|Budget Issue:||Administration proposals to change workforce budgeting.|
|Finding or Recommendation:||Repeal Section 12439 of the Government Code. Consider how administration proposal affects legislative oversight of state departments' workforces.|
State Workforce of Large Interest During Budget Deliberations. A significant share of the state’s budget pays salary and benefit costs for state employees. For example, in 2013-14, the state paid more than $22 billion for non-higher education state employees’ salaries and benefits—about half of this was paid from the General Fund. Requests for positions receive particularly high levels of scrutiny from both the Department of Finance (DOF) and the Legislature. The Legislature approves a department’s position authority—the number of full-time equivalent employees departments may employ to administer state programs.
Departments Try to Maximize Resources. Resources—both position authority and funding—are highly coveted by departments. For many years, in instances when departments received budget cuts or have been expected to “absorb” rising operational costs, departments have implemented a number of strategies to keep what resources they have. One such strategy includes holding authorized positions vacant. As discussed below, a department might initially keep a position vacant to redirect funding to another area of its budget but chooses to keep the vacant position in fear that it might not be able to get it back.
A Vacant Position Frees Up Funds. Each year, departments’ costs of doing business increase. These costs include (1) inflationary cost increases for operating expenses and equipment (rent, postage, fuel, etc.) and (2) merit salary adjustments that departments must provide to eligible employees every year. Departments generally do not receive augmentations to pay for these rising costs. Some departments have learned to hold positions vacant as a strategy to pay for rising operational costs. In such instances, departments redirect the funds associated with a vacant position to pay for these rising operational costs.
Retaining Vacant Position Preserves Position Authority. The high degree of scrutiny given to position requests makes it difficult for departments to increase their position authority. Consequently, departments have learned to hold onto what position authority they possess—even if they have no intention of filling a position in the near future.
Government Code Fails to Eliminate Chronically Vacant Positions. Section 12439 of the Government Code requires the State Controller’s Office (SCO) to abolish certain authorized positions in departments that are vacant for six consecutive months. When vacant positions are eliminated under this law, departments lose position authority but generally do not lose the funds associated with the eliminated positions. Departments are prohibited from executing any personnel transactions for the purpose of circumventing the provisions of the law. Despite this prohibition, this law largely has been ineffective at eliminating chronically vacant positions. Departments sometimes choose to keep positions vacant so that they have the flexibility to increase staffing levels in the future without the need to convince DOF or the Legislature to increase its position authority.
Past Reviews Have Recommended Significant Changes to Current Law. Because positions frequently are held vacant for strategic reasons, many over the past decade—including our office—have criticized the current practices for not being transparent and have called for changes in current practices.
DOF April 2015 Audit. The DOF Office of State Audits and Evaluations (OSAE) audited selected departments to determine compliance with Section 12439. In the audit, OASE determined that “due to widespread noncompliance, the code’s effectiveness is diminished and has resulted in a lack of overall budget transparency and accountability.”
DOF March 2012 Policy Memo. Through this memo, the DOF directed departments to “make necessary adjustments to accurately reflect budget expenditures and positions for a more transparent budget.” This exercise required departments to analyze its authorized positions and eliminate positions or groups of positions that had been historically vacant. In his 2012-13 May Revision, the Governor indicated that this exercise resulted in 11,000 historically vacant positions being eliminated. Departments did not lose funds associated with these eliminated positions.
LAO Analysis of the 2008-09 Budget Bill. In this analysis, our office determined that “the wide variety of exemptions in the law, as well as an undetermined amount of departmental actions to evade its requirements, are the likely reasons for so few positions being eliminated.” We recommended that the Legislature repeal the law. We noted that an effective accountability process to replace the existing law "probably would be labor-intensive for the Legislature, the administration, or other state entities."
State Auditor March 2002 Audit Report. In this audit, the State Auditor determined that departments use specific personnel transactions to retain vacant positions. The report recommended that the state improve its practices to ensure transparency in the budget.
As part of the 2015-16 May Revision, the Governor proposes to repeal Section 12439 of the Government Code. The Governor further proposes that the state change how the budget reflects departmental expenditures for personnel-related costs and costs related to operating expenses and equipment. Under the proposed budgeting system, a department’s budget no longer would reflect its total position authority approved by the Legislature. Instead, the departments’ budgets would reflect a three-year average of filled positions. The money appropriated for a department’s personnel-related costs would be based on this average number of filled positions. The department’s non-personnel budget would reflect actual costs for operating expenses and equipment. The Governor proposes that DOF would conduct a biennial review of departmental budgets to reconcile departmental costs related to personnel and operations to improve the accuracy of the information presented in the budget. This proposal would change how the budget is presented and would not immediately result in any department losing position authority or funding.
Current Process to Review Vacant Positions Clearly Broken. As we and many others have said over the past decade, Section 12439 of the Government Code clearly is an ineffective law. We agree with the Governor that the Legislature should repeal the law.
Not Clear How Proposed Process Affects Legislative Oversight. The Governor’s proposal to change how the state budget presents its staffing levels and costs might be a good idea in certain respects. However, we are concerned that—in the few weeks remaining for the Legislature to consider the budget—the Legislature does not have adequate time to determine how the proposed process would affect legislative oversight over the state workforce. This proposal raises a number of questions that we think the Legislature should consider before adopting the proposal. These questions include:
Should the Executive Branch Have the Ability to Decide What Types of Positions Are Important? The proposal could give the executive branch significant authority to determine which of their authorized positions should be filled. This could allow the administration to determine what programs' staffing have a higher priority than others. This could result in legislative priorities not receiving the staffing levels they need to be executed fully.
Should a Department’s Position Authority Deviate Significantly From Its Filled Positions? Determining the maximum number of full-time equivalent employees in the state workforce is a significant power of the Legislature. Under the Governor’s proposal, a department’s position authority in excess of its three-year average filled positions represents a position authority reserve. As long as a department can operate within its existing funding level, it would have significant authority to increase the number of filled positions within its existing position authority. The Legislature will want to determine if it is comfortable allowing departments to have position authority reserves, and, if so, the appropriate size of such a reserve.
How Will the Proposed Process Change How Departments Request Positions from the Legislature in the Future? Under the Governor’s proposal, it seems that departments only would request position authority when their level of filled positions equals their position authority (no position authority reserve) and some sort of workload need is perceived to require staffing levels above the existing position authority. Presumably, budget proposals to increase position authority would be similar to the existing process. The Legislature will want to consider how the administration should communicate departmental decisions to increase the number of filled positions within their existing position authority.
Will Departments Continue to Be Expected to Absorb Rising Operating Expenses? The proposed budget bill language specifies that “funding for operating expenses and equipment will be based on actual expenditures.” In order to do this, without a constant erosion of a department’s personal services budget, it would seem the state would need to change its current practice of requiring departments to absorb most rising costs of doing business. Increasing departmental appropriations for these costs could reduce available funding for other parts of the budget.
Note: This analysis pertains to part of the administration’s broader proposal related to the state’s workforce. The proposals referred to in this analysis can be found as part of Attachments 1 and 2 discussed beginning on the 8th and 23rd pages in this pdf.
For other LAO May Revision responses, see here.
LAO Contact: Nick Schroeder.