LAO 2006-07 Budget Analysis: General Government

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Commission on State Mandates (8885)

The Commission on State Mandates (commission) is responsible for determining whether local government claims for reimbursement of state-mandated local costs should be paid by the state. If the commission determines that a statute, executive order, or regulation contains a reimbursable mandate, it develops an estimate of the statewide cost of the mandated program and includes this estimate in a semiannual report.

Under Proposition†1A approved by the stateís voters in 2004, the Legislature must appropriate funds in the annual budget to pay a mandateís outstanding bills, ďsuspendĒ the mandate (render it inoperative for one year), or ďrepealĒ the mandate (permanently eliminate it or make it optional). Two categories of mandates-those relating to K-14 education and employee rights-are exempt from this payment requirement. Proposition†1A also authorizes the state to pay over a period of years unpaid noneducation mandate claims incurred prior to 2004-05.

Budget Proposal Understates Mandate Costs

The Governorís budget includes $240†million (General Fund) and $1.7†million (special funds) under the commissionís budget item to pay noneducation mandate claims in 2006-07. (Funding for K-14 mandates is included under the K-12 and community colleges budget items.) The $240†million includes:

Figure†1 summarizes our analysis of the administrationís proposal, which we discuss in greater detail below.

 

Figure 1

2006‑07 Mandate Costs (Noneducation)

(In Millions)

Purpose of Funds

Budget Bill Amount (GF)

LAO comment

Funded in Budget

 

 

15-year payment of backlog

$98.1

Amount may change after latest claims are
tallied and audits are completed.

Ongoing funded mandates

46.2

We estimate costs to total about $100 million.

Newly identified mandates

45.7

Costs may be lower, unless additional claims are identified in the spring.

Set aside for AB 3632 mandates

50.0

The total funding needed will depend on policy changes.

  Governorís Budget Total

$240.0

 

Other Costs

 

 

2004‑05 and 2005‑06 deficiencies

We estimate costs to total about $140 million.

Other unpaid mandate costs

We estimate costs to total about $125 million.

 

Size of Mandate Backlog Uncertain

We withhold recommendation on Item 8885-299-0001, pending updated information regarding the size of the backlog from the State Controllerís Office.

Proposition†1A authorizes the state to pay over an unspecified term of years unpaid noneducation mandate claims incurred prior to 2004-05. (Subsequent statute specified the term of this repayment plan to be 15†years.) The Governorís budget includes $98.1†million for the stateís payment in 2006-07 towards the backlog. At the time this analysis was prepared, the backlog of noneducation mandates dating from before 2004-05 totaled $1.1†billion. The State Controllerís Office, however, still was tallying late mandate claims and completing mandate audits. Both these actions could affect the stateís costs to pay the backlog. Accordingly, we withhold recommendation on this item, pending updated information from the State Controllerís Office.

Higher Cost for Mandates in the Budget Year

We recommend the Legislature increase Item 8885-295-0001(1) by $54†million, or take other action to reduce the cost of these ongoing mandates.

The administration proposes to fund in the budget year all noneducation mandates that are operative in the current year, with two exceptions. Specifically, the administration proposes to:

Based on prior-year claims, we estimate that the cost to reimburse local agencies for the mandates the administration proposes to fund in the budget will total about $100†million, over double the amount proposed in the budget. About $70†million is attributable to four mandates, each costing in excess of $15†million: Absentee Ballots, Animal Adoption, Child Abduction and Recovery, and Sexually Violent Predators.

To avoid a deficiency in the budget year, we recommend that the Legislature increase this item by $54†million-or reduce state costs by suspending or repealing some mandates or transform them into lower-cost categorical programs. In our Analysis of the 2005-06 Budget Bill (please see page F-48), for example, we discuss an option for transforming the Absentee Ballots and other election-related mandates into a categorical program. In addition, given the unexpectedly high costs of the Animal Adoption mandate (discussed in 2003-04 and 2005-06 analyses), the Legislature may wish to reduce the scale of reimbursable activities of this mandate.

New Mandates May Cost Less

We withhold recommendation on Item 8885-295-0001(2) pending information regarding other, potential new mandates. We further recommend the Legislature enact legislation to clarify the date by which a new mandate must be identified for its funding to be included in the annual budget.

Proposition†1A requires that the annual state budget include funding for the prior-year costs of new mandates (that is, those mandates recently approved by the commission). The administration has budgeted $45.7†million for these prior-year costs. At the time this analysis was prepared, the commission had adopted a statewide cost estimate for only one new noneducation mandate, totaling $142,000. (We review this mandate later in this write-up.) We note, however, that additional noneducation mandates are working their way through the commission process and the commission might approve their cost estimates late this spring. Accordingly, we withhold recommendation on this item, pending an update from the commission as to when these cost estimates for new mandates may be adopted.

