Assembly Budget Subcommittee No. 4 on State Administration

I can hear you. Can you hear me? Yes. You're coming in loud and clear. Thank you. Okay. You're welcome. Thank you.

If you're watching this hearing online, the phone number is toll free 877-692-8957 with the public access code 131-5444. If you encounter any problems, please contact the Assembly Budget Committee at 916-319-2099 and a staff Member will assist you. We encourage the public to provide written testimony before the hearing. Please send your written testimony to Budget Sub Four at ASM. CA gov. This is must see TV on May revise, and I will say it is hot in room 444.

So if whoever's watching can pump up the AC or come help us, that would be really great. We're all going to fall asleep very soon. With that, roll call, please.

Chair Carrillo? Here. Assembly Member Lee? Assembly Member Patterson? Assembly Member Reyes? Here. Assembly Member Wicks? Here.

Here. Okay, let's begin with the major proposals in the housing homelessness area. Let's begin. Please come up. Come on down. Esta mui caliente en el quarto. I try my best with the accent. Please begin when you're ready. Thank you.

Good afternoon. Andrew March, Department of Finance. So, I'll present to you on the housing proposals, and then my colleagues will present on the homelessness proposals. So, in addition to the $350,000,000 in General Fund solutions proposed in the Governor's Budget, the Mayor revision proposes a $345,000,000 deferral and a $17.5 million reduction to help address the $32 billion budget shortfall.

Specifically, the Mayor Revision proposes to revert $345,000,000 General Fund of the $500 million, onetime General Fund originally appropriated in the 2021 Budget Act for the Foreclosure Intervention and Housing Preservation Program, also known as FIP, and appropriate that $345,000,000 over the next four fiscal years. So it maintains the $500 million for the program just spreads out that funding over the multi year.

Additionally, the Mayor Revision proposes to revert 17 and a half million of $25 million that was originally appropriated in the 2000 Budget Act for the Downtown Rebound program. Additionally, the Mayor revision proposes to reappropriate funding provided for the Emergency Rental Assistance Program in the 2021 Budget Act. This will allow the Department of Housing and Community Development to complete administrative tasks to close out the program.

Additionally, for the Civil Rights Department, the Mayor Revision proposes $375,000 Federal Trust Fund annually for three years for CRD to implement a federal grant to expand the services offered by the California versus Hate Hotline by partnering with community based organizations. Additionally, the mayor vision proposes trailer Bill Language to make clarifying changes to the Commission on the State of Hate at the Civil Rights Department. That concludes the housing proposals in the Mayor Revision.

All right. Ted Doan from Department of Finance. Good afternoon, Madam Chair and the Members. Since 2019, the State had invested over $17 billion to assist local government in addressing homelessness. Consistent with the Governor budgets, the May revision continue to include 3.7 billion in funding for homelessness program in 2023-24. In addition, the Administration continued to believe in the importance of homeless outcome link accountability. The Administration believe a three part framework should consist of, number one, creating mechanism for local effort to address homelessness.

Number two, increasing regional coordination on homelessness solution and number three, holding local government accountable for the respective role in achieving outcome that lead unhoused and unsheltered person to access affordable permanent housing and services. The Administration is prepared to work with the Legislature over the coming week on legislation to enact a homelessness outcome accountability framework. With that being said, open to any question or comment that the Members may have.

Lourdes Morales with the Legislative Analyst Office. We have comments regarding the reductions that are subject to a trigger restoration from January that are maintained in the May revision as well as the new proposals for the delay. Given the condition of the State budget, we do not anticipate that any of the funding subject to restoration by triggers would be able to be brought back given the condition of the budget.

Additionally, to the extent that the budget problem persists, which we anticipate is likely, the Legislature will have to revisit any delays in future years and use spendings once again. Moving on to comments regarding the homelessness accountability TBL give me one moment. Can y'all hear in the back? Can you guys hear? It's a little Low? Okay, I can speak up a little bit more. Regarding the Homelessness Accountability TBL.

As the Administration indicated, there was intent language put forward in February of 2023 that indicated the Administration's interest in enhancing homelessness accountability. However, there was no revised language as part of the May revision to implement that intent language. And so we have submitted comments to your staff that indicate some questions a Legislature might want to ask the Administration as the way to move forward to enhance accountability.

