 million special funds
      INF 22         Siting of Energy-Related Infrastructure—     CBE                      CBE
                     Combine siting functions into a single
      RES 14         Permitting of Petroleum Infrastructure—      CBE                      CBE
                     Streamline permitting process and create a
                     single state permitting authority.
      INF 23         Energy Policy-Setting and Energy             CBE                      CBE
                     Efficiency Programs—Consolidate energy
                     policy functions and energy efficiency
      INF 24         Transportation Fuel Strategy—Develop         CBE                      CBE
                     a comprehensive fuel strategy.

42                                                                   L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

own programs. The CPR recommends that                   approved by policy makers, rather than incre-
efforts to secure such monies be consolidated           mental changes (SO 33 to SO 37). These perfor-
under the Governor’s Office of Planning and             mance goals would be developed as part of a
Research (GG 05). The report suggests that such         long-range financial planning process required of
a consolidation would allow the state to better         all state agencies.
track the receipt of federal funds, identify                 LAO Comments. The state implemented
opportunities to collect more funds, and pursue         some performance-based budgeting measures
changes to federal formulas. The report assumes         as a pilot program for several departments in the
new revenues of $1.3 billion beginning in 2005-         mid-1990s. While the changes required a signifi-
06, increasing to $2.6 billion by 2008-09, and          cant investment in resources, the benefits were
totaling $8.2 billion over the next five years.         unclear. Establishing the specific outcomes
    LAO Comments. Most of these grants are              against which to measure performance was
formula-driven payments for major health and            particularly difficult. With regard to biennial
social services programs, transportation, and           budgets, it is important to recognize that
education. California has long advocated for            roughly 70 percent of General Fund spending is
increases in federal funding to recognize this          in caseload-driven programs in education,
state’s above-average poverty rates and above-          health, social services, and corrections. These
average costs associated with illegal immigra-          programs would likely require action by the
tion. However, it is not clear how the CPR              Legislature on a more frequent basis than every
proposal would enhance California’s chances of          two years. Program areas that are not caseload-
modifying federal formulas. Without significant         driven may lend themselves more readily to a
changes to federal law, which also could have           change in budget cycle.
negative fiscal implications for other states, the
level of assumed revenues is unlikely to materialize.   State Employment and Retirement
                                                             Smaller State Workforce. The report notes
State Budgeting                                         an expected wave of retirements as “baby
    Biennial Budget. The report makes several           boomers” leave state service in the next few
recommendations concerning the administration           years. As a result, CPR recommends developing
of state government and the budget process.             (1) a workforce plan to evaluate future state
The CPR recommends that the Constitution be             needs and (2) a centralized recruitment program
amended to require a budget every two years,            (SO 43 to SO 46). The report assumes more
rather than the annual budget required under            than $3 billion in savings over five years by
current law (SO 40). The CPR suggests that a            slowing state employment growth. For new state
biennial budget would allow state officials             hiring, the report recommends greater public
additional time to review and evaluate state            access to non-entry-level exam opportunities
program performance.                                    rather than the current focus on promotional
    Performance Goals. In addition, the CPR             testing opportunities for existing state employees.
recommends that the funding provided in the                  Employment Changes. The CPR also dis-
budget should focus on performance goals                cusses several ways to improve the management

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                             43
                                               AN LAO REPORT

     and efficiency of the state employment system.            Some recommendations, such as adopting a
     These include the following:                          new merit salary adjustment process and layoff
        ➢ Purchase a statewide salary survey (and          prioritization, would have to be negotiated with
          regularly update it) to develop compen-          employee unions (since current contracts
          sation policies for use in labor negotia-        include provisions regarding such “terms of
          tions (SO 48).                                   employment”). It is unclear at this time what
                                                           concessions the administration might have to
        ➢ Replace the automatic entitlement to             make in order to reach such agreements. Such
          annual merit pay raises with a pay-for-          concessions, however, could offset any savings
          performance approach that includes a             or efficiencies achieved from the recommended
          graduated scale of raises to acknowledge         actions.
          work that exceeds expectations (SO 49).
                                                           Information Technology
        ➢ Allow business needs and employee
                                                                New Information Technology (IT) Gover-
          performance to be factored into layoff
                                                           nance Structure. Since the sunset of the Depart-
          order rather than just seniority (SO 57).
                                                           ment of Information Technology in 2002, the
        ➢ Maintain the traditional public safety           state has been without a formal IT governance
          criteria for determining what positions          structure to oversee the state’s technology
          qualify for enhanced safety retirement           practices and operations. To address this issue,
          benefits. Other risky, but nonpublic             CPR recommends three entities guide and direct
          safety jobs would be compensated with            the state’s IT operations (SO 01 and SO 02).
          pay-related provisions instead of en-            First, CPR recommends formally establishing a
          hanced retirement (SO 51).                       State Chief Information Officer who would be
                                                           responsible for developing a statewide strategic
        ➢ Allow lump-sum retirement bonuses and            IT plan and issuing state IT policies. In addition,
          other retirement plans besides the               CPR recommends creating a Technology Ser-
          current defined benefit program                  vices Division (TSD) within the Office of Man-
          (SO 50).                                         agement and Budget. The TSD would be respon-
         LAO Comments—Savings Overstated. The              sible for (1) operating most state IT systems and
     CPR assumes several billion dollars in cumula-        networks, (2) conducting all IT procurements,
     tive savings from a workforce plan resulting in       and (3) providing project management, research
     slower state employment growth. The CPR               and development, and telecommunication
     assumes that the workforce plan would identify        services. Finally, the Technology Council (TC)—
     inefficiencies sufficient to prompt less hiring. To   composed of agency secretaries, the Depart-
     the extent that such inefficiencies are identified    ment of Finance, and the State Controller—would
     elsewhere in the report, the savings identified       oversee and direct these state IT activities.
     with the workforce plan are double-counted                 IT Investment Fund. In addition to providing
     and, therefore, overstated.                           statewide technology guidance, the TC would
                                                           also administer an IT investment fund (SO 02).