Our review also indicates that it would be advisable for the Legislature to enact legislation clarifying the stateís procedures for including funds for new mandates in the annual state budget. Absent such legislation, Proposition†1A could be interpreted as requiring the state to include funds for a mandate approved on the very last day of the fiscal year. To give the Legislature and administration a reasonable amount of time to adjust the annual budget bill to include funding for new mandates, we recommend the Legislature specify in statute that funds to pay the statewide cost estimate of a new mandate adopted after March†31st would be included in the budget for the subsequent fiscal year.

Likely Current-Year Mandate Deficiency

We recommend the Legislature recognize an anticipated current-year mandate deficiency of $140†million. This cost could be covered through current-year legislation or in the 2006-07 Budget Bill.

Proposition†1A generally requires that the state pay any current-year mandate deficiency, or suspend or repeal the mandate for the coming fiscal year. Actions to suspend or repeal a mandate, however, do not eliminate the stateís constitutional obligation to pay the mandate deficiency sometime in the future.

Based on claims submitted to date, we estimate that the current-year budget will not have sufficient resources to pay all claims. We estimate that the size of this current-year deficiency to be about $140†million. The budget does not identify any funding for this purpose. The administration, however, indicates that it will propose a deficiency appropriation this spring. We recommend the Legislature recognize this anticipated current-year deficiency of $140†million or increase Item 8885-295-0001(1) by $140†million to provide funding to pay this deficiency in the 2006-07 Budget Bill.

Another Mounting Backlog of Claims

We recommend the Legislature pay claims for certain other unfunded mandates in full in the 2006-07 budget or include them within the stateís 15-year repayment plan. In future years, we recommend the Legislature pay these claims annually to avoid incurring another large backlog of mandate claims.

While the Constitution requires the state to reimburse local agencies for all valid mandate claims, it does not specify a payment deadline for education mandates, employee rights mandates, or any mandate that is suspended or repealed in the following fiscal year. Partly because of the lack of a payment deadline, the state has developed a significant backlog of unpaid education, employee rights, and other mandate claims.

We discuss the backlog of education mandate claims in the ďK-12 EducationĒ section of this Analysis. In terms of noneducation mandates, our review indicates that, by the end of 2006-07, the state will owe over $125†million for the POBOR mandate (an employee relations mandate), and several mandates that were suspended or repealed in 2005-06 (including the Open Meetings Act and Mandate Reimbursement Process mandates).

The administrationís budget proposal does not specify a plan for paying these claims. In our view, the best option would be to fully pay these overdue claims in the budget year. Such an action would eliminate the stateís liability, as well as a source of friction between state and local government. As an alternative, it might be legally permissible for the Legislature to include these costs within its 15-year repayment plan for noneducation mandate claims. Such an action would increase these payment costs by about $12†million annually. In future years, however, we recommend that the Legislature pay all mandate claims to avoid incurring a mounting backlog of unpaid mandate liabilities.

Conform Funding Level for AB 3632 Mandate With Policy Decisions

We recommend the Legislature conform its policy decisions regarding the AB 3632 mandates to the funding in this item. If the Legislature does not change these mandates into a categorical program-or if the new program does not begin on July 1, 2006-additional funding under this item may be needed.

We discuss the AB 3632 mandates and the Legislatureís options in the accompanying Perspective and Issues. In the event that the Legislature chooses not to change these mandates into a categorical program-or the new program is not fully operational on July 1, 2006-additional funding under this item may be needed to pay the mandatesí costs. As a point of reference, we estimate that six monthís operation of the current AB 3632 mandate would cost about $90†million.

Provide More Information About Mandates in Budget

The information provided in the Governorís budget and budget bill regarding mandates is highly disorganized and incomplete. The problems associated with these documents are so significant that they make it impossible for the Legislature or local agencies to understand what the administration proposes to fund for the budget year. If not corrected, these budgeting practices will undermine the Legislatureís and publicís ability to track mandate decision making over time. The responsibility for preparing mandate information for state budget documents rests with the Department of Finance.

Mandate Information in Prior-Year Budgets. In prior years, the Governorís budget document and the budget bill as introduced provided significant information regarding the administrationís mandate proposals. For each mandate, the Governorís budget specified the: (1) administrationís proposal, (2) current- and prior-year funding levels, and (3) department to which the mandate was assigned for policy oversight. The budget bill, in turn, listed each mandateís appropriation and specified if the mandate was proposed for suspension in the upcoming fiscal year. Each mandate was scheduled under the budget item for its assigned state department, a practice intended to promote oversight by state agencies and budget subcommittees with expertise regarding the mandateís subject matter.