Given what we understand are the Administration's goals, given the intent as well as comments in some of their recent legislative oversight hearings, those really align with the comments made just now by the Administration largely asking what type of programs would be included as part of this enhanced oversight, what are the Fund sources? Are we going beyond just HAPP to other state, federal, and potentially local funds as well, and what are the roles of local governments? So as I mentioned, those are with your staff.

But generally, we would note that the state has taken steps in recent years through the HAPP program to enhance oversight on an incremental level year after year, most recently, the implementation of local action plans as part of the third round of HAPP has been a major undertaking. And so extending enhanced oversight to other programs, including federal, local, and other state programs, as well as requiring regional collaboration, would be a major expansion of current practice.

And so we would just ask the Legislature to consider steps to ensure state and local governments are successful in that process as we continue that evolution. So, for example, the Legislature could consider piloting this enhanced oversight to select communities where there are the largest number of people experiencing homelessness to ensure that the state can provide adequate guidance and intensive support to those communities, ensuring the state is leveraging its resources most effectively and also supporting communities where there are the largest number of people in need.

And so with that, happy to take any questions. Thank you.

Thank you. Let's begin with a couple of questions that I have on the Foreclosure Intervention program. How much money has been expended since 2021 and will pushing out the funding cause delays with the implementation of the program?

Yes. Andrew March, Department of Finance.

Closer to the mic, please. Yes.

So, to date, only a small portion of the funding has gone out, just used for staff costs for HCD in order to implement the program. Since 2021, there's been a few statutory language adjustments that were made to the program in order to ensure that HCD could implement the program. Additionally, the delay in the funding, we don't anticipate that it'll impact the program at all because of how it was designed.

The funding is supposed to go out to the Fund manager in Tranches over the next few fiscal years originally, anyways. So this spreading out over the multi year will keep in line with that schedule.

Okay. On the Accountability Trailer Bill language, does the Administration plan on releasing any additional language?

Chris Hill for the Department of Finance. The Administration is looking forward to working with the Legislature on Trailer Bill, so we're viewing that as sort of a collaborative process to develop the Trailer Bill.

So at this moment, not quite yet. But you're looking for it.

That's correct, Madam Chair.

Okay. Any additional? Yes, Ms. Wicks.

Thank you, Madam Chair. On the affordable housing situation, I know the last round of our flagship affordable housing production program, the multifamily housing program, as we call MHP, was oversubscribed 10 to one. And there were 14,000 affordable housing units that are shovel ready that did not get funded. That's 14,000 families that could have a roof over their head.

We've had some holdover allocations from last year's budget that will carry us through this year. But I am very worried and alarmed that we'll be forced to pull back on our affordable housing production funding after that at what I think is probably the worst possible time given the need in the state for affordable housing. I know our bonds from 2018 are nearly spent, so the question I have is what is the plan to Fund affordable housing beyond this budget year?

Has the Administration considered a new bond? What are other thoughts the Administration might have on continuing the need for affordable housing? And I know when you talk to folks in the space, everyone says we need ongoing funding for affordable housing. I know many of us have worked on that, and we'll continue to work on that. But just looking for some direction from the Administration around what you all think are the solutions as it pertains to funding for affordable housing once we run out of these funds.

Yeah, as noted, the affordable housing funding that's been appropriated from the General Fund is expected to be there is no additional funding included beyond 23-24. However, there are several sources of ongoing funding for affordable housing, including the Affordable Housing Sustainable Communities Program funded by GGRF revenues. SB two funding which goes to local governments to Fund housing. There's also ongoing state Low income housing tax credits above and beyond the $500 million that was included in the budget the last few years.

There's an ongoing allocation there, but happy to continue discussions on any other ongoing sources of funding that could be provided for affordable housing.

And would the idea of a bond for affordable housing be something you all would consider? A new bond?

In regards to a bond, so there have been discussions that the Administration has released as far as providing additional bond for veterans' housing. So that's the only bond right now that we're entertaining from the Administration side for affordable housing.

And would you entertain more funding outside of just that really important constituency, but for folks more broadly,

We don't have a proposal at this time for any additional affordable housing bonds.