44                                                             L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

This continuously appropriated fund would            the state IT operations would also be the entity
consist of all monies from all fund sources          overseeing those operations. While the report
appropriated for state IT activities. This would     also mentions some oversight would occur at
include (1) funding for new and ongoing IT           the TC level, it does not define to what extent or
projects and (2) departments’ baseline funding       how this oversight would occur. In addition,
for support and maintenance of IT equipment          since the TC is composed almost entirely of
and telecommunications systems. On an annual         administration representatives, the independence
basis, the TC would decide how to distribute         of its oversight responsibilities is questionable.
these funds for statewide purposes.                       LAO Comments—IT Investment Fund
    New IT Systems and Technology Improve-           Circumvents Legislature’s Appropriations. One
ments. The CPR proposes implementing several         of the constitutional powers given exclusively to
new IT systems, including statewide financial        the Legislature is the power of appropriating
and asset management systems. Some of these          funds. The annual state budget is the
systems’ development and maintenance costs           Legislature’s primary method of authorizing
would be funded through fees charged to the          expenses for particular activities. The continuous
users of the system. For example, a portion of       appropriation of the IT investment fund, how-
the costs for the proposed online procurement        ever, would provide the administration vast
system would be covered by fees charged to           discretion over the use of billions of dollars in
vendors competing for state contracts. In addi-      funds appropriated for specific purposes by the
tion to proposing new systems, CPR also pro-         Legislature.
poses implementing a number of technology                 LAO Comments—New System Costs Under-
improvements aimed at lowering the state’s           estimated and Schedules Unrealistic. The CPR
ongoing IT costs. For example, CPR recom-            estimates savings above $700 million over the
mends combining the state’s voice and Internet       next five years from the implementation of new
data systems in order to produce a savings           IT systems. For the majority of the systems,
ranging up to $6.3 million per month (SO 15).        however, CPR does not identify the develop-
    LAO Comments—No Independent Over-                ment and maintenance costs which we believe
sight of State IT. Oversight ensures that state IT   could total in the hundreds of millions of dollars.
operations and projects result in (1) efficient      For that reason, any savings from implementing
operations and (2) improved services. Oversight      and maintaining these new systems is greatly
also monitors IT projects and expenditures,          overstated. In addition, CPR estimates that most
intervenes when expenditures exceed benefits,        of these systems could be implemented within
and ensures that benefits achieved from efficient    the next few years. Given the state’s experience
IT operations are integrated into the state          in developing and maintaining IT systems, we
budget. Typically, state oversight has been          believe CPR underestimates the number of years
independent of the day-to-day IT operations. The     it will take to implement these new IT systems.
CPR’s IT governance structure, however, com-              LAO Comments—Program and Service
bines oversight and operations. In CPR’s pro-        Delivery Needs Not Considered. Typically, the
posal, the entity responsible for running most of    Legislature approves the use of new systems and

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                          45
                                            AN LAO REPORT

     technologies based on the needs of the program         ➢ Eliminating the requirement that depart-
     and its service delivery strategies. For example,        ments purchase from the Prison Industry
     Chapter 270, Statutes of 1997 (AB 1542,                  Authority (SO 67).
     Ducheny), authorized the use of electronic debit
                                                             Methods to Purchase Goods and Services.
     cards for benefit payments in order to (1)
                                                         The CPR recommends a number of different
     reduce the cost of delivering benefits to indi-
                                                         procurement methods that the state can use to
     viduals and (2) allow recipients the opportunity
                                                         purchase goods and services. By using these
     to better manage their financial affairs. In some
                                                         procurement methods, CPR estimates the state
     instances, CPR, however, did not appear to
                                                         would save $2 billion over the next five years.
     consider the needs of programs. For example,
                                                         Some of these methods have already been used
     CPR recommends that the state implement a
                                                         by the state such as performance-based procure-
     wireless high-speed telecommunications net-
                                                         ments (SO 71) in which the contractor receives
     work aimed at improving communication
                                                         a monetary incentive to complete the project
     services and reducing costs (SO 17). The recom-
                                                         ahead of schedule. Other recommended pro-
     mendation, however, does not identify the
                                                         curement methods, however, would be new to
     specific program shortcomings that this new
                                                         the state. For example, to reduce prescription
     technology would address.
                                                         drug costs, CPR recommends that the state hire
                                                         a Pharmacy Benefit Manager (PBM) who would
                                                         be responsible for conducting most activities to
         Changes to Purchasing Laws and Practices.
                                                         support the state’s prescription drug needs
     The CPR recommends a number of changes to
                                                         (SO 70). The PBM would acquire the drugs
     the state’s procurement laws and practices. The
                                                         through discounted drug programs and then
     significant proposals include:
                                                         deliver those drugs to various departments. In
        ➢ Shifting most purchasing activities from       addition, CPR recommends that the state
          the Department of General Services             examine opportunities to utilize a federal gov-
          (DGS) to departments (SO 60).                  ernment program that provides drug discounts
                                                         to entities that provide services to specific
        ➢ Eliminating some existing exemptions
                                                         patient populations. The CPR recommends that
          from conducting competitive procure-
                                                         the state enter into a cooperative agreement
          ments (SO 63).
                                                         with an eligible entity to purchase discounted
        ➢ Reforming the vendor protest process           prescription drugs for the state.
          (SO 64).                                           LAO Comments—Procurement Oversight
                                                         May Be Reduced. One of the major compo-
        ➢ Repealing or modifying preferences for         nents of the state’s current procurement pro-
          (1) specific types of companies located        gram is oversight of departments’ purchasing
          in certain areas, (2) disabled veterans,       activities by DGS to ensure departments follow
          and (3) small businesses (SO 65, SO 68).       state law and make good purchasing decisions.
                                                         The CPR’s changes to the procurement program

