The board and its staff are also responsible for establishing and administering, on a reimbursement basis, merit systems for certain city, county, and civil defense employees, to ensure compliance with federal requirements. The SPB is also responsible for coordinating affirmative action and equal employment opportunity efforts within state and local government agencies, in accordance with state policy and federal law.
The budget proposes $13.9 million for support for the SPB in 1997-98, which is $1.2 million, or 8 percent, below current-year estimated expenditures. The proposed expenditures consist of $5.6 million from the General Fund and $8.3 million in reimbursement from other departments.
The SPB has requested three one-year limited-term positions (2.3 personnel-years [PYs]) to conduct a review of the current civil service classification system (which includes approximately 4,600 job classifications) with the goal of reducing the number of classifications. The proposed review includes collection and analysis of data on job duties and salaries in the existing classifications, identification of legal issues related to changing the existing classification system, and reviewing any proposed new classification model's implications for the civil service examination system.
This is the same request presented to the Legislature for the 1996-97 budget. The Legislature denied the request last year and as discussed below, we recommend that the Legislature deny the request this year.
The number of civil service classifications is too large and needs to be reduced to a more manageable number. The need to augment the SPB budget and staff to undertake this task, however, should not be necessary. The proposed review is central to two of the SPB's most fundamental purposes--adopting the classifications within the state civil service system and developing and administering the state civil service merit examination system. The SPB should undertake the proposed review by setting this task as a priority within the current budget.
In addition, the SPB indicates that the proposed review is in anticipation of the completion of current negotiations on the Memoranda of Understanding (MOUs) between the Department of Personnel Administration and the 21 collective bargaining units representing state employees. The SPB indicates that there is an expectation that the final MOUs will include provisions for classification consolidation/broadbanding. Whether this will be the case or not is certainly unknown at this time. As discussed in our analysis of employee compensation issues in this section of the Analysis, the MOUs for 20 of the bargaining units expired June 30, 1995 and the administration has not indicated when they expect to conclude current negotiations. The other MOU (for the California Highway Patrol) expires June 30, 1997. Given this situation, the SPB should advise the Legislature whether the proposed review would be meaningful and whether the SPB can implement changes without final MOUs that allow such changes to the civil service classification system.
Based on the above issues, we recommend that the Legislature delete the $219,000 and 2.3 PYs requested for review of the state civil service classification system.
The Department of General Services (DGS) is requesting $1 million in the budget year (Item 1760-301-0666) to alter vacated laboratory space in the state's Food and Agriculture Building in Sacramento to provide office space for state employees. According to the DGS and the SPB, the plan calls for moving the SPB from the state-owned building at 801 Capitol Mall, Sacramento to the Food and Agriculture Building. Based on this plan, the SPB would need to spend $500,000 to purchase and install modular furniture in order to occupy the space. The Governor's budget, however, does not propose any funding in the SPB budget for this purpose. We believe that the lack of funding for the SPB is appropriate because the SPB should not move from its current location in a state-owned building. Instead, if the Legislature approves the DGS $1 million alternation proposed, the altered space should be occupied by state employees who are currently in leased space. This would reduce the state's cost for leasing office space. (A detailed discussion of this project is in our analysis of the DGS in the Capital Outlay section of this Analysis.) Consequently, we recommend that the Legislature adopt the following language to assure the SPB does not move to the Food and Agricultural Building:
The State Personnel Board shall remain in the existing building located at 801 Capitol Mall, Sacramento. No funds appropriated in this item shall be used to relocate the State Personnel Board staff or functions from this location.
The budget proposes expenditures of $77.1 million from various funds, including $46.4 million from the General Fund, for the Trade and Commerce Agency in 1997-98. The total budget is $12.6 million, or 14 percent, less than estimated current-year expenditures. This is mainly due to a reduction in various special funds for one-time costs for local economic development projects. The General Fund expenditures are proposed to decrease by $1.2 million, or 2.5 percent, in the budget year. The General Fund reduction consists of about $3 million in reductions for grant programs, partially offset by a $1.8 million increase in economic development and the establishment of three additional foreign trade offices.