Okay. On the homelessness front, I know the governor's January budget maintains 1 billion in funding for HAPP, and he said that he wants to create more accountability around those dollars. So the question I have around that is, what is the universe of programs that you all want to cover with your accountability proposal? Is it HAPP only? Or is there a broader list of homelessness programs, including the Encampment Resolution grants and CDSs programs or CalAIM or others?

Chris Hill for Finance. The Administration is interested in looking at a broad net covering a whole host of programs. There's a whole host of programs out there in the behavioral health realm. There's programs, existing programs like HAPP and campus resolution grants. And there are a host of other programs in the health and human services world. And we're interested in looking at ways to try and encompass all of those programs in an accountability framework.

Okay. And I know the May Revised says that the Admin wants to work on accountability with the Legislature, but one policy that is suggested is that only cities and counties with compliant housing elements should be able to get the homelessness funds. What are the implications of requiring cities and counties to have compliant housing element to get funds? How many cities and counties are currently out of compliance?

According to data that we just found from Housing Community Development Department today, 233 out of 539 jurisdictions or 43% are not in compliance. And that is a problem. And it's possible we wouldn't have the same scope of homelessness problem that we have if more localities were in compliance because then we'd have more affordable housing. So I think it's just a trickle down effect of that.

And we have to find a way, I think, and we're again looking forward to working with the Legislature on this, to ensure that locals hold up their end of the bargain and are incentivized to do so, and that they have the tools they need to do so. So we kind of viewing it as a collaborative process to encourage them to hold up their end of the bargain and do what they need to do and with the state trying to help lead the way for them.

Okay, well, Count Me is a partner in trying to get our local municipalities to ensure that they're doing what they need to do visa vis our affordable housing goals because they know all of our communities need it. And just the last question, the May Revise also proposed to continue funding for the Encampment Resolution program at $400 million. What outcomes are we seeing from the ERP?

We'd have to check with the Interagency Council on Homelessness and get back to you on that. Okay, so we'll do that.

Okay, appreciate it. Thank you. Can we get a timeline as to when you might be able to get.

Regarding the Encampments? We hope to have that within a day or two. It shouldn't take too long to get that.

Okay, great. Thank you. Are there any additional comments or questions? Okay, seeing none, we're going to go on to the next issue. And just as a note, issue 1.5, not on the agenda but listed in the letters. I'd like the Department of Finance to provide an overview of the Franchise Tax Board, BCP, the Middle Class Tax Rebate Revision and the Office of Tax Appeals. Trailer Bill Language, certainly.

Chris Hill, Department of Finance. Concerning Franchise Tax Board the Administration is proposing to provide $2.7 million General Fund sorry, can.

Sorry, can you speak a little closer to the microphone? Thank you.

The Administration is proposing $2.7 million General Fund 19 new positions in the upgrade of 95 existing positions for Franchise Tax Board's customer Service unit. This is mainly for their tax practitioner hotline. About 65% of tax filers use a tax preparer and it's very important that franchise keep up with the call volumes from these individuals, the tax preparer, so they can provide people can get their refunds and have their payments processed timely. And the call volume has gone up incrementally. It's gone up significantly, actually.

And these resources will help franchise to keep up with those call volumes and also to address some turnover, because the turnover is very high for these positions. And so we're looking to upgrade 95 of them to a higher classification to encourage people to remain in these positions because it takes a long time to train them, up to three years. And so we don't want to lose them.

Concerning the middle class tax refund, middle class tax relief, there was a $9.5 billion appropriation for that program, and we're proposing to revert $200 million in savings. That represents about 2% of the total appropriation. And this isn't stemming from people not getting their refunds. It's just stemming from the fact that we erred on the side of caution by providing a bit more funding as a safety cushion to ensure everybody got what they were entitled to.

And these funds are not needed for proposing to revert them in the current year. And also, there's a proposed reversion of $18 million in associated state operations costs for that workload. And finally, for the Office of Tax Appeals, the Administration is proposing trailer Bill to provide a partial exemption from the regulatory process under the Office of Administrative Law. When OTA was first created, they had a blanket exemption from the regulatory process to allow them to start up.

And we're proposing to subject them to the same requirements as every other State Department, with one exception. And this will ensure that any decisions, any precedential decisions issued by OTA Tax Appeals panels, tax hearing panels are not subject to OEL review because when the Board of Equalization was hearing Tax Appeals prior to 2017, the Office of Administrative Law determined that any precedential rulings issued by BoE constituted an underground regulation. And we want to prevent Ota from falling into that same trap.

