|Budget Issue:||Shift Government Claims Program from VCGCB to DGS.|
|Finding or Recommendation:||Approve Governor's proposal to shift Government Claims Program to DGS, but make this shift in 2015-16. Approve the Governor's proposal to partially fund the program with the DGS statewide surcharge in 2015-16. Adopt an alternative to the Governor's ongoing funding proposal beginning in 2016-17 by approving a funding structure similar to what the Governor proposes for 2015-16.|
Victim Compensation and Government Claims Board (VCGCB). The VCGCB is a board within the Government Operations Agency that is comprised of three members—the Secretary of the Government Operations Agency, the State Controller, and a Governor’s appointee. The VCGCB’s primary responsibilities are administering four of the state’s victim programs and the Government Claims Program. The Governor’s 2015-16 budget proposes $122 million (primarily from the Restitution Fund and federal funds) and 267 staff for VCGCB.
Government Claims Program. The Government Claims Program processes claims for money or damages against the state. Generally, anyone who wishes to file a lawsuit against the state or its employees must first go through the process administered under this program. In these cases, litigation against the state can only move forward to the courts if the board rejects or denies a claim. For example, a vendor doing business with the state could file a claim if it is not paid in a timely manner or if there is a financial dispute with its contract. If the board approves the claim, the state is required to pay it. If the board denies the claim, the vendor is allowed to bring suit against the state in court. This process was established to allow the state to avoid litigation costs. In recent years, the program has processed roughly 7,000 claims annually.
As part of the 2004-05 budget package, the Legislature authorized a fee-based funding structure for the Government Claims Program. Specifically, the program charges a $25 filing fee to the individual or company submitting each claim against the state. The program also charges state departments for all claims that the board approves by applying a charge of up to 15 percent of the dollar value on all approved claims. The resulting revenue is used to fund the staff who administer the Government Claims Program. The practice of charging departments for approved claims was established to incentivize departments to better manage their contracts to avoid having disputes that must be handled by the Government Claims Program.
The 2014-15 Budget Act includes 12 positions and $1.5 million for the Government Claims Program. However, due to a shortfall in revenue from the above funding structure, VCGCB has reduced the number of staff for the Government Claims Program to nine positions and $1.3 million. While the specific amount of revenue available in the current year is not yet known, the administration indicates that even with the reduction in staffing the program could have a deficiency and require General Fund support in 2014-15. The administration estimates that revenue will continue to fall short of the amount necessary to support the program in future years.
Department of General Services (DGS).The DGS is responsible for providing a broad range of services to state departments. The DGS generally funds its operations through fees charged to client departments. One such fee is known as the “statewide surcharge.” The statewide surcharge is intended to provide an equitable method for DGS to recover costs that are not connected to specific services received by individual client departments. The surcharge is assessed on all state departments based on their staffing levels. Currently, the surcharge generates about $35 million per year.
Shift Government Claims Program to DGS in 2016-17. The Governor’s budget proposes to reorganize the programs currently administered by VCGCB. Specifically, the Governor proposes to shift the Government Claims Program from VCGCB to DGS beginning in 2016-17. Accordingly, the statutory changes necessary to shift the program to DGS will be proposed as part of the Governor’s budget for 2016-17.
Restructure Funding for Government Claims Program. The Governor’s budget proposes $1.3 million and nine positions to support the Government Claims Program in 2015-16, which equals the reduced level of spending in 2014-15. However, revenue from the program’s existing financing structure is estimated to generate only about $700,000. In order to fully support the proposed level of resources for 2015-16, the Governor also proposes allocating $634,000 in revenues from the statewide surcharge administered by DGS to the Government Claims Program. The administration plans to revise the proposal this spring based on updated data on the level of revenue being generated from the program’s existing financing structure. In addition, the administration intends to eliminate the program’s existing funding structure and make the statewide surcharge the sole funding source for the program as part of the Governor’s budget for 2016-17. Such changes would require an increase in the surcharge.
Program Shift to DGS Is Reasonable. We find that shifting the Government Claims Program to DGS is reasonable. This is because the Government Claims Program provides services to all state departments, which is consistent with the existing responsibilities of DGS.
Existing Government Claims Funding Structure Appears Successful. The existing funding structure for the Government Claims Program was established to create incentives for departments to better manage their contracts and settle issues on their own. The incentive model for the program appears to have been successful at reducing the number of claims that are made against the state. For example, prior to the establishment of the funding structure, VCGCB received roughly 10,000 claims annually. In 2013-14, under the new funding structure, VCGCB received 6,300 claims.
Shifting Program Funding to the Statewide Surcharge Loses Incentives. Under the Governor’s proposal, the Government Claims Program would no longer be supported by filing fees and charges to departments beginning in 2016-17. The program would receive all of its funding from the statewide surcharge. By eliminating the existing funding structure, the proposal would also eliminate the associated incentives that appear to be effective. While the statewide surcharge may be an appropriate source to partially fund the Government Claims Program, we do not believe it should be used to fully fund the program. This is because only utilizing the statewide surcharge would result in all departments paying the costs to support the program, regardless of whether any claims are filed against them.
Approve Proposed Program Shift to DGS in 2015-16. We recommend that the Legislature approve the Governor’s proposal to shift the Government Claims Program from VCGCB to DGS. However, we recommend that this change be made as part of the 2015-16 budget package, rather than waiting until 2016-17. We recommend expediting this shift because it would improve the administration of the state’s victim programs, which will remain at VCGCB. (In our recent report The 2015-16 Budget: Improving State Programs for Crime Victims, we provide recommendations to restructure VCGCB to focus solely on victim services and improve the delivery of such services.)
Approve Use of Statewide Surcharge Funding for 2015-16. In light of the reduced revenues from the existing funding structure, we recommend the Legislature approve the Governor’s proposal to provide $634,000 to the program from the statewide surcharge in 2015-16. This would ensure that VCGCB can continue to administer the Government Claims Program and allow the state to continue to settle some claims through the program, rather than through potentially more costly litigation.
Adopt Alternative to Governor’s Ongoing Funding Proposal Beginning in 2016-17. The existing funding structure appears to be effective at limiting the number of claims by incentivizing departments to improve their operations. Accordingly, we recommend that the Legislature reject the Governor’s proposal to eliminate the program’s existing funding structure and make the program fully funded from the statewide surcharge. Instead, we recommend that the Legislature approve a funding structure similar to what the Governor proposes for 2015-16 that utilizes charges to departments and filing fees and is supplemented by the DGS statewide surcharge.