The 2024‑25 Budget

Establishing the Office of the Inspector General for the High-Speed Rail Authority

Summary. The Governor’s budget proposes $2 million in new funding from transportation special funds (including $1.4 million on an ongoing basis) to support ten ongoing and four limited-term positions to launch the High-Speed Rail Authority (HSRA) Office of the Inspector General (OIG). We find that the proposed level of resources for OIG appears reasonable to accomplish the proposed work plan. However, we identify some potential barriers to the successful and independent operation of the new office, including (1) the temporary nature of some of the proposed positions for OIG, (2) OIG’s lack of authority to use a requested auditor classification, and (3) two areas where the provision of additional information to the Joint Legislative Budget Committee (JLBC) could help preserve OIG’s budgetary independence. Accordingly, we recommend that the Legislature fund all of the requested positions on a permanent basis; provide OIG with the authority to use the requested, or similar, auditor classification; and adopt two changes to strengthen the JLBC’s role in overseeing and safeguarding OIG’s budget.

Background

Legislature Established OIG in 2022 to Improve High-Speed Rail Project Oversight. As part of an agreement to appropriate the remaining unappropriated Proposition 1A bond funds for HSRA, the Legislature adopted Chapter 71 of 2022 (SB 198, Committee on Budget and Fiscal Review). Among other provisions, Chapter 71 created the HSRA OIG to improve oversight of the high-speed rail project and provide accurate, current, and impartial information to inform project decisions. The budget package included baseline funding of $1 million annually from the Public Transportation Account (PTA) for OIG. The package also included budget bill language that allows the Department of Finance (DOF) to approve an additional midyear augmentation of up to $1 million no sooner than 30 days after notifying JLBC.

Statute Included Various Provisions. Chapter 71 included a variety of provisions governing the establishment and operation of OIG. Some of the key provisions relate to the following:

• OIG Responsibilities. Chapter 71 specified various responsibilities for OIG, such as conducting audits and investigations and reviewing HSRA business plans, contracts, and proposed agreements.

• OIG Authorities. To perform its work, Chapter 71 provided OIG with a number of powers and authorities, such as issuing subpoenas and accessing all HSRA files and other records.

• Appointment and Removal of the Inspector General (IG). Chapter 71 gave both the Legislature and Governor roles in selecting the IG to lead OIG, requiring the Governor to appoint an IG from among three individuals nominated by the Joint Legislative Audit Committee (JLAC). The statute also prohibits the Governor from removing the IG without good cause.

• IG’s Selection of Staff. The statute requires the IG to select, appoint, and employ officers and employees necessary to carry out the functions of OIG. In making these selections, the IG is required to ensure that officers and employees have the requisite training and experience to enable the office to carry out its duties effectively.

• IG Compensation. Chapter 71 specifies that the IG’s salary be the same as that of the IG of the California Department of Corrections and Rehabilitation (currently roughly $192,000 annually).

• OIG’s Operational Independence. Chapter 71 specifies that OIG be independent and not a subdivision of any other governmental entity, such as a state department or agency.

• Budgetary Independence. The statute requires that if OIG proposes a different level of overall fiscal support than the amount included in the Governor’s budget, DOF shall provide a notification to the chairs and vice chairs of the budget committees of both houses of the Legislature and to the Legislative Analyst’s Office. When applicable, this notification must identify the differences and explain the rationale for the discrepancy and be provided no later than January 10 of each year.

• HSRA Support for OIG Operations. The statute requires HSRA to provide various resources to OIG, including appropriate and adequate office space, equipment, office supplies, maintenance services, and communications facilities and services as may be necessary. The statute does not specify the extent to which OIG is required to reimburse HSRA for the cost of any resources it may provide.

In 2023, IG Was Selected and Began Hiring. In August 2023, the Governor announced the selection of the first IG from among three candidates selected by JLAC, consistent with the process outlined in statute. Since being selected, the IG has taken various steps to launch the office. For example, the IG moved into a portion of HSRA’s office space, which HSRA provided consistent with the statutory requirement. The IG also began hiring staff using the $1 million provided as part of the 2023‑24 state budget. To date, the IG has hired three staff members. OIG also currently is using HSRA staff to help support various activities, such as those related to basic human resources and budgeting functions.

IG Has Identified a Proposed Work Plan. The IG’s proposed work plan envisions that OIG will conduct six programmatic reviews annually, as well as investigate complaints (such as from whistleblowers) and conduct ad hoc reviews. We summarize OIG’s work plan for 2024‑25 in Figure 1. As shown, some of the key activities planned for the 2024‑25 fiscal year include analyzing the funding, benefits, costs, and schedule of the Merced-to-Bakersfield segment; evaluating HSRA’s policies for managing contracts and overseeing consultant work and assessing compliance with those policies; and analyzing policies related to procuring contracted services.