So this is just, again, to ensure Presidential Court tax appeal decisions made by OTA are not subject to OAL review.

Thank you. Any comments from LAO? Any questions from the Members? Okay, seeing none. Thank you very much. We're going to go on to issue number two, office of Business and Economic Development. Moving on to the major proposals by GoBiz. Please make your way up. So hot in here. Yes, please. Thank you. Please begin when you're ready. Thank you.

Good afternoon, Chair and Members of the Committee. I'm Charlie Lasalle with the Department of Finance. I'm here today to depride a brief overview of the May revision proposals.

The air conditioning just turned on. That's great news.

Oh, nice. A brief overview for the May revision proposals for the Governor's Office of Business and Economic Development. I'll start with the City of Fresno public infrastructure plan. The 2022 Budget Act established a local government budget sustainability Fund program and included $300 million to be spent over three years starting in 23-24 to support this program.

Specifically, these grants will provide short term support for counties with high unemployment and high poverty who are pursuing economic and workforce diversification projects, recognizing the opportunity costs pursuing such projects could otherwise impose on their limited resources. The May Revision proposes to maintain $50 million for the Local Government Budget Sustainability Fund to assist eligible counties in need with startup funding and capacity building. They can use these resources to develop projects.

The May Revision also proposes to reallocate $250,000,000 to support the City of Fresno's Public Infrastructure Plan to invest in the downtown area. This plan includes funding projects that improve walkability development of green space and water infrastructure, among other areas. Next is the small Agricultural Business Relief grants. GoBiz requests $25,000,000 one time General Fund to expand the scope of the current California Small Agricultural Business Drought Relief Grant Program to provide direct assistance to eligible agricultural related businesses that have been affected by the recent storms.

This program is implemented by Cal OSBA in coordination with the Department of Food and Agriculture. I'll move on to the outsmart disaster program. GoBiz requests $350,000 one time reimbursement authority to allow Cal OSBA to administer the outsmart disaster program in coordination with the California Academy for Economic Development.

This program is a statewide awareness campaign focused on providing California businesses and state-- Sorry, this is a program statewide awareness campaign focused on providing California businesses and communities with the resources they need to adequately prepare for and recover from all types of disasters and business interruptions. Lastly is the state Small Business Credit Initiative technical assistance program.

GoBiz requests 25.3 million Federal Fund authority to be spent over five years for the Office of the Small Business Advocate to provide technical assistance to small businesses, including small businesses owned by socially and economically disadvantaged individuals and applying for the State Small Business Credit Initiative capital programs. The funds will be used to provide grants to federal technical assistance partners and Fund four positions for outreach engagement, program management, data reporting, monitoring and evaluations.

The SSBCI technical assistance program will complement the existing technical assistance programs administered by Cal OSBA. With that, I'm available and the Department is available to answer any questions you may have.

LAO?

Yes. On the first item of the redirection of the local government sustainability Fund dollars to the Fresno Public Infrastructure Plan. We don't view this redirection as consistent with the intent or objectives of the Local Government Sustainability Fund and therefore this redirection essentially constitutes a new spending proposal which we think, given the state's budget condition and the budget problem we're facing, does not warrant approval at this time. So we recommend rejecting that redirection.

And further, the Administration's proposal suggests that there may no longer be a clear and immediate need for the 300 million allocated to the Local Government Sustainability Fund and therefore suggest considering redirecting these funds to the General Fund as a potential budget solution.

Thank you. We'll start with a couple of questions for the Local Government Sustainability Fund program. Is the 50 million enough funds to implement the program as envisioned last year.

Lauren Greenwood, Deputy Director of Legislation for GoBiz with the local Government Sustainability Fund, it was 50 million allocated for this budget year. And so this was what the Department was getting ready to implement. The program has not launched, but the Department has been in conversations with impacted counties such as Kern, Fresno, Imperial, Tulari, and again, the 50 million is what was expected for this year.

Thank you. How is the AG Business Relief Grants sized, and is there a possibility that the program might be oversubscribed?