46                                                           L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

assume the state’s existing governance structure     lottery sales revenues (GG 05 and GG 06).
of DGS, agencies, and departments—rather than        Specifically, the report recommends that the
CPR’s mega-department structure. As such,            state (1) participate in a multi-state lottery game,
CPR’s proposed procurement organizational            (2) increase the amount of money paid out in
structure would have agencies performing             prizes by reducing the percentage allocated to
purchasing reviews. Yet, CPR also recommends         education, and (3) expand the types of games
that the agencies conduct procurements and           offered to include banked games. The report
award contracts for departments. Since agencies      suggests that increasing the percentage allo-
would be involved in the same procurements           cated to prizes would increase sales revenues
and contracts that they will later review, the       and total dollars to education. The report esti-
independent perspective of these reviews could       mates that these recommendations could result
be compromised.                                      in a total of $1.2 billion in new revenues for
    LAO Comments—Procurement Savings                 education over the next five years.
Overstated. The CPR’s proposal to consolidate             LAO Comments. It is not clear that the
the state’s drug purchases identifies an impor-      proposed changes would generate new rev-
tant area for further study. The CPR estimates       enues to education. This is because the increase
$2 billion in savings would be achieved by using     in gambling may not offset the reduction in
various procurement methods, including               education’s percentage of total revenues.
$94 million in General Fund savings in 2004-05.
This amount is likely overstated. First, the 2004-   CRIMINAL JUSTICE
05 budget already includes General Fund                   The CPR report does not contain specific
savings of $96 million from improved procure-        recommendations in the corrections area, rather
ment practices. We believe the state’s ability to    it references the recommendations made by the
meet this baseline level of savings in the current   Corrections Independent Review Panel (CIRP).
year is questionable. In addition, CPR estimates     The CIRP, headed by former Governor George
almost $1 billion in savings over the next five      Deukmejian, released 239 recommendations to
years by using performance-based procure-            improve California’s correctional system. Below
ments. As noted earlier, this method has been in     we discuss and comment on a number of
use for several years, but its effectiveness on a    significant recommendations made by the CIRP.
statewide basis is unknown.                               Employee Investigations and Discipline
                                                     (Chapter 3). The CIRP found that the Depart-
State Lottery                                        ment of Corrections lacks a standardized proce-
    Increased Revenues From State Lottery.           dure for internal employee investigations and
Current law for the lottery prohibits banked         discipline. For this reason, the CIRP recom-
games (those in which the state has a financial      mends creating a centralized employee investi-
stake in the outcome) and requires that 34 per-      gations and disciplinary office. This new office
cent of lottery revenues be provided to educa-       would centrally record public complaints,
tion. The CPR recommends several changes to          monitor serious use-of-force incidents, conduct
the state lottery to increase participation and      and oversee staff misconduct investigations, and

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                           47
                                                AN LAO REPORT

       Figure 14
       Major General Government-Related Recommendations
        CPR                                                                                      Five-Year Cumulative
        Reference             CPR Recommendation                 CPR 2004-05 Fiscal Effect           Fiscal Effect

       GG 05          Expand Lottery Prizes and Games—           None                         $1.2 billion special fund
       GG 06          Change law to increase prize payouts                                    revenues
                      and types of games, including allowing
                      participation in multistate lottery.
       GG 07          Increase Federal Fund Revenues—            None                         $8.2 billion federal fund
                      Establish special unit to focus on                                      revenues
                      maximizing federal funds to the state.
       SO 01          Information Technology (IT)                Savings of                   Savings of
       SO 02          Governance Structure and                   $9.4 million General Fund    $145.4 million General Fund
                      Investment Fund—Create a new               $9.4 million special funds   $145.4 million special funds
                      governance structure and investment
                      fund for state IT.
       Various        IT Systems and Technologies—               Savings of                   Savings of
                      Implement new IT systems and               $10 million General Fund     $396 million General Fund
                      technologies to reduce costs and           $10 million special funds    $316 million special funds
                      improve services.
       SO 33 to       Changes to State Administrative            CBE                          CBE
       SO 37, SO 40   Practices—Make various changes to
                      state administrative practices including
                      implementing a biennial budget,
                      performance-based management and
                      budgeting, and strategic planning.
       SO 43 to       Prepare for Upcoming Retirements—          Savings of                   Savings of
       SO 46          Develop a workforce plan for future        $115 million General Fund    $1.6 billion General Fund
                      state needs and a centralized              $120 million special funds   $1.6 billion special funds
                      recruitment program.
       SO 47 to       Position and Pay Management—               Savings of                   Savings of
       SO 49, SO 52   Develop employee performance               $0.8 million General Fund    $21 million General Fund
                      standards and replace automatic merit      $0.8 million special funds   $21 million special funds
                      pay raises with a performance-based
       SO 60, SO 64   Modify Procurement Laws and                Savings of                   Savings of
       to SO 68       Practices—Modify current law and           $3.8 million General Fund    $98 million General Fund
                      practices to increase competition and      $3.8 million special funds   $92 million special funds
                      create state efficiencies.
       Various        Procurement Methods—Adopt                  Savings of                   Savings of
                      procurement methods to reduce costs in     $94 million General Fund     $1.2 billion General Fund
                      purchased goods and services.              $94 million special funds    $1.2 billion special funds