Governor’s Proposal

Proposes Funding and Positions to Launch OIG. The Governor’s budget proposes $1.4 million on an ongoing basis plus an additional $600,000 annually from 2024‑25 through 2026‑27, all from the PTA, to launch a fully functioning OIG. This funding is in addition to the baseline funding of $1 million annually that is available to OIG, as mentioned above. Together, the ongoing $2.4 million is proposed to support ten permanent positions and the additional $600,000 would support four temporary positions for three years. The new positions are summarized in Figure 2. Under the proposal, OIG would continue to use HSRA to help support various administrative functions—such as human resources and budgeting—at least until OIG conducts an assessment to determine the best plan for securing these services in the long term. The Governor continues to include budget bill language that allows DOF to approve a midyear augmentation of up to $1 million as needed after providing a notification to the JLBC.

Assessment

Proposed Staffing Levels Appear Reasonable to Meet Work Plan. The proposed staffing levels—ten permanent positions and four temporary positions—appear to be well justified to complete the IG’s proposed work plan and address the baseline workload associated with overseeing the high-speed rail project. This level of staffing provides sufficient auditors to conduct six programmatic reviews annually, as well as an estimated 900 hours annually to respond to whistleblower complaints and 2000 hours annually to respond to workload requests from the Legislature, Governor, and HSRA.

Providing Positions on Temporary Basis May Make It More Difficult to Attract and Retain Staff. As mentioned above, the proposal would fund four of the requested positions on a limited-term basis. In some cases, such an approach can make sense, particularly when programs are new and the level of ongoing workload is uncertain. However, this likely is not the case for OIG. While OIG is new, some certainty exists that the proposed staffing will be needed as a baseline level on an ongoing basis given the size and complexity of the high-speed rail project and the number of issues that could benefit from oversight. Additionally, attracting and retaining qualified staff can be difficult for limited-term positions since the job status provides less stability.

Lack of Authority to Use Proposed Auditor Classification Could Pose Challenge. As shown in Figure 2, the proposal requests funding for two Staff Management Auditor (Specialist) positions. However, OIG indicates that it currently does not have access to this position classification—which is used by the State Controller’s Office (SCO)—nor to similar classifications used by the California State Auditor (CSA) and the California Public Employees’ Retirement System (CalPERS). OIG lacks this access because to use department-specific classifications under existing state policy, OIG must either (1) receive approval from the relevant “owning” department, as well as from the California Department of Human Resources (CalHR) or (2) CalHR must approve the use of the classification, overriding the owning department’s refusal to allow the requesting department to use the classification. That is, based on the typical state process, SCO, CSA, CalPERS, and/or CalHR would have to grant approval to OIG to use this type of auditor position. To date, OIG reports that CSA and CalPERS have denied requests to use their classifications, and SCO has not yet responded to OIG’s requests. Thus, while the proposal assumes the use of the Staff Management Auditor (Specialist) classification, whether OIG ultimately will have access to it still is unclear. Absent such access, OIG reports it would have to use a general classification for hiring these positions that pays less than the other comparable state agencies. OIG indicates this inability to hire at the desired classification could affect its ability to attract and retain top talent.

Notably, as mentioned previously, Chapter 71 requires OIG to select, appoint, and employ officers and employees necessary to carry out the functions of the office. It also further requires that, in making these selections, the IG must ensure that those officers and employees have the requisite training and experience to enable the office to carry out its duties effectively. This language suggests that Chapter 71 intended OIG to have the ability to hire well-qualified, experienced staff to support the mission of the office.

DOF’s Failure to Notify the JLBC About Modifications to OIG’s Request May Fall Short of Meeting Legislative Intent. The mix of permanent and limited-term positions proposed—ten permanent staff and four temporary staff—differs from the proposal originally submitted to the administration by OIG, which requested that all the positions be permanent. DOF did not provide a notification to JLBC that the Governor’s budget modified this request. Our office only learned about this modification because we specifically asked if any changes were made to the initial OIG proposal. While the administration’s perspective is that a notification was not required under the statute since the total amount of funding provided matches what OIG requested for 2024‑25, DOF did change the proposal materially. Indeed, the changes made by the administration affect OIG’s out-year budget amount, given the temporary nature of the positions results in a limited-term need for funding. This raises questions about whether DOF’s failure to notify the JLBC of the change to OIG’s budget proposal is consistent with the Legislature’s intent to provide OIG with robust budgetary independence.