Lauren Greenwood, Deputy Director of legislation for GoBiz. May I clarify? Do you mean the drought relief grant program or the flood relief grant program? For the flood relief program, we do have language in there for the grants to be dedicated on three tiers, dependent on the revenue size. And we want to continue working with the Legislature and stakeholders to determine what kinds of revenues would be appropriate for these types of flood impacted businesses. So that is not clarified in the language yet.

So I'm sorry. What was the number of the flood relief grant again?

We have $25 million allocated for this program.

So given the severity of the floods, do you think that 25 million might be enough that it might not be oversubscribed?

Emma Jungwirth, Department of Finance. I think at this time, it's hard to know. I mean, we know that the impacts statewide are pretty severe, but I think it's hard to know exactly how many businesses would be eligible or would be applying. And so those are things that we want to keep working with stakeholders on to get a better sense of. The trailer Bill itself doesn't quite have revenue impacts. Well, not impacts, but tiers similar to what we did for the Drought program.

So we just want to continue working with stakeholders to kind of further refine the revenue tiers and see kind of the impacts across the state.

Thank you, Madam Chair. The state Small Business Credit initiative. Ian at GoBiz is requesting an increase of 25.3 million in one time. Funding to be spent over five years for the California Office of the Small Business Advocate to provide technical assistance to small businesses, including businesses owned by socially and economically disadvantaged individuals. Applying for state small Business Credit Initiative Capital Programs. My question is, how does GoBiz plan to conduct outreach to offer this technical assistance?

Thank you. Any comments or questions? Yes, Majority Leader.

And as a follow up, has GoBiz offered technical assistance for these purposes in the past?

Lauren Greenwood with GoBiz. We unfortunately don't have a Cal OSBA representative here today, but I will take those questions and get back to your office.

Wonderful. Thank you.

Thank you. I think if you can get back to the Committee consultant so that we all can get the response, that'd be great. Thank you. If there are no additional comments or questions, we're going to go on to issue number three, office of Planning and Research. Moving on to the major proposals for Office and planning and research. Please come forward.

Please begin when you're ready. Thank you.

Good afternoon, Chair, Members of the Committee. Kevin Clark with the Department of Finance. I'll be presenting on two of OPR's May Revision proposals and happy to answer any questions of the other proposals as well. First, the May revision includes 5.3 million General Fund and 15 positions ongoing to establish an Information Technology Unit within the Office of Planning and Research. This proposal will support internal departmental oversight and Administration of IT needs.

Second, the May Revision includes a reduction of 2 million General Funds and 10 positions in '23/'24 that's the budget year decreasing to 1.5 million in 2026/'27 and ongoing to address declining General Fund revenues, as well as begin the process of transitioning OPR to a more traditional department within state Civil Service. We're happy to answer any questions you may have about any of the MR proposals, May Revision proposals. We're also joined by Scott Morgan and Saharnaz Mirzazad from the OPR to answer programmatic questions. Thanks.

LAO?

Thank you, Madam Chair. Rachel Ehlers with the LAO. We're still looking into these proposals and hope to have specific recommendations to you later this week. Some of the questions we're looking at regarding the IT Office, it does seem that there are some needs added OPR and kind of from a security perspective, it may make sense to adopt at least part of the proposal.

But we're looking at the overall scope, and especially given the General Fund condition, whether all of those resources are needed now and then regarding the proposal to reduce the staff and generate savings, General Fund savings, obviously that's something we're all looking for. But we want to be sure that that won't put some of the legislative priorities and legislative activities in jeopardy, because some of the proposals in January that are now being called back in this proposal were to implement legislation that you all passed recently.

Thank you. How will the new Civil Service section you are requesting at OPR differ from the other parts of the office?

So the office is full.

Can you introduce yourself and speak closer to the mic?

Can you please repeat your question?

How will the new Civil Service section you are requesting at OPR differ from other sections of the office?

This is Saharnaz Mirzazad. I'm Chief Deputy Director for Planning and Policy at the Governor's Office of Planning and Research. Currently, our office is only exempt positions. We don't have any civil service. And this will be the beginning of the transferring the office to the civil service. So this will be the first.

Sorry, can you articulate how you determine the staffing level for the new Information Technology Unit?

Certainly. Scott Morgan with the Governor's Office of Planning and Research. So we've been going through this process for many months now with the Department of Technology to look at other similar sized agencies and determine the IT units that they had that had similar business lines. We've also been working hard with the Governor's Office to identify the different work streams that they currently manage for us and what that would look like from a transition to our office. Obviously, there's been a lot of growth at OPR.