     represent the department during the appeal                      Inmate/Parolee Population Management
     process. While the panel does not provide a                 (Chapter 7). The CIRP found that about half of
     fiscal estimate for this recommendation, it                 the prison inmates released into the community
     believes that these changes would result in                 return to prison for parole violations and/or new
     savings by lessening the potential for employees            crimes thereby driving up the cost of the prison
     to appeal discipline cases and pursue civil                 system. As a result, the CIRP recommends a
     litigation.                                                 variety of measures to address these issues,

48                                                                     L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

including improving and expanding in-prison           increase the number of specialized parole
and on-parole programs to reduce recidivism,          agents who supervise sex offenders and men-
early release of elderly inmates, and early           tally ill wards on parole. The panel estimates
discharge of low-risk parolees. Further, the panel    savings of $4.5 million from the parole recom-
recommends establishing “presumptive sentenc-         mendations and costs of $6.8 million from
ing” which would set minimum and maximum              implementing the education recommendations.
release dates for inmates. Under this proposal,            Deactivation of Inmate Beds and Youth
inmates could not be released before their            Authority Facility Closures (Chapter 9). As the
maximum release date unless they exhibit good         prison inmate population falls—due to programs
behavior and complete programs mandated by            currently being implemented—the IRP recom-
the state. The panel estimates savings of $96 mil-    mends the deactivation of certain types of beds.
lion within the next three years, including           These include triple bunks, two inmates in a
approximately $3 million from early release of        one-inmate cell, and beds in gyms and
elderly inmates and $93 million from early            dayrooms. The panel estimates savings of
discharge of low-risk parolees.                       $45 million between fiscal years 2005-06 and
    Ward/Parolee Population Management                2008-09 from deactivating such beds. The
(Chapter 8). The panel found the California           savings result from eliminating a total of 639
Youth Authority’s education and treatment             correctional officer positions at prisons.
services to be inadequate. Also, the panel                 The panel found that the California Youth
identified changes to parole services that it         Authority facilities are presently a poor fit for
believes would improve public safety and              some of the wards currently occupying some of
program effectiveness.                                the facilities. The Youth Authority is housing a
    Some of the panel’s recommendations for           high percentage of violent offenders and youths
improving ward education include a “school first      who need mental health care, drug treatment,
policy” to reduce student absenteeism, an             and other specialized services. As a result, the
improved teacher-to-student ratio for all levels of   panel recommends that two currently closed
wards, and financial incentives to recruit more       facilities (a youth facility in Stockton and a
dual-credentialed teachers. The panel recom-          women’s adult correctional facility in Stockton)
mends improving counseling and mental health          be reopened and that the Youth Authority
services through a variety of changes including,      relocate certain wards to these facilities. In turn,
ensuring treatment services conform to national       this would allow the Youth Authority to close
standards, providing appropriate assessment,          two youth facilities.
and placement and programming for wards                    The panel recommends providing judges
identified as suicide risks. Finally, the panel       with the option of imposing “blended sen-
recommends changes to parole services includ-         tences”—both juvenile and suspended adult
ing, allowing counties the option to supervise        sanctions. The panel also recommends adjusting
nonviolent parolees, increasing the sliding fee       the age jurisdiction of the Youth Authority down
scale to reflect actual costs of incarcerating        from age 25 to age 21. According to the panel,
wards, and redirecting parole resources to            these changes, along with the facility closures,

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                            49
                                                    AN LAO REPORT

     would reduce the living unit size and the staff-to-           establishing a health care advisory group that
     ward ratio to nationally recognized standards.                would provide objective data and policy direc-
     The panel estimates net savings from the youth                tion, transferring responsibility for mental health
     facility closures of $6 million in 2005-06 and                care of all seriously mentally ill inmates and
     ongoing net savings of $12 million in each                    wards to the Department of Mental Health, and
     subsequent fiscal year. We would note that the                exploring an interagency agreement with the
     CIRP, in its assessment of facility closures, does            University of California to advise and consult on
     not appear to use the same criteria that the                  a long-term solution for correctional health care.
     department uses in determining facility closures.             The panel does not score specific costs or
     As a result, the CIRP recommends closing                      savings for the above recommendations.
     facilities that the department has not identified                 LAO Comments. Overall, the CIRP has
     in its closure plan.                                          identified significant issues facing California’s
          Correctional Health Care (Chapter 6). The                correctional system and its recommendations
     CIRP cites recent lawsuits and audit reports that             merit further consideration. For example, its
     conclude the Department of Corrections is not                 recommendations to centralize a currently
     providing adequate inmate health care and has                 fragmented employee investigation and disci-
     not adequately controlled costs. As a result, the             pline system and to establish improved ward-to-
     CIRP recommends that the department transi-                   teacher ratios have merit. However, it is difficult
     tion from the current administration of health                to fully analyze some of the significant recom-
     care by correction employees to a new system                  mendations because they lack sufficient detail.
     that would be administered largely through                    For example, the panel recommends
     contracting with private health care providers.               transitioning the correctional health care system
     Other significant recommendations include                     from one that is primarily administered by