The budget includes $939,000 from the General Fund to establish three new foreign offices--Shanghai, China; Seoul, South Korea; and Sao Paulo, Brazil. The agency proposal calls for two positions at each location, funded through augmentations to the current foreign offices in Hong Kong, Japan and Mexico respectively. The agency also has included $70,000 in the request for the Hong Kong office to continue a contract established in the current year for a consultant to maintain a presence in Jakarta, Indonesia. The requested $939,000 would bring the total budget for these offices to $5.4 million, a 20 percent increase compared to current-year estimated expenditures. Compared to 1994-95 expenditures, the proposed budget represents a 100 percent increase.
Background. The state currently operates foreign offices in Tokyo, London, Mexico City, Frankfurt, Hong Kong, Taipei, and Johannesburg. There is also a representative office in Jerusalem, operating as the California-Israel Exchange, and a consultant contract for representation in Jakarta. According to the agency, the purpose of the foreign offices is to build additional business for the state that would not otherwise have been brought to California. In assessing the need for new offices, the agency considers:
Economic factors, such as economic strength of a country, macroeconomic stability, market potential, infrastructure development, level of international trade and investment and existing economic relationship with California.
Strategic factors, such as the role of the region in which the country is located, need for specific on-site assistance to California companies and international programs, need for assistance in overcoming language, business and cultural barriers and ability of the office to serve as a hub for the region.
Input from businesses is considered decisive in considering the demand for a new location.
The agency indicates that the proposal in the budget represents its determination of the three highest priority locations for new foreign offices. The agency's next priorities in order of priority are Singapore, Chile, and Poland.
In addition to the foreign offices, the agency operates international trade and investment programs through the Office of Foreign Investments, Office of Export Development, Export Finance Office, Environmental Export Program, Office of Trade Policy and Research, and the Office of California-Mexico Affairs. California companies also have available the U.S. Department of Commerce, U.S. Department of Agriculture, and the U.S. Agency for International Development located around the world in embassies and consulates of the United States. In addition, the American Chamber of Commerce network helps support United States companies and the World Trade Center in New York operates as a franchise-driven membership association. Thus, California companies have wide-ranging and extensive resources available for assistance in the foreign market.
Legislative Policy Decision. We believe that the establishment of foreign offices is a legislative policy decision that should be considered in policy legislation rather than through the budget. Specifically, the appropriate policy and fiscal committee in each house should consider policy issues such as (1) the extent that state government should be involved in foreign investments and trade; (2) criteria for determining when and where to open foreign offices; (3) methods for quantifying the benefits to the state that are a direct, and indirect, result from each existing and proposed location; and (4) the funding for these efforts (for example, since business is a major benefactor from these offices, should there be a sharing in the cost?). These decisions also need to be made in the context of other state and federal government activities in foreign investment and trade. These and other issues should be considered through legislation other than the budget bill. After specific policies are adopted by the Legislature, the cost of operating the foreign offices established under these policies would appropriately be considered in the annual budget bill. Consequently, we recommend that the Legislature delete the $939,000 requested for new foreign offices.
Background. The California Marketing Act was established by Chapter 871, Statutes of 1995 (SB 871, Johnston). Under this Act, California businesses that benefit from travel and tourism can, by referendum, decide if they want to assess themselves to help finance a marketing effort for tourism and travel in California. Under the Act, these self-assessments would be combined with state funds (the Act indicates legislative intent to provide a minimum of $7.3 million annually) for this marketing effort. The Act is to be implemented in phases, as follows.
In the initial phase, the 25-member committee (consisting of industry representatives of four major industry categories) established by Chapter 871 must develop the initial referendum, determine the segments of the industry to be included in the initial referendum, target the assessment level, and establish an assessment methodology. This work has been completed. The commission has targeted the initial assessment level at $7.5 million based on assessing each business $450 per $1 million in gross revenue from tourism and travel. This assessment is based on business location. Therefore, if a business has more than one location in California, an assessment will charge for each location. A maximum assessment of $250,000 per business location has been established by the commission. Businesses that do not respond to an informational mailing (discussed below) will not be eligible to vote on the referendum to establish this program. If the referendum is approved, however, these businesses will be assessed at the highest level in their segment of the industry.