Additional JLBC Involvement in Potential Midyear Augmentations Could Boost OIG’s Budgetary Independence. As mentioned previously, the Governor’s budget proposes to retain existing budget bill provisional language that allows OIG to request midyear resources from DOF. The language further authorizes DOF to make an augmentation—of up to $1 million—no sooner than 30 days after notifying JLBC. This provision could be an important tool for OIG to secure any additional resource needs that it may identify outside of the standard budget cycle, particularly as it is first launching and determining its funding requirements. Under the existing language, however, JLBC does not directly receive notification of any midyear funding requests OIG may submit to DOF. Instead, it is only notified if and when such a request is approved by DOF. This lack of concurrent notification of OIG’s request for resources could make it difficult for the Legislature—through the JLBC—to monitor OIG’s resource needs and ensure that the administration is addressing them promptly. For example, the Legislature may be left unaware if DOF delays acting on or rejects a midyear request from OIG. This circumstance would deny the Legislature the opportunity to review and evaluate such a request and—should it disagree with DOF’s decision and feel that OIG urgently needs the requested funding to support its independent operations—to potentially intervene.

Launching OIG Represents Important Opportunity to Ensure Consistency With Legislative Vision and Priorities. The Governor’s proposal provides resources to fully launch OIG, thus setting the course for how the office will be staffed and operated. As such, this represents an important juncture for the Legislature to assess whether the proposed plan for the office is consistent with legislative intent and vision. Such an assessment should include consideration of whether the proposed scope of work and time lines are consistent with what the Legislature seeks from the office. The Legislature also can consider whether OIG’s proposed use of HSRA staff to support activities such as human resources and budgeting—at least in the short term—is sufficient to preserve the office’s independence, or whether it would feel more comfortable having an outside entity—such as the Department of General Services—providing these services (which likely would result in an additional cost).

Recommendations

Fund Positions on a Permanent Basis. We recommend modifying the Governor’s proposal to fund all of the requested positions, but on a permanent basis (rather than funding a portion of the positions on a limited-term basis as proposed). This is because (1) we expect OIG will have sufficient workload to support these positions on an ongoing basis and (2) authorizing positions on a limited-term basis could compromise OIG’s ability to attract and retain highly qualified staff. We note that providing the positions on a permanent basis would be consistent with the budget request OIG submitted to the administration and would not affect the condition of the General Fund, as the positions would be funded from the PTA.

Provide Authority to Use Requested—or Similar—Classification. We recommend the Legislature provide OIG with authority to use the requested classification—Staff Management Auditor (Specialist)—or a similar one with a comparable salary. This might be achieved in a number of ways. One option that could accomplish this objective would be for the Legislature to adopt budget trailer language providing OIG with authority to create classifications and set salaries as needed to complete its work. (CSA currently maintains this authority.) Alternatively, the Legislature could consider more narrowly targeted options for addressing OIG’s staffing concerns, such as providing specific statutory authority to use the particular classification the office is seeking. We recommend the Legislature explore the various available options for ensuring OIG is able to hire and compensate sufficiently qualified staff, including requesting information from the administration regarding the trade-offs and technicalities of potential alternatives.

Adopt Budget Trailer Legislation Strengthening Requirement for JLBC Notification of Changes to Both Fiscal Year and Midyear OIG Budget Requests. We recommend that the Legislature adopt two changes to strengthen the JLBC’s role in overseeing and safeguarding OIG’s budget. First, we recommend adopting technical cleanup budget trailer legislation that would clarify that the administration is required to provide the JLBC with a notification of any changes DOF makes to a budget proposal requested by OIG as part of the standard fiscal year budget process—including modifications related to funding amounts in the budget year and out-years, classifications, limited-term versus permanent positions, contract resources, and operating expenses and equipment. We recommend the language also require the administration to provide a copy of OIG’s original request to the JLBC along with the notification. These statutory changes would help ensure that the Legislature has sufficient information to (1) assess the appropriate level of funding for OIG to complete its work and (2) safeguard the independence of the office.

Second, we recommend modifying budget bill language to require that OIG’s midyear requests for additional funding be provided to JLBC concurrently with DOF (rather than only to DOF initially, as is currently the case). Such a change would ensure the Legislature is aware of the midyear resource needs that OIG identifies and can help ensure the office is promptly receiving a level of support consistent with legislative intent for its activities and deliverables.

Take Actions, as Relevant, to Ensure Consistency With the Legislature’s Vision and Priorities for OIG. As noted above, the Legislature created OIG to improve oversight of HSRA. The launch of this office is an important opportunity for the Legislature to consider whether its proposed size, scope, and structure are consistent with its vision and priorities. We recommend that the Legislature determine its specific expectations for such oversight and make any adjustment—such as to OIG’s responsibilities, authorities, staffing, and funding—necessary to ensure its expectations are met. For example, if the Legislature desires a different approach to the proposed work plan, it could adopt intent language or provide additional direction in statute. Depending on the scope of the Legislature’s desired changes, if any, there could be an effect on the level of staffing and other resources required by the office.