As a point of reference, Department of Technology's original estimate was a team of 27 people, so we had reduced that quite a bit, one acknowledging the budget requirements, but also as a first attempt to get an IT unit set up. So we feel this is the bare bones that we need right now to make this happen and to transition to a full, independent IT system from the Governor's Office.

Thank you. Any additional comments or questions? Majority Leader?

Thank you, Madam Chair. On the Youth Corps program, I know in the May Revise proposes provisional language to provide a set-aside for tribal communities and to prioritize undocumented youth for participation in the Youth Workforce Development Program administered by California Volunteers. I just want to comment that I do appreciate this language that's being proposed to add these two groups to participate in the Youth Corps program on the transition to the state civil service position.

My question is: what specifically is a plan to transition the positions to state civil service positions, and when does OPR expect the transition to be completed?

So currently, this will be the beginning. We are working closely with CalHR to understand the scope that we need to go through to make sure that we are having a smooth transition to the civil service. This will be the first positions.

We'll first start with the positions that are vacant and then gradually convert the positions that are filled currently with the civil service position, but it will be in close coordination with the CalHR. And we're hiring a consultant too to support us.

Very good.

I'm sorry?

And you're hiring a consultant to support us, too.

Wonderful. Thank you. I thought you said you're hiding the consultant.

I thought I heard that, too. If there are no additional comments or questions, we're going to move on to issue number 4, the Department of Justice. Thank you very much.

Thank you very much.

Please begin when you're ready.

Good afternoon, Madam Chair, Members of the Committee. My name is Ashley Harp, California Department of Justice. The Governor's '23/'24 May Revise budget includes four proposals for the Department of Justice which aim to support the Department's critical public safety workloads and business needs, including one technical adjustment and one loan to the General Fund from the Department's Litigation Deposit Fund. I'll start with the first proposal, the DNA ID Fund Expenditure Technical Adjustment.

The Governor's May revised budget proposes 7.3 million DNA ID Fund authority in '23/'24 and ongoing to support facilities, maintenance and lab equipment replacements as intended in the Governor's January budget. This is a technical adjustment to authorized spending authority, which was miskeyed in the January proposal. The January proposal also included 10 million reinstatement of DNA ID spending authority and was intended to include this 7.3 million for the facility, maintenance and lab equipment. The second proposal is the Firearms IT Systems Modernization Project.

The Governor's May Revise budget includes 1.1 million dealers record of sale special account authority, and six positions in '23/'24 ongoing to continue the project approval lifecycle process for this critical public safety IT project. The resources will support subject matter experts in the Bureau of Firearms who will collaborate and support the program's--the project's--planning, implementation and ongoing maintenance efforts. This request is in addition to an April 1 proposal, which included 6.4 million dealers record of sale account and 1.5 million ongoing to support the IT requirements of the project.

The third proposal is for E-discovery storage and review platform augmentation. The budget proposes 1.9 million in '23/'24, increasing to 4 million in '26/'27 ongoing to provide the necessary resources to respond to and address the Department's growing digital E-discovery and digital casework storage needs, which have increased significantly as a result of the pandemic, which expedited the shift from hard copy to electronic processes. And the fourth item is the Litigation Deposit Fund loan.

The May Revision includes a $400 million budgetary loan from the Litigation Deposit Fund to the General Fund in '23/'24 to assist in closing the projected statewide budgetary shortfall and to ensure the submission of a balanced budget plan. This proposal also includes statutory changes to authorize this budgetary loan from idle resources not required for currently projected operational or programmatic purposes. That is all.

Thank you, LAO?

Anita Lee with the Legislative Analyst Office. We have comments on two out of the four proposals. And so we're first going to start with the Firearms Information Technology Project, also known as FITSM. So for both the April and May proposals combined together this recommendation applies, which is we recommend that the Legislature provide the funding necessary just to complete the alternatives analysis stage, which is stage two of the PAL process, as well as to maintain baseline project costs pending legislative approval of that alternatives analysis. According to DOJ in conversations with them, that analysis is estimated to be submitted for California Department of Technology review either at the end of 2023 or the beginning of 2024, so within the budget year. And so, for example, it could be reasonable to provide them for the requested funding in 2023/'24 but not the ongoing funding. And so this is really important because the project may have significantly changed over time, and the Legislature's last meaningful review of the project was in June of 2020 when stage one was completed.

