LAO Contact: Helen Kerstein

Budget and Policy Post
May 11, 2016

Challenges in Reviewing Recently Released $400 Million Deferred Maintenance Project List

LAO Bottom Line. The timing of the administration’s release of a draft list of proposed deferred maintenance projects—just two weeks before the Governor’s May Revision—provides the Legislature with a limited opportunity to conduct a thoughtful review of the proposals prior to the conclusion of the 2016-17 budget process. Therefore, we suggest that the Legislature may want to prioritize its review of the administration’s draft list as part of the 2016-17 budget process to focus on projects that are (1) largest in size, (2) appear to be lower priority, or (3) are not typically considered deferred maintenance. Additionally, in the future, we recommend that the administration provide the Legislature with (1) information about its long-term plan for addressing the state’s deferred maintenance backlog and (2) more detailed information on proposed projects earlier in the budget process.

Administration Identified Deferred Maintenance Projects. As summarized in Figure 1, the Governor’s 2016-17 budget includes $500 million from the General Fund for deferred maintenance projects in various state departments. On April 29, the administration released its initial draft list of most of the specific projects that would be undertaken with this funding. (The list does not include $100 million in Department of Water Resources projects, which are in part proposed to be selected in the future on a competitive basis.) We discuss the Governor’s deferred maintenance proposal in more detail in our February 2016 budget brief The 2016-17 Budget: Governor’s General Fund Deferred Maintenance Proposal.

Figure 1

General Fund (Non-Proposition 98) Deferred Maintenance Proposal for 2016-17

(In Millions)

Department/Program

Proposed Amount

Water Resources

$100

State Hospitals

64

Judicial Branch

60

Parks and Recreation

60

Corrections and Rehabilitation

55

California State University

35

University of California

35

Developmental Services

18

Military

15

Fish and Wildlife

15

General Services

12

Forestry and Fire Protection

8

Veterans Affairs

8

California Fairs

4

State Special Schools

4

Science Center

3

Hastings College of Law

2

Emergency Services

1

Conservation Corps

1

Food and Agriculture

<1

State Conservancies/Wildlife Conservation Board

<1

Total

$500

List Is Lengthy, Includes Large Projects, and Provides Little Information. The Legislature’s review of the administration’s list will be challenging given the number of projects included (over 1,000) and the lack of detail on individual projects. Based on our review of the list, we identified a few keys features:

  • Many Large Projects. These projects range widely in size—from a $1,000 flooring project at the Department of Forestry and Fire Protection (CalFire) to a $55 million roof and heating, ventilation, and air conditioning project at the Department of State Hospitals (DSH). Roughly 30 percent of the $400 million of projects on the list are for the ten projects each costing over $5 million. There are an additional 77 projects estimated to cost between $1 million and $5 million. These larger projects are concentrated at the following departments: DSH, the California Department of Corrections and Rehabilitation, the Department of Parks and Recreation (DPR), the Judicial Council, the University of California, and the California State University.

  • Little Information Provided. Regardless of project size, the list lacks details on the proposed projects. It includes project names, locations, and funding amounts, but generally does not provide other information that would be important for the Legislature to have in order to evaluate projects, such as detailed descriptions of the proposed projects and justifications for why they are needed. This is the type of information that the Legislature would typically expect to receive on significant budget proposals.

  • Some Projects Might Be Lower Priority. The list includes some projects that appear to be of lower priority for funding. For example, the list includes over a dozen interior painting projects at various departments such as the Military Department and the Office of Emergency Services. The list also includes over 30 flooring projects at various departments such as CalFire and the Department of Fish and Wildlife (DFW). Historically, our office has suggested prioritizing funding for certain types of projects—such as those that address fire, life, and safety issues or reduce future state costs—over these types of projects that often address aesthetic concerns.

  • Some Projects Not Typically Considered Deferred Maintenance. The list also includes some projects that do not appear to fit into the typical definition of deferred maintenance. For example, the DFW’s list includes 50 water-efficiency projects. This list also includes two projects that are described as annual (rather than deferred) maintenance. Additionally, the Department of General Services is proposing a project to upgrade audio-visual equipment, and DPR is proposing two projects that add trails. While these projects may be worthwhile, our office has noted in the past that the Legislature may want to ensure that the deferred maintenance funding it provides goes towards activities that represent true deferred maintenance rather than other departmental priorities.

Legislative Review of Projects Challenging Given Timing. There are only a few weeks remaining before the constitutionally required June 15th deadline for the Legislature to adopt a state budget for 2016-17. This leaves little time for the Legislature to thoroughly vet the administration’s proposal, particularly given the number of projects and total funding proposed. Therefore, it will be challenging for the Legislature to ensure that the specific projects that are proposed are consistent with its priorities. Furthermore, it will also be challenging for the Legislature to determine whether the proposed funding is spread across departments in a way that addresses what the Legislature thinks are the most pressing state infrastructure needs.

Near-Term Approach Requires Prioritization. Given the limited amount of time available to review the proposed projects, the Legislature will probably be forced to focus its attention on certain types of projects rather than conducting a comprehensive review. It has a few options it could consider. It could focus on the largest projects, such as the ten largest projects shown in Figure 2. Doing so could at least ensure that the largest spending proposals are consistent with legislative priorities. The Legislature could also review the list and reject those projects that might be lower priority and address projects that are not really deferred maintenance in some other fashion.

Figure 2

Ten Largest Proposed Projects

(In Millions)

Department

Project Location

Project

Estimated Cost

State Hospitals

Atascadero State Hospital—Main Building

Replacement of roof and 47 air handlers

$55.0

Judicial Council

Stanley Mosk Courthouse (Los Angeles)

Escalator renovation

10.3

Developmental Services

Porterville Developmental Center

Boiler replacement

10.1

Corrections and Rehabilitation

Northern California Youth Correctional Center (Stockton)

Boiler replacement

8.5

Corrections and Rehabilitation

California Institution for Women (Corona)

Boiler replacement

7.1

University of California (UC)

UC Berkeley—Multiple Locations

Building envelope renewal

7.1

University of California

UC Los Angeles Center for Health Sciences

Replace emergency generator system

7.0

Veterans Affairs

Veterans Home of California (Yountville)

HVAC system renovation

6.8

State Hospitals

Metropolitan State Hospital­—Secured Nursing Facility (Norwalk)

Replacement of roof and four air handlers

5.2

Parks and Recreation

Columbia State Historic Park

Hazardous materials abatement, energy efficiency upgrades, seismic and structural work, interior and exterior elements

5.2

HVAC = heating, ventilation, and air.

Long-Term Focus Should Be on Improving Ongoing Maintenance and Providing Better Information. On a longer-term basis, we recommend that the Legislature continue to press the administration to improve departments’ ongoing efforts to maintain state facilities. As we noted in our February 2016 report, providing one-time funding is only a short-term response to the underlying problem—the failure to consistently maintain state assets on an ongoing basis. Thus, we continue to recommend that the Legislature seek information on (1) why the administration’s identified deferred maintenance backlog has changed over time, (2) the administration’s long-term plan to address the accumulated deferred maintenance backlog, and (3) how departments will ensure that appropriate ongoing maintenance is sustained so that deferred maintenance does not continue to accumulate.

Furthermore, should the administration put forward deferred maintenance proposals in future years, we believe that the Legislature should expect the administration to adopt an approach that better facilitates legislative review and oversight by providing the Legislature with more detailed information earlier in the budget process.

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