      Figure 15
      Major Criminal Justice Recommendations
                                                                                                        CIRP Five-Year
       CIRP                                                                         CIRP 2004-05          Cumulative
       Reference                   CIRP Recommendation                              Fiscal Effect        Fiscal Effect

      Chapter 3 Employee Investigations and Discipline Process—                 Undetermined savings Undetermined savings
                Consolidate and centralize the employee investigations
                and disciplinary process.
      Chapter 7 Inmate/Parolee Population Management—Reduce                     Savings of           Savings of
                inmate and parolee population through the                       $10 million          $96 million
                implementation of various new and expanded programs.             General Fund         General Fund
      Chapter 9 Inmate/Ward Closures—Deactivate various types of                None                 Savings of
                inmate beds, close two youth facilities, and open two                                $87 million
                closed facilities.                                                                    General Fund
      Chapter 8 Ward/Parolee Population Management—Reduce student               None                 Cost of
                absenteeism, improve teacher ratios, conform treatment                               $2.3 million
                services to national standards, and redirect parole services.                         General Fund
      Chapter 6 Correctional Health Care—Transition to administration           Savings not yet      Savings not yet
                of health care by contracted health care providers.              determined           determined

50                                                                      L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

correctional employees to one that is primarily          Infrastructure Authority, a public corporation
administered by private contractors. However,            chaired by the Governor’s Secretary for Infra-
the report provides limited rationale as to why          structure which would serve as the board of
the state should make this wholesale change              directors for the Infrastructure Department. The
and provides no specific costs and benefits for          CPR proposes that the authority be financially
this recommendation.                                     independent from the state budget and fee-
     Finally, we would note that the IRP’s esti-         based. The authority would be established
mated savings may be overstated for various              outside of the civil service system, and would be
recommendations. For example, the panel                  responsible for overseeing infrastructure plan-
recommends several parole reforms whose                  ning, capital budgeting, fiscal controls, asset
savings might overlap with savings already               management, acquisitions, construction, mainte-
anticipated for parole reforms implemented in            nance, and property sales. In addition, CPR
2003-04 and 2004-05. Further, the panel at-              proposes that this entity be authorized to issue
tributes savings to the deactivation of various          tax-exempt bonds, secure private financing, and
types of prison beds but does not identify state         enter into contracts without approval from
policy changes that would reduce inmate                  control agencies such as the State Personnel Board
population that would allow the realization of           and the Department of General Services (DGS).
these savings.                                                LAO Comments. Our office has long advo-
                                                         cated for better infrastructure planning, manage-
CAPITAL OUTLAY                                           ment, and oversight. However, as stated in
    Consolidate Infrastructure Planning, Devel-          Section 2 of this report, while some aspects of
opment, and Management. The report recom-                state government organization can be improved
mends the consolidation of state infrastructure          through reorganization, this particular proposal
functions in order to better coordinate infrastruc-      lacks sufficient detail to evaluate whether a
ture planning and programming, and achieve               proposed consolidation would improve the
better utilization of its capital assets (INF 18 and     state’s efforts in this program area.
INF 19). This proposal would create an Infra-                 We believe that establishing a financially
structure Department that would perform the              independent public corporation that can issue
planning, programming, evaluation, and financ-           tax-exempt financing (using the state’s credit),
ing of infrastructure needs in six operating             secure private financing, and is free to enter
divisions: (1) Water; (2) Energy; (3) Transporta-        contracts without executive or legislative branch
tion; (4) Housing, Buildings, and Construction;          review raises significant fiscal, policy, and
(5) Telecommunications; and (6) Boating and              oversight issues. In addition, the CPR does not
Waterways. According to CPR, by consolidating all        elaborate on how the authority would be funded,
capital outlay and infrastructure functions, the state   nor does it indicate who would pay the fees.
could develop an integrated infrastructure policy,            The CPR proposal would consolidate the
streamline and standardize administrative proce-         responsibilities of the California Transportation
dures, and coordinate the need for capital projects.     Commission, Energy Commission, Public Utili-
    The proposal also calls for the creation of an       ties Commission, and the Bay-Delta Authority in