And so it's also, in our review, premature to provide ongoing resources for this before the Legislature has had a chance to review the alternatives analysis, because this is a very complex and potentially large project. Also, in light of the budget situation, the Legislature might have particular thoughts on how the project should proceed and be funded. And so that would impact the level of ongoing resources needed. The second item that we have comments on is related to the loan from the Litigation Deposit Fund.

We recommend the Legislature adopt language requiring the Department of Finance and DOJ to submit a report to JLBC 30 days before the loan is made, reporting on the list of cases for which litigation proceeds would then be used to make the loan. And then we would also recommend key information be submitted along with that, such as when the proceeds were received, the state special funds that would have otherwise been eligible to receive those funds, as well as any restrictions on the use of the funding.

And that's going to be really important when the loan is repaid to make sure that the state complies with any settlement agreements or court judgments for the use of those funds. Happy to answer any questions. Thank you.

Thank you. I have a series of questions, but I'm going to ask it in a block, and then maybe we can break it up. So what is the total amount of special Fund to the General Fund loans included in the May Revision, and what are the repayment terms?

It could be one block. What is the current Fund balance of the Litigation Deposit Fund, and will there be any impact on DOJ related workload that is funded by this Fund?

I will hand it over to Kevin Clark.

Kevin Clark, Department of Finance. for the first question, I'll have to get back to you on the exact amount, I don't have that in front of me at the moment. And can you please state the second question again?

The second question is actually related to the first, so if there's a way that your colleagues can get you that? What is the total amount of the special funds to the General Fund loans included in the May Revision and what are the repayment terms? So I think we may need the first one for you to answer the second.

Yeah. Kevin Clark, Department of Finance. So for all special Fund and General Fund loans, I have to get back to you on that, it's beyond just Department of Justice.

Okay. And what is the current Fund balance of the Litigation Deposit Fund and will there be any impact to any DOJ-related workload that is funded by this Fund?

Madam Chair, the current LDF balance is approximately 1.2 billion as of March 31. And regarding whether the loan would affect any DOJ operations, we're continuing to review the proposal and we're collaborating with Department of Finance to identify that.

Okay, what is your timeline to identify that with the Department of Finance?

We're actively working on it right now in hopes of having some feedback for Department of Finance this week.

Okay, so we just have a couple of things to follow up on this then, before we are able to move forward. So the first and second question, and then lastly, the impact to DOJ. Thank you. There are any additional comments or questions? Okay, seeing none, we're going to hold this item open for the moment. Thank you. We are doing really great on time, folks.

Issue number 5, labor and workforce development. Please come on down. Okay, please begin when you're ready. Thank you.

Thank you, Chair. Patrick Toppin, Department of Finance. I'm here to give an overview of the May Revision proposals for labor. In addition to some technical adjustments for EDD Benefit Authority and other federal funds, the May Revision proposes several major revisions to the January's Governor's Budget proposal, chief among them, the restoration of the Women in Construction Unit funding at the Department of Industrial Relations that was previously proposed to be paused in 2023/'24, 2024/'25.

It includes ongoing Special Fund resources for Cal O should implement the recently passed gas price gouging Bill from the first extraordinary session. 5.3 million in federal authority to allow the California Workforce Development Board to expand the Prison to Employment Initiative state program into federal prisons in California using a federal grant. Ongoing resources to implement a direct deposit option for the EDD's benefit programs and a $306,000,000 one-time loan from the Unemployment Compensation Disability Fund to the General Fund to pay the updated Unemployment Insurance interest payment.

The budget also includes technical trailer bill language to clean up the Community Economic Resilience Fund statute, such as removing references to federal reporting requirements that are no longer relevant.

LAO?

Chas Alamo with the Legislative Analyst Office. We have some brief comments on the final item that my counterpart from the Department of Finance mentioned, which is the Special Fund loan from the state's Disability Insurance Fund to the state UI Trust Fund for the purposes of making the state's interest payment on the outstanding federal UI loans. So I have sort of two high-level comments and then two specific comments about this proposal.