Change in the Spring of 2005. The 2005-06 Governorís Budget and budget bill followed the customary practice regarding mandate information. Late in the spring of 2005, however, the administration proposed a change to reduce the administrative complexity of preparing the budget act. Specifically, the 2005-06 Budget Act of consolidated most mandate appropriations (except K-14 education and two mental health mandates) under the commissionís budget item. While each mandate was listed by name in the budget act, specific funding levels were not identified for each mandate.

2006-07 Governorís Budget and 2006-07 Budget Bill. The 2006-07 Governorís Budget and 2006-07 Budget Bill provide less information than previous budget documents and treat K-12, community college, and non-education mandates inconsistently. The Governorís budget, for example, provides no mandate-specific information regarding noneducation mandates and little information regarding community college mandates. As a result, the Legislature cannot easily determine from the Governorís budget whether the administration proposes to fund or suspend, say, the Animal Adoption or community college collective bargaining mandates. If the Legislature looked for this information in the budget bill, it could determine that the administration proposes to fund the Animal Adoption mandate (at some unspecified amount), but still may be uncertain about the administrationís proposal for community college collective bargaining. For K-12 mandates, the Governorís budget provides mandate specific data (including costs) regarding all K-12 mandates. The budget bill, however, provides no information regarding funded K-12 mandates.

Recommendation

We recommend that the Department of Finance submit a report to legislative budget committees and the Joint Legislative Budget Committee before budget hearings on its plan to provide the following information in all future Governorís budgets and budget bills: (1) each mandateís name, (2) the amount proposed for each mandate, and (3) the name of each mandate proposed for a one-year suspension or repeal. We further recommend that the Governorís budget include information regarding prior- and current-year funding levels of each mandate.

Every year, the Legislature makes decisions whether to suspend, repeal, fund, or defer specific mandates. Each action has different implications for the stateís budget and local agency program obligations. The administrationís changes to the stateís budget documents make it exceedingly difficult for the Legislature or local agencies to understand the administrationís proposals or track the Legislatureís decisions regarding mandates over time. For these reasons, we recommend that the Department of Finance report to the legislative budget committees and the Joint Legislative Budget Committee before budget hearings on its plan to ensure that the following information is provided in all future Governorís budgets and budget bills: (1) each mandateís name and identifying number, (2) the budgeted amount proposed for each mandate, and (3) the name of each mandate proposed for a one-year suspension or repeal. We further recommend that the Governorís budget include information regarding prior- and current-year funding levels of each mandate.

Review of Mandate Reconsiderations

Over the last several years, the Legislature has requested the commission to reconsider its Statement of Decisions regarding 11 mandates. While the commissionís work regarding all these mandates is not yet complete, our review of the process suggests the following:

Use the Reconsideration Process Sparingly. Mandate reconsiderations can be an effective way of clarifying state reimbursement obligations regarding mandates and reviewing dated mandate decisions in light of recent court decisions. Each reconsideration, however, diverts considerable commission resources from its regular activities and increases the time it takes to process pending test claims. We recommend the Legislature use the reconsideration process only for those mandates with which it has identified a specific legal, programmatic, or fiscal concern.

Assign Resources to the Task. The commission is a quasi-judicial body that considers evidence submitted to it. When state and local agencies submit the information the commission needs, the commission is able to render a sound decision. In the case of some reconsiderations, however, we have noted that state agencies have declined to play an active role. For example, no state agency submitted any information into the record regarding the pending POBOR reconsideration. If the Legislature wishes the commission to reconsider a mandate, we recommend that the Legislature assign a specific state agency the responsibility for preparing information for the commission. This agency could be the Department of Finance or any state agency, but should be one with budget and legal expertise related to the mandateís policy issue.

Draft the Reconsideration Statute Carefully. The commission advises us that it has very limited independent authority to reconsider a mandateís Statement of Decision or reimbursement parameters and guidelines. Any statute calling for a reconsideration, therefore, must authorize the commission to consider all the relevant years and statutes associated with the mandate and to modify the mandateís parameters and guidelines. In the case of one mandate reconsideration-Extended Commitment, Youth Authority-we note that the commissionís review was limited because the statute calling for the reconsideration did not cite the mandate decision test claim number and omitted one statutory reference. To avoid this legal ambiguity in the future, we recommend that new mandate reconsiderations (1) direct the commission to reconsider the mandateís Statement of Decision and parameters and guidelines and (2) specify the mandateís name and test claim number.

Specific Mandate Issues

Workersí Compensation Cancer Presumption

We recommend that the Legislature request the commission to reconsider past decisions regarding local government workersí compensation costs related to certain cases of cancer in firefighters and peace officers.