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                             51
                                             AN LAO REPORT

     the Infrastructure Department. Currently, these      the department would generate an additional
     entities have established procedures for public      $50 million in surplus property sales revenue.
     participation in their decision-making process. It   (The CPR used this assumption to generate its
     is not clear how this participation will be incor-   fiscal estimate.) Thus, CPR’s 2004-05 estimate
     porated in the consolidation proposal.               double counts revenues currently accounted for
         Surplus Property Sales. The state currently      in the state budget. With regard to the five-year
     owns property that is no longer needed for state     estimate, we note that it is heavily dependent on
     programs. Historically, it has taken several years   the specific properties identified as surplus and
     from when a property is identified as surplus        how quickly they are sold. Moreover, revenues
     and when it is actually sold. The CPR recom-         generated from properties purchased with
     mends the process of disposing of surplus real       special fund dollars would return to those
     property be modified and streamlined to gener-       special funds. This may cause the General Fund
     ate additional state revenue (INF 11). Major         fiscal effect to be overstated.
     changes to the current process would include              Delegate Property Management and Real
     requiring all surplus property be sold at fair       Estate Services. The DGS currently provides
     market value, eliminating the “right of first        various real estate services, such as leasing,
     refusal” to nonstate entities, and authorizing the   facility management, and construction, to other
     State and Consumer Services Agency, or its           state agencies. According to CPR, these real
     successor, to declare state properties surplus       estate-related processes are costly when com-
     and direct their sale. The CPR estimates that        pared to the private sector (INF 30). The CPR
     surplus sales could result in revenue of $379 mil-   believes that by delegating the ability to contract
     lion over the next five years.                       for property management and construction
         LAO Comments. The proposal to accelerate         services (from preapproved service providers) to
     the sale of surplus state property was proposed      individual agencies, the state will realize savings.
     in Executive Order S-10-04, issued on May 11,        The CPR estimates a five-year cumulative savings
     2004. Subsequently, Chapter 227, Statutes of         of around $819 million from this change.
     2004 (SB 1102, Committee on Budget and                    LAO Comments. The recommendation to
     Fiscal Review), a budget trailer bill, accelerated   delegate real estate services to individual depart-
     the identification and sale of surplus property      ments conflicts with the larger CPR recommen-
     on a one-year basis. We note that the CPR            dation to consolidate and integrate all infrastruc-
     recommendations would significantly weaken           ture and capital outlay functions, including real
     the Legislature’s involvement in the determina-      estate services, in the Department of Infrastructure.
     tion of which properties are declared surplus             We note that CPR’s savings estimate as-
     and sold. Currently, the administration must first   sumes that most departments will contract for
     obtain legislative concurrence and approval to       property management and real estate services
     dispose of surplus property. The CPR recom-          from the private sector. However, the CPR
     mendation would eliminate this requirement.          proposal does not provide sufficient detail to
         The 2004-05 Budget Act assumed that by           assess the magnitude of the estimated savings.
     augmenting the DGS budget by $2.8 million,

52                                                            L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                              AN LAO REPORT

    Reduce the State’s Leasing Costs. The CPR                 TAX ADMINISTRATION              AND     REVENUE
states that DGS currently leases about 20 million
                                                              Tax Policy
square feet of office and warehouse space.
According to CPR, the current system of leasing                    Tax Relief on Manufacturing Equipment
from private owners is burdensome and costly.                 (GG 17). The CPR proposes the institution of a
The CPR believes that by increasing the use of                substantial new sales and use tax (SUT) incen-
telecommuting, renegotiating current leases,                  tive for the purchase of manufacturing and
eliminating redundant site inspection and plan                telecommunications equipment. Although
check requirements, and by using state financing              California previously had an income tax-based
for state tenant improvements, the state can                  manufacturing incentive program that recently
significantly reduce its leasing costs (INF 10).              sunsetted, this new program would be struc-
The CPR estimates that state could save approxi-              tured as a sales tax credit as opposed to an
mately $128 million over a five-year period by                income tax credit. Under the proposal, the
implementing its recommended changes.                         incentive program would provide a tax credit
    LAO Comments. Control Section 5.50 of                     equal to the General Fund portion of the SUT
the 2003-04 Budget Act required DGS, in part,                 (currently equivalent to a 5 percent rate) paid on
to renegotiate leases for office and warehouse                eligible equipment. Businesses qualifying for the
space. Because of the renegotiations with                     program could use the credit against their sales
various property owners, state leasing costs                  taxes after 12 months have elapsed from the
were reduced by approximately $15 million                     date of the equipment purchase. The proposal
annually. As such, DGS has already reduced                    calls for the credit program to begin in 2006 and
leasing costs by $75 million over a five-year                 be in effect through 2015. Based on a study
period. Consequently, we question the likeli-                 prepared for the California Manufacturers and
hood of achieving an additional $128 million in               Technology Association, the CPR states that tax
savings over the next five years.                             revenues from added personal income tax (PIT)

 Figure 16
 Major Capital Outlay Recommendations
 CPR                                                               CPR 2004-05         CPR Five-Year Cumulative
 Reference            CPR Recommendation                           Fiscal Effect             Fiscal Effect

 INF 18,     State Infrastructure—Consolidate functions     None                       Savings of
 INF 19      in order to better coordinate infrastructure                              $2.3 million special and
             planning, programming, and asset                                           federal funds
 INF 11      Surplus Property—Accelerate surplus            Revenue of                 Revenue of
             property sales.                                $47.2 million General Fund $379 million General Fund
 INF 30      Real Estate Services—Delegate property         None                       Savings of
             management and real estate services to                                    $409.5 million General Fund
             individual departments.                                                   $409.5 million other funds
 INF 10      Facility Leasing—Reduce costs by               Savings of                 Savings of
             increased telecommuting, renegotiating         $7.1 million General Fund $64.1 million General Fund
             facility leases, and modifying leasing         $7.1 million other funds   $64.1 million other funds

