Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

California Highway Patrol (2720)

The California Highway Patrol (CHP) is responsible for ensuring the safe, lawful, and efficient transportation of persons and goods on the state's highway system. In addition, CHP provides protective services and security for state employees and property, and carries out a variety of other mandated tasks related to law enforcement. Since the attacks of September 11, 2001, CHP has played a major role in the state's enhanced anti-terror programs.

The budget proposes $1.2 billion in support for CHP in 2003-04, slightly less (0.4 percent) than estimated current-year expenditures. Current-year expenditures, meanwhile, are expected to be higher than 2001-02 by $184 million (about 17 percent) due primarily to a substantial increase in support for enhanced anti-terror activities and higher costs for staff benefits.

Most of CHP's expenses are paid for by the Motor Vehicle Account (MVA), which derives its revenues primarily from vehicle registration and driver license fees. For 2003-04, the budget proposes to reduce MVA's funding for CHP from $1.1 billion in the current year to $1 billion. With this reduction, MVA will make up 84 percent of CHP's support.

Expenditures on Personal Services for CHP Continue to Soar

Although it is not reflected in the budget, additional monies potentially totaling over $100 million for benefits and salaries will likely be required for 2003-04. We recommend that the Department of Finance and the California Highway Patrol report on the magnitude of these unfunded costs at budget hearings, and present the administration's plan to pay for them.

The support for CHP's activities has increased significantly, by about 28 percent, from 2000-01 to the current year. The increase is in part due to service expansion, particularly for anti-terror security programs after 2001. However, our review shows that the increase is also the result of significantly higher expenditures for staff benefits and salaries.

Significant Increases in Expenditures for Employee Benefits. As Figure 1 shows, in just three years (2000-01 to the current year), expenditures on staff benefits for CHP grew from $110 million to an estimated $283 million. The administration expects to spend at least as much on benefits in the budget year.

Retirement costs have grown the most dramatically. Under the current memorandum of understanding (MOU) with CHP uniformed staff, the state has to pay both employer's (state's) and employees' retirement contributions. In the last couple of years, the stock market's poor performance has erased the surplus in the CHP Public Employees' Retirement account that up until recently had defrayed a large portion of these expenses. As a result, the MVA has had to pay for these expenses in the current and budget years. As Figure 1 indicates, in 2000-01 the state's contribution to retirement totaled $3 million. In the current year, the state will pay an estimated $142 million. While the budget includes the same amount for retirement contributions for 2003-04, CalPERS expects retirement rates to increase in the budget year, potentially costing the state in excess of $60 million more. 

Health insurance and workers' compensation costs have also contributed to increased costs for CHP. As Figure 1 shows, health insurance costs have increased by about 24 percent from 2000-01 to the current year, and expenditures on workers' compensation have grown by 49 percent. The administration proposes to hold these costs more or less steady in the budget year. However, recent legislation (Chapter 6, Statutes of 2002 [AB 749, T. Calderon]), which changes workers' compensation benefits statewide, could drive up CHP's workers' compensation costs by several more millions of dollars in the current and budget years combined.

Increases in Salaries Expected to Cost State Millions More in Budget Year. Under current MOUs with state employees, CHP's expenses on staff salaries and wages will also increase. As Figure 2 illustrates, the budget proposes a slight increase (about 1.4 percent) in expenditures on salaries over the current year. However, the budget does not reflect the pay raises for uniformed and nonuniformed staff of 6.01 percent and 5 percent, respectively, that are to take effect in July 2003. The administration is in discussions with state employee groups to defer or modify these scheduled increases. If these renegotiations are unsuccessful, the present contract would obligate the state to pay another $40 million in the budget year.

Support for CHP Could Cost Over $100 Million More. Thus, between scheduled salary raises ($40 million) and expected increases in expenditures on benefits ($60 million plus), CHP's staff support costs in 2003-04 could be higher than the budget indicates by more than $100 million. In order to provide the Legislature with better information regarding the cost of CHP support, we recommend that the Department of Finance (DOF) and the CHP report at budget hearings on the magnitude of these unfunded costs and the administration's plan to fund them. 