The next step is to solicit identified California businesses to determine whether a business wants to participate in the referendum and to obtain from each business an estimate of their gross revenue from tourism and travel. After receiving this information, a referendum will be sent to each business that responded to the solicitation for information. Voting on the referendum will be weighted based on the annual assessment for that business. For example, a business with a $900 annual assessment will have three times the weighted vote of a business with a $300 assessment. The referendum will be approved based on a simple majority of weid votes. The solicitation for information and the referendum are scheduled to be completed this summer.
If the referendum is approved, the California Travel and Tourism Commission will be established. The commission will be comprised of 37 members--including the Secretary of the Trade and Commerce Agency, 24 members elected by industry vote (part of the initial referendum) and 12 members appointed by the Governor. Under terms of the Act, the commission is a separate, independent California nonprofit mutual benefit corporation. The commission is to be administered by an executive officer who is recommended by the commissioners and approved by the Governor, serving at the pleasure of both. The executive director is also to serve simultaneously as the director of the state Office of Tourism with the title of Deputy Secretary of Tourism in the agency and is an exempt employee of the state. The executive officer salary and benefits are to be determined by the commission, and approved by the secretary, based on industry standards for a director of a marketing budget of similar size. The act specifies that the assessed funds shall be under the control of the commission.
Inappropriate for the Franchise Tax Board to Collect and Enforce Self-Assessments. Under the Act, the secretary of the agency is responsible for the solicitation of information and the initial referendum. State funds available to the Office of Tourism may be used only for that purpose. The secretary has decided to use the state Franchise Tax Board (FTB) to mail out and receive the information and the referendum. To accomplish these tasks, the Department of Finance advised the Joint Legislative Budget Committee (under provisions of Control Section 28.50 of the 1996-97 Budget Act) of the intent to approve a $1.5 million reimbursement from the agency to FTB. According to the Governor's budget, these initial tasks would involve 26 new positions at the FTB, (at a cost of $1.5 million). (FTB also has requested authority to spend nearly $2 million in reimbursements from this program in 1997-98 for the purpose of collecting and enforcing the self-assessments from the various businesses.) The committee responded to the department's letter by advising FTB (1) to proceed with the referendum-related tasks only, (2) that the tasks should be accomplished at far less cost, and (3) that it was unclear why FTB should be involved in an ongoing capacity.
With regard to the proposed budget year costs, there is very little information on how FTB will be paid for these activities. Based on conversations with agency staff, the current thinking is that the agency would contract with the commission to receive assessment funds for the activities to be performed by FTB. The agency would then enter into an interagency agreement with FTB. The board would administer collections and enforcement and deposit funds received from tourism businesses into a private account established by the commission. As mentioned above, other than the initial referendum, the state is not responsible for any costs related to the self-assessment program.
We have the following concerns with the agency using FTB for collecting and enforcing the self-assessments:
First and foremost, FTB exists to ensure that state-required tax payments (and certain other legally required payments) are made. In our view it is unwise to use the board's name and authority to collect a voluntary, privately assessed fee.
There is no assurance that the referendum will pass. Therefore to orren hiring staff in FTB in order to administer collections and enforcement is premature and could result in a General Fund cost to pay for staff and operating costs incurred before the referendum results were known.
The costs of using FTB seem excessive. Based on the commission's goal of $7.3 million for the initial assessment, FTB would absorb 27 percent of the assessments in collections costs.
Based on all the factors discussed above, we recommend that the Legislature direct the agency not to use FTB for administering the collection and enforcement of this self-assessment program. (In our analysis of the FTB budget in this section of the Analysis,we have recommended deletion of the reimbursement expenditure authority.) We therefore recommend that the Legislature adopt the following budget bill language:
Except as otherwise specifically provided in law, the Trade and Commerce Agency shall not use, or otherwise allow the use of, the state Franchise Tax Board for collection or enforcement of the self-assessment program under the California Tourism Marketing Act.
The budget proposes total expenditures of $29.4 million for support of the department in 1997-98. The principal funding sources are:
$6 million from the General Fund.
$16.4 million from reimbursements from other state departments.
$6.2 million from the Deferred Compensation Plan Fund.