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                                    53
                                              AN LAO REPORT

     and corporate tax generated by the program                 LAO Comments. As noted in the report, given
     would more than offset SUT losses in all ten          that homeowners have received substantial
     years of the program, with net revenues of            property tax relief since the HRAP was started due
     approximately $80 million in 2008-09.                 to the passage of Proposition 13, this proposal is
          LAO Comments. The CPR proposal is                worth consideration by the Legislature. Program
     intended to act as an incentive for business          reductions in this area were presented to the
     investment in manufacturing and telecommuni-          Legislature as an LAO option in the 2004-05
     cations equipment. The structure of the tax           Budget: Perspectives and Issues (page 235).
     incentive would benefit these industries and
     specifically allow start-up firms and firms with no   Tax Administration
     tax liability to benefit. However, as we indicated        The CPR proposes several changes in the
     in our October 2003 report, An Overview of            area of tax administration, compliance, and
     California’s Manufacturers’ Investment Credit, the    enforcement.
     broad findings of research in the area of tax             The California Tax Commission (Volume 2,
     incentives suggests that although state-level         Chapter 11). The CPR report indicates that
     investment tax credits may affect decisions of        California’s tax system is duplicative, inefficient,
     individual firms “on the margin,” they have little    and confusing due largely to the split of tax
     impact in the aggregate on business investment        administration among the Franchise Tax Board
     decisions relative to other factors. As a result,     (FTB), Board of Equalization (BOE), and Employ-
     incentive programs of the type proposed in the        ment Development Department (EDD). The
     CPR are likely to be expensive (in terms of           CPR proposes that some of the state’s principal
     foregone revenues) relative to the benefits they      tax collections agencies, together with certain
     bestow in the form of additional investment           components of DMV, be consolidated into a
     activity in the state. For example, DOF has           new California Tax Commission (CTC). The
     estimated that additional activity generated by       report indicates that the BOE would be retained
     the manufacturers’ investment credit (MIC)—           as an independent entity, and its board members
     which was in place in California from 1994 until      would serve as ex-officio board members of the
     it sunsetted in 2003—resulted in partially offset-    CTC.
     ting revenue gains of about one-third the size of         LAO Comments. The notion of a consoli-
     the gross revenue losses. Thus, a gross revenue       dated tax agency for California is not a new one.
     loss of $100 million would be partially offset by     Dating as far back as 1945, our office has in fact
     a revenue gain of about $30 million, for a net        recommended the formation of just such an
     revenue loss of $70 million.                          entity. In 1993-94, we indicated that the
          Revise the Homeowners’ and Renters’              administration’s proposal for a Department of
     Assistance Program (GG 35). The CPR proposes          Revenue—involving consolidating activities of
     to reduce costs associated with the                   FTB and BOE—represented an appropriate
     Homeowners’ and Renters’ Assistance Program           administrative policy that could result in im-
     (HRAP), by eliminating the tax relief portion for     proved services and long-run savings. We
     homeowners.                                           continue to think that a consolidated depart-

54                                                             L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

ment for all major taxes could result in improved     tional General Fund revenues of over $150 mil-
services, coordination, and accountability. In        lion over five years.
particular, the largest benefits of such consolida-        LAO Comments. Before considering an
tion could occur in the coordination of tax           augmentation in the areas of tax auditing and
enforcement and compliance. Short-term costs,         collections, the Legislature should be convinced
                                                      of the likelihood that such additional revenues
however, are quite likely due to the need to
                                                      will actually be received. For example, the
maintain existing systems while establishing new
                                                      report proposes that FTB receive additional
ones. The CPR recommendation would address
                                                      resources to fund collection activity down to the
only some of these issues. It is not clear as to
                                                      3:1 benefit-cost level, for additional annual net
the authority of the CTC board with respect to        revenues of $12 million. However, it is our
the various taxes, or how the proposed CTC            understanding that FTB is already working at the
board relates to the existing constitutional          3:1 level using existing resources. Likewise, with
authority of the BOE board. In addition, it does      respect to the BOE and EDD proposals, the
not appear that the proposal includes the BOE’s       Legislature should determine that estimated
administrative structure within the CTC. As a         revenues are based on “cash in the door,” and
result, the state’s major taxes would still be        do not merely reflect proposed tax assessments
administered by separate entities.                    that may or may not result in additional rev-
     Raise State Revenue Through Tax Amnesty          enues. Finally, to the extent these revenue
(GG 01). The CPR includes a proposal to               generating activities increase auditing and
establish a comprehensive statewide amnesty           collection activities, the Legislature should
                                                      systematically weigh the potential adverse
program for the PIT, SUT, and vehicle license
                                                      impact on compliant taxpayers of this additional
and registration fees.
                                                      administrative presence.
     LAO Comments. The Legislature has already
                                                           Consolidate and Upgrade Cashiering for
enacted a tax amnesty program that covers the
                                                      State Taxing Agencies (GG 03). The report
PIT and the SUT. The program will take place          indicates that savings of about $35 million over
during February and March of 2005, and result         a five-year period could be achieved in mail and
in increased revenues in 2004-05 of $333 mil-         cashiering activities of the tax agencies through
lion. Thus, most of the revenues that would be        upgrades and consolidation.
generated by the CPR proposal have already                 LAO Comments. The CPR recommenda-
been incorporated in the budget. It is important      tions appear reasonable and are in keeping with
to note that tax amnesties generate most of their     similar recommendations over the recent past.
benefits through the acceleration of revenues         However, it is not apparent how this partial
rather than generating additional new revenues.       consolidation relates to the CPR recommenda-
     More Tax Collection and Audit Staff Will         tion regarding the formation of a new tax
Generate Additional Tax Revenue (GG 02). The          commission that would result in the full consoli-
CPR proposes to increase audit and collections        dation of certain tax agencies (see above).
staff at FTB, BOE, and EDD. According to the          Pursuant to Chapter 569, Statutes of 2003 (AB
report, lowering the existing benefit/cost ratio      986, Horton), our office will be reporting to the
used by the tax agencies would generate addi-         Legislature later this year regarding the possible