Plans to Shift Funds in Support of CHP Raise Concerns

The budget proposes to shift $57 million in California Highway Patrol (CHP) support costs from the Motor Vehicle Account to the State Emergency Telephone Number Account (911) and State Highway Account (SHA). We do not think the shift to the 911 Account is justified, and recommend its disapproval. We also recommend that the Legislature reject the proposal to shift additional CHP support to the SHA because the shift is based on an arbitrary allocation of cost, and would result in a cumbersome and inefficient system of timekeeping by CHP staff.

In part because of growing CHP costs, the MVA is facing a substantial shortfall in the budget year absent corrective actions. Besides proposing to boost revenues through fee and penalty increases, the administration plans to bolster the MVA condition by shifting $88 million of expenses to three other funding sources: the 911 Account, the SHA, and a new Public Safety Surcharge Fund. Figure 3 details these proposed fund shifts. (Please see a discussion of the MVA condition in the "Crosscutting Issues" part of this chapter.)

Proposal to Increase 911 Surcharge Is Not Justified. Current law allows government agencies and telephone companies to be reimbursed for costs related to the operation and maintenance of California's 911 phone system using revenue from a surcharge on intrastate phone calls. The administration proposes to increase the maximum surcharge rate from 0.75 percent to 1 percent in order to raise about $50 million in 2003-04 for various state activities. The budget proposes using about $41 million of this new revenue to cover CHP staff costs to answer and respond to 911 calls. In the "Crosscutting Issues" section of the "General Government" chapter, we discuss the administration's proposal in detail. We find that the proposal is not justified because, among other reasons, the proposed activities for funding (responding to 911 calls) do not relate directly to maintaining and operating the 911 telephone system—the intended use of the surcharge under current law. As such, we recommend that the proposal be rejected.

Proposal to Enhance SHA's Support of CHP Is Problematic. The CHP currently receives $28 million from the SHA to pay for CHP services at truck inspection facilities around the state. The budget proposes to increase the amount of SHA support by $15.7 million in the budget year. The administration's rationale is that the SHA should fund CHP for the work it does in facilitating the flow of highway traffic. For example, if a ladder or piece of furniture falls off a truck on a state highway, a passing CHP officer must stop and clear it from the highway. Since this action contributes to the efficient operation of state highways, the reasoning goes, these activities should be paid from the SHA instead of the MVA. In estimating the amount SHA should provide for these functions, the department assumes that on average CHP officers and supervisors spend 4.2 percent of their time performing such activities.

We have two main concerns with this proposal. Our primary concern is that accounting and paying for CHP officers' time in a manner proposed by the administration could lead to a fragmented funding structure for the department involving a number of fund sources. Charging CHP activities on state highways according to the amount of time spent on these services would require extensive time tracking efforts that would reduce the department's efficiency in carrying out its mission. In effect, under the administration's proposal, the MVA would pay for the time it takes for an officer to ticket a speeding motorist, but SHA would pay for time that the officer spends chasing a stray dog off the highway. The ongoing process of tracking the percentage of time that officers, sergeants and other personnel (including nonuniformed staff) spend performing specific duties, and then charging a proportional amount to the appropriate account would risk creating a complicated, cumbersome and unstable system of departmental budgeting.

The second concern relates to the method by which CHP would determine the percentage of its costs to charge to SHA. Our review shows that the department allocated 4.2 percent of CHP officers' and supervisors' time to traffic flow control, but it has no data to substantiate the percentage.

The MVA has traditionally paid for the support of CHP activities related to traffic enforcement and the promotion of safe traffic flow. This is consistent with Article XIX of the State Constitution, which restricts the use of state-imposed vehicle registration and driver license fee revenues to transportation and traffic enforcement. Because of the concerns discussed above, we believe that support of CHP activities that are related to traffic flow should continue to be funded from the MVA. Accordingly, we recommend that the proposal to shift $15.7 million of CHP support to the SHA be rejected.