The proposed expenditures for DPA support are $4.8 million, or 19.5 percent, above estimated current-year expenditures. Most of this increase is in anticipated reimbursements from departments who will contract with DPA for assistance in (1) "total quality management" under the Statewide Continuous Improvement Program and (2) a proposed executive leadership development program. The budget also proposes a $0.7 million increase in General Fund support, most of which would be used to review the state's Human Resources Management System (basically the personnel and payroll systems).
The DPA requests $585,000 from the General Fund to conduct a "Business Process Review" of the state's personnel and payroll systems. The DPA request includes six personnel-years (PYs) on a permanent basis, plus approximately $200,000 in consulting services.
The DPA proposal involves the following five elements:
Identify essential information needed by the main personnel agencies to perform the state's personnel and payroll functions.
Document current personnel administration processes.
Anticipate which personnel administration processes might change as a result of any changes to the civil service system.
Identify the best elements of the systems.
Obtain substantial information from state departments on what is needed to improve the state's current human resources system.
As discussed below, this proposal is premature and if a proposal of this nature is to proceed it should be undertaken by the State Controller's Office (SCO) rather than DPA.
Existing Task Force. In 1996, the SCO, which operates the state's personnel and payroll systems, initiated the "21st Century Task Force"--consisting of representatives from SCO and eight other state agencies (including DPA). The task force, with the help of a private consulting firm, is currently examining the state's personnel and payroll systems, as well as the state's personnel policies and practices. The task force was scheduled to release a report on this examination in January 1997. When this Analysis was prepared, the report was not available. Consequently, we recommend that the Legislature not fund any study as proposed by DPA until the task force releases its report and the Legislature has the opportunity to review the findings of the task force.
State Controller Should Conduct Review. If based on an evaluation of the Task Force report the Legislature decides to fund a further review, the review should be conducted by SCO. The SCO is responsible for and operates the state's personnel and payroll systems. Consequently, SCO has working knowledge of the current systems, and has the staff with expertise that is needed for review of these systems. Clearly, any study of this type would require SCO staff to confer and coordinate with all departments, especially DPA. The basic responsibility for the final system, however, rests with SCO, and we find no analytical basis to shift this responsibility to DPA. Thus, we recommend that the Legislature not approve the $585,000 request for DPA to conduct this review. Once the task force report is available for legislative review, an effort of this type may be appropriate for consideration under the SCO budget.
The DPA requests $775,000 for one position ($100,000) and consultant services ($675,000) to establish the California Leadership Institute (CLI). The "institute," modeled after the Federal Executive Institute, would be a DPA program to provide training for about 1,000 "top-level executives" in state government. For the most part, these executives are Governor's appointees and other high level managers in the administration. The DPA expects CLI to initially offer two 180-hour programs with approximately 45 participants per program. The department estimates that after the initial year of operation there will be 145 participants in the program on an annual basis at a cost of $5,000 per participant. Based on this estimate, it would take seven years and $5 million to provide training for 1,000 executives.
The DPA indicates that the curriculum for the CLI executive training program is being developed so that executives will obtain leadership training in areas such as strategic planning concepts and managing for results, and that participants will also be required to apply the "new" concepts through "hands-on" mentoring of other staff for departments that request their help. Currently, state executives typically attend private and public seminars to meet their training needs.
While providing training for all state employees is important, DPA has not substantiated the need for the state to initiate the proposed program. State executives currently meet training needs through existing private and public seminars. The DPA has not provided evidence indicating that the current practice is either inadequate or ineffective. Moreover, DPA has not identified, other than in broad terms, what training deficiencies exist at the current executive levels or what specific programs will be offered by CLI to address these deficiencies. Finally, the department has not provided any evaluation of the cost-effectiveness of this proposal compared to current practice.
As mentioned above, the need to provide training to all state employees is important. Prior to embarking on the proposed executive training program, however, we believe it is incumbent on the administration to demonstrate the cost-effectiveness of the proposal. Consequently, given the concerns discussed above, we recommend that the Legislature not approve the $775,000 requested to initiate this program until DPA provides specific information on the problems with current training practice and the benefits of the proposed program compared to existing practice.
Currently, virtually all state agencies and departments self-insure for workers' compensation claims. Administration of workers' compensation claims is provided by the State Compensation Insurance Fund (SCIF) under a Master Agreement contract that is negotiated with and signed by DPA. The current agreement expires on June 30, 1998. Thus, DPA and SCIF will conduct negotiations during the budget year to reach a new Master Agreement covering all uninsured state departments.