Background

Typically, in California workersí compensation law, an employee must prove by a preponderance of the evidence that a compensable injury was employment-related. Local governments long have been responsible for providing workersí compensation benefits to their employees. Since 1982, the Legislature has passed several laws that have significantly eased the burden of certain firefighters and peace officers in proving that cancer was caused by their public employment. These changes recognize that the services performed by state and local firefighters and peace officers sometimes result in exposure to carcinogens.

In 1984, the Board of Control (Commission on State Mandateís [CSMís] predecessor) determined that Chapter†1568, Statutes of 1982 (AB 3011, Torres)-concerning firefighters with cancer-created a reimbursable mandate for local governments. In 1992, the commission determined that Chapter†1171, Statutes of 1989 (SB 89, Torres)-concerning peace officers with cancer-created such a mandate. We estimate that these mandates currently result in about $4†million of state-reimbursable costs annually.

Recommend Reconsidering Decisions

Since the time that these mandate decisions were reached, the legal landscape regarding mandates has changed significantly. In 1998, for example, in City of Richmond v. Commission on State Mandates, an appellate court found that requiring local governments to provide death benefits to local safety officers under both state retirement and workersí compensation systems did not constitute a ďhigher level of service to the publicĒ under the constitutional definition of a mandate. In 2004, the commission rejected a claim involving statutes passed in 1999 and 2000 that amended prior workersí compensation law concerning cancer in firefighters and peace officers. These more recent decisions seem to suggest that changing the burden of proof in workersí compensation cases may not be the type of cost covered by the State Constitution. Consequently, we recommend that the 1984 and 1992 mandate decisions be reconsidered in light of more recent judicial and commission precedent. We note that any change in the commissionís mandate rulings would not affect firefightersí and peace officersí rights to workersí compensation benefits in any way.

Even if the commission does not change its earlier determinations that these statutes constitute reimbursable mandates, we believe that the recent changes of the workersí compensation laws-which have contributed to significant reductions of premiums and self-insurance costs since 2003-warrant a review of the parameters and guidelines for local reimbursement of these workersí compensation costs.

The following budget language would implement our recommendation:

In 2006-07, the Commission on State Mandates shall commence a reconsideration of the Statement of Decisions and parameters and guidelines for the following mandates: (1) Cancer Presumption-Peace Officers (Test Claim Number CSM-4416) and (2) Firefighterís Cancer Presumption (Test Claim Number CSM-4081). If the commission revises its Statements of Decision or parameters and guidelines regarding either or both of these mandates, the revised decisions and parameters and guidelines shall apply to local government activities undertaken after the date the revisions are adopted. The Department of Industrial Relations, in consultation with the Department of Finance, shall participate in the commissionís reconsideration by submitting relevant information to the commission.

Newly Identified Mandate Review

Chapter†1123, Statutes of 2002 (AB 3000, Committee on Budget), requires the Legislative Analystís Office to review each mandate included in CSMís annual report of newly identified mandates. In compliance with this requirement, this analysis reviews the mandate entitled Postmortem Examination: Unidentified Bodies, Human Remains.

Postmortem Examinations Mandate

We recommend adoption of the Governorís proposal to fund the Postmortem Examination: Unidentified Bodies, Human Remains mandate because the subject legislation has provided information that is currently used by law enforcement personnel to identify missing persons.

Chapter†284, Statutes of 2000 (SB 1736, Rainey), consists of several provisions regarding the identification and investigation of unidentified bodies. The major provisions are summarized below.

In September 2003, CSM determined that the portion of the legislation requiring law enforcement agencies to file a report of an unidentified body to DOJ constitutes a state-reimbursable mandate. Overall costs from this mandate are estimated to be $142,319 (from 2000-01 through 2005-06). These costs reimburse counties for labor costs associated with filling out the DOJ form.

The Governorís budget proposes to fully fund prior-year claims for this mandate.

Analystís Recommendation. We recommend adoption of the Governorís proposal to fund the mandate. The information gathered by DOJ is stored in the Unidentified Persons System, which is accessible to local law enforcement through the California Law Enforcement Telecommunications System. Additionally, the information is ďcross-searchedĒ against reports of missing persons to determine if any individuals who are reported missing are potential matches of unidentified bodies. In 2005, DOJ was able to make five confirmed physical identifications using the database. The extent to which costs will increase in the future is unknown. However, it seems unlikely costs will grow significantly in the future given that the number of reports received by DOJ has decreased from 2004 to 2005. Because the information from the DOJ report is used by law enforcement and has a relatively small cost to the state, we recommend funding the mandate.


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