Budget Proposes Public Safety Surcharge for Protective Services

In recent years, the California Highway Patrol's (CHP's) responsibilities for protective and security services have increased substantially. The budget proposes to pay for these and other programs by establishing a new Public Safety Surcharge Fund. While an alternative funding source is warranted, there is not a sufficient linkage between the proposed new surcharge on intrastate phone calls and the protective services activities that it would fund. If a surcharge is deemed appropriate by the Legislature, we recommend that CHP not be granted authority to set the surcharge rate, and that the use of surcharge revenue be limited to specific, non-transportation-related activities.

State Law Restricts Activities MVA May Fund. The California State Police provided protective services for state property and employees until 1995, when it was consolidated into the CHP. Since that time, CHP has assumed those responsibilities. As a result of the events of September 11, CHP has expanded considerably its protective and securities activities around the state. Using monies that the Legislature allocated to the department earlier this year, CHP officers patrol nuclear power plants and health laboratories, and perform enhanced duties on bridges and at state office buildings and truck inspection facilities. In addition, CHP has other responsibilities unrelated to vehicles or traffic enforcement, such as aerial search and rescue missions. In all, CHP programs unrelated to traffic safety and enforcement total about $125 million.

To date, the MVA has provided most of the funds to pay for these programs from revenues that are not restricted by Article XIX of the State Constitution. As we discussed in the Analysis of the 2002-03 Budget Bill, only a limited amount of resources in MVA are not restricted by the State Constitution. In 2003-04, these funds are insufficient to support the range of CHP activities that are not vehicle and transportation related.

Budget Proposes New Phone Surcharge to Supplement CHP Funding. Recognizing the constitutional restriction on the use of MVA funds, the budget proposes to assess a new surcharge on intrastate telephone calls (separate from the "911" State Emergency Telephone Number surcharge discussed previously) to provide an ongoing source of funding for CHP's protective and security services. The administration indicates that the rate would initially be set at 0.25 percent, though CHP, with approval by DOF, would have the authority to raise the rate up to 2 percent. Assuming a new surcharge of 0.25 percent is implemented beginning in November 2003, the administration estimates that $32.5 million would be generated in the budget year, with CHP spending $31 million of it. Besides paying for activities such as security and protective services, CHP would be authorized to use the account to pay for any other programs.

Ongoing Funding Source for CHP's Non-Transportation Activities Is Needed; But Proposed Source Raises Issues. Given the MVA's spending restrictions, a revenue source that provides stable ongoing funding for CHP's non-transportation-related activities is warranted. This is particularly so in light of the recent expansion of CHP's anti-terror activities since September 11. In past Analyses, we recommended that protective services be funded from the General Fund because these activities protect the state's employees and facilities at large, and provide broad based, general benefits to the state.

However, given the General Fund condition, the administration's proposal provides an alternative funding source. We have one main concern with the proposal. Specifically, we do not think there is a sufficient linkage or nexus between a surcharge which is based on the use of a telephone with the activities that would be funded by the surcharge.

Additionally, we are concerned with the proposal's provisions that CHP be authorized to set the rate, and direct the revenue to whatever activities it deems appropriate. If the Legislature chooses to impose the proposed surcharge for CHP protective and security services, we recommend that it grant authority to raise the surcharge rate to a third party such as the Board of Equalization, which currently sets the rate for the 911 Account. Additionally, we would recommend that the use of surcharge revenue be limited to specific, non-transportation-related activities.

Additional Revenues Need to Be Raised, or Expenditures Reduced, If Legislature Rejects Fund Shift Proposals

If our recommendations to reject the fund shift proposals are adopted, the Legislature will have to decide what actions to take with regard to the California Highway Patrol's (CHP's) budget. One option is to boost revenue in the Motor Vehicle Account by raising fees and penalties beyond the proposed amounts. Alternatively, the Legislature could make cuts in CHP's budget.

As discussed above, we recommend that the budget's proposals to increase CHP's funding from the 911 Account and SHA be rejected. If the Legislature concurs, it will need to decide how to bring expenditures and revenues in line. It could make up the difference (about $57 million) by taking more funds out of the MVA. This would necessitate further increases in fees and penalties for the MVA. As we discussed in the "MVA Condition" write-up of this chapter, raising the vehicle registration fee by $1 would generate about $27 million a year. Alternatively, the Legislature could reduce CHP's budget by $57 million, or combine spending cuts with revenue enhancements.