Under the current agreement, SCIF charges all state departments a $103 monthly fee per disability claim to perform functions such as processing claims, adjusting and categorizing claims in accordance with existing workers' compensation laws, and keeping accurate records on each workers' compensation case. If a case is litigated, SCIF charges another $68 monthly fee per disability claim for legal services.
State Costs Increased Under the Current Agreement. In 1995-96, the state paid SCIF $41.5 million for administration of workers' compensation claims. (These costs are expected to increase to $44 million in both 1996-97 and 1997-98.) In comparison, in 1993-94, the year before the current master agreement became effective, these administrative costs were $31.2 million. Thus, in the first two years under the current agreement, annual state costs increased by over 33 percent. On the other hand, during the same two years the total number of disability claims filed by the state has increased by only 2.1 percent (17,745 claims in 1993-94 to 18,123 claims in 1995-96). In one case, the California Highway Patrol, SCIF administrative costs have increased from $3.8 million in 1993-94 to $6.4 million in 1995-96, a 68 percent increase, while during the same period claims decreased by 8.5 percent. (This is discussed in more detail in our analysis of the California Highway Patrol's budget in the Transportation Section of this Analysis.)
In view of the higher costs experienced under the current Master Agreement and the impending negotiations for a new agreement, we recommend that DPA report to the Legislature during budget hearings on what steps will be taken in its negotiations with SCIF to lower the state's costs under a new Master Agreement.
The DPA began negotiations in 1995 with the 21 bargaining units that represent rank-and-file state employees (other than higher education) for new memoranda of understanding (MOUs) governing compensation and other terms and conditions of employment. These MOUs are to replace MOUs that expired June 30, 1995. In October 1995, DPA reached agreement with bargaining unit 5 (California Highway Patrol officers). This MOU expires, however, on June 30, 1997. Thus, if DPA does not complete negotiations with any of the 21 bargaining units by the end of the current year, the state will begin another budget year with expired MOUs for all 21 bargaining units. Under current law, the provisions of expired MOUs generally remain in effect pending adoption of replacement MOUs.
The Ralph C. Dills Act directs the administration and employee representatives to endeavor to reach agreement before adoption of the budget act for the ensuing year. The Act further specifies that provisions of MOUs requiring the expenditure of state funds be approved by the Legislature in the annual budget act before the provisions may take effect. Historically, however, agreements often have not been reached in time for legislative consideration as part of the budget process. At the time this Analysis was written, DPA indicated that the administration's current collective bargaining proposals are:
To modify the state's layoff process by making it shorter and less costly.
To institute a third-party review and binding decision for minor discipline cases.
To make salary increases a function of performance-based salary reviews.
To eliminate appeals of rejection on probation unless rejections are a result of political patronage or discrimination.
To cease to require that departments bargain the effects of minor policy changes that affect the working conditions of employment.
To eliminate counting time not worked (such as vacation or jury duty) when computing overtime.
To merge employee contribution rates for health, dental, and vision benefit plans into one combined contribution.
To establish a defined contribution pension plan option for state employees.
To develop a less lengthy rulemaking procedure for personnel practices.
To eliminate three holidays and increase vacation and/or annual leave accrual and caps by 24 hours each year.
In recognition of the statutory intent and the importance of these negotiations for the 1997-98 budget, we recommend that DPA report to the budget committees during budget hearings on the administration's collective bargaining proposals and the status of negotiations. Furthermore, in our Overview of Employee Compensation Issues in this section of the Analysis, we have recommended that the Legislature adopt the following policies for reviewing and approving new MOUs:
Review the administration's MOU proposals (including final text and complete fiscal estimates) in the budget hearings and adopt, as appropriate, in the budget act. Any MOU that is not available in time for in-depth review during budget hearings should be referred to the budget committees and adopted, as appropriate, as an amendment to the budget act.
Require a minimum time period between the submittal of the proposed MOUs to the Legislature and hearings on the proposal. This would give the Legislature sufficient time to study the MOUs to ensure that the fiscal and policy implications of the proposals are fully understood. Given the importance of these agreements, we suggest a 30-day review period.