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                          55
                                                  AN LAO REPORT

     consolidation of the remittance, cashiering, and               tencies in assessment activities, the same could
     mail processing functions of FTB, BOE, and EDD.                be said regarding the assessment of certain
          Centralize for Efficiency the Assessment of               other types of personal property. Given this, the
     Commercial Aircraft (GG 19). The CPR indi-                     Legislature may want to consider the proposal in
     cates that the property tax assessment of com-                 a broader policy context that takes into account
     mercial aircraft fleets by county assessors results            all of the types of industries or personal prop-
     in inconsistent tax treatment and the duplication              erty that may be suited for a centralized assess-
     of administrative functions. It proposes that the              ment approach. It also may wish to assess the
     assessment of such fleets be centralized and                   potential adverse impact of the proposal in
     carried out by the BOE at a five-year cost of                  terms of the resulting reduction of local exper-
     about $2 million with unknown revenue impact.                  tise and input in the assessment process.
          LAO Comment. While the proposal could
     result in elimination of duplication and inconsis-

      Figure 17
      Tax Administration and Revenue
                                                                    CPR 2004-05               CPR Five-Year
       CPR Reference        CPR Recommendation                      Fiscal Effect          Cumulative Fiscal Effect

      Volume 2,        California Tax Commission—             CBE                      CBE
       Chapter 11      Consolidate tax agencies’ activities
                       within a new commission.
      GG01             Tax Amnesty—Implement broad       Revenues of                   Revenues of
                       tax amnesty for major revenue     $229 million General Fund     $383 million General Fund
                       sources.                          $15 million special and       $16 million special and local funds
                                                          local funds
      GG02             Audit and Collections—Increase None                             Revenues of
                       auditing and collection resources                               $155 million General Fund
                       for FTB, BOE, and EDD.                                          $36 million special and local funds
      GG03             Cashiering Functions—             None                          Savings of
                       Consolidate and upgrade mail,                                   $21 million General Fund
                       cashiering, and remittance                                      $14 million special and local funds
                       processing functions of tax
      GG17             Manufacturing Tax Credit—         None                          Revenues of
                       Provide sales tax credit for the                                $343 million General Fund
                       purchase of manufacturing and
                       telecommunications equipment.
      GG19             Property Tax Assessment—          CBE                           Costs of
                       Centralize assessment of                                        $2.2 million General Fund
                       commercial aircraft.
      GG35             Homeowners' and Renters'          None                          Savings of
                       Assistance Programs—Institute                                   $91 million General Fund
                       various program revisions and

56                                                                      L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

    The CPR offers the state an opportunity to      nation of the problem being addressed and
reexamine the functions and operations of state     whether the proposed solution effectively
government. As discussed in the preceding           addresses it and results in improved service.
pages, careful consideration requires an exami-

L E G I S L AT I V E A N A LY S T ’ S O F F I C E                                                   57
                                                               AN LAO REPORT

                                                  LEGISLATIVE ANALYST’S OFFICE
     Legislative Analyst
         Elizabeth G. Hill .................................................................................................. 445-4656
     Deputy Legislative Analysts
         Hadley Johnson, Jr. ............................................................................................. 319-8303
         Mac Taylor ........................................................................................................... 319-8301
     Economics, Taxation, and Fiscal Forecasting
         Director: Jon David Vasché ............................................................................ 319-8305
     Economics, Taxation, and Fiscal Forecasting
         Director: Brad Williams .................................................................................... 319-8306
     State Administration
         Director: Michael Cohen .................................................................................. 319-8310
     Education, K-12
         Director: Robert Manwaring .......................................................................... 319-8333
     Education, Higher
         Director: Steve Boilard ..................................................................................... 319-8331
     Local Government
         Director: Mac Taylor ......................................................................................... 319-8301
         Director: Daniel C. Carson.............................................................................. 319-8350
     Social Services
         Director: Todd R. Bland ................................................................................... 319-8353
     Criminal Justice and State Administration
         Director: Greg Jolivette .................................................................................... 319-8340
     Transportation/Capital Outlay
         Director: Chi-Ming Dana Curry ..................................................................... 319-8320
         Director: Mark Newton ................................................................................... 319-8323

58                                                                                        L E G I S L AT I V E A N A LY S T ’ S O F F I C E
                                           AN LAO REPORT

L E G I S L AT I V E A N A LY S T ’ S O F F I C E          59

           L E G I S L AT I V E A N A LY S T ’ S O F F I C E

To top