The high-level comments to sort of situate this Special Fund loan are first and foremost, that this is one of several, as was just discussed in the last item of Special Fund loans identified in the May Revision, that allow the Administration to maintain discretionary spending levels that were proposed as part of the Governor's Budget and the May Revision. We think those Special Fund loans total about $2 billion across the May Revision, across all of the Special Fund loans. So this is just 300 million of it.

The second sort of high-level context point to make is that the interest payment that the state is scheduled to make on the federal UI Trust Fund loans is now a new and permanent feature of the state's budget. The state currently owes $17 billion to repay the UI Trust Fund loans. We will be making interest payments as a state for many years.

Customarily, the state has made those interest payments from the state's General Fund, though at the beginning of the Great Recession, we made the first year's payment in a similar mechanism by borrowing from the SDI Fund to make that first interest payment. So those are sort of the global context setting. And then specifically about this proposal of itself. The state's Disability Insurance Fund collects employee contributions and pays out benefits for disability insurance as well as paid family leave. It collects about $10 billion annually.

So this $300 million loan is a relatively small portion of the annual contributions that employees make into the Fund. The May Revision proposes to include forthcoming trailer bill language that would prevent the payroll tax rate that employees pay for the SDI program from going up in response to this loan. But technically, we're not certain how that would work.

In essence, there are no two ways about it, because the SDI Fund is the payroll tax rate is structured each year based on a formula in state law that sets the rate to generate enough money to pay out benefits and to also set aside a small reserve amount. So in future years by redirecting a portion of the SDI Fund to pay the interest rate, the first interest payment on the UI Fund, ultimately, either the payroll tax rate will need to be increased to replenish those funds or the reserve requirement--the amount of money that's in the SDI Fund set aside--will have to be lowered. So one of those two outcomes will occur as a result of the Special Fund loan being proposed as part of the May Revision.

And the last comment I'll make specific about this proposal has to do with the recent passage of SB 951, which increased the wage replacement rates for the state's disability insurance program and paid family leave, as well as removed the taxable wage ceiling for the program. SB 951 will go into effect the first stage January 1 of 2024, and the second stage a year later.

And I bring this up now because the implementation of SB 951 as a major overhaul for the state's SDI program muddies the waters regarding the fiscal position of the SDI Fund. And so it's not entirely clear how this relatively small Special Fund loan might affect the balance and sort of the fiscal position of the SDI Fund in the coming years. The administration's multi-year repayment plan for the Special Fund loans does not include a repayment target date for this particular loan.

So without knowing for certain when the Administration plans to repay the loan, it's not clear how the loan shift in this respect might affect the fiscal position of the state's Disability Insurance Fund. Thank you.

Thank you for that. Just making some notes here. I believe SB 951 was a Senator Hannah-Beth Jackson. Oh, Durazo. I'm sorry. Durazo Bill. Okay, thank you. Just a couple of questions. Why was the Disability Fund chosen as an alternative source of funding to pay the interest of the UI federal loan?

Thank you, Chair. Patrick Toppin, Department of Finance again. The decision to choose the DI Fund for this purpose is largely based on precedent. As Chas mentioned, this was used in the early years following the Great Recession. The 2011 and 2012 budget acts both included loans in excess of $300 million, respectively, from the DI Fund to the General Fund to pay those loan interest payments, and then they were subsequently repaid in 2017.

How will the trailer bill language work?

Sure. So actually, the budget bill language is out, and it is included in the spring finance letters that were submitted to the Legislature. So the proposal includes provisional language to avoid the loan from having an impact on the disability insurance contribution rates, chiefly by allowing Edd to consider the loan as cash in the bank, as sort of an asset when determining the fund balance for the current or the future year's contribution rates.

And so it allows them to sort of consider that as an asset on the balance sheet of the fund. Department of Finance, in the event that there are cash flow issues that might arise, can accelerate the repayment date, currently it's scheduled for 2027, but in the event that it needs to be sooner, that is an option that is easily exercised.

Thank you. And what is the current estimated surplus in the fund?

Yeah, so the current currently we project the fund balance to be $3 billion at the end of calendar year 2023 and 4.7 billion.

Sorry, one more time?

$3 billion at the end of 2023 and 4.7 billion at the end of 2024.

4.7 million?

Billion. Thank you. Any additional comments or questions? Okay, seeing none, we're going to hold this item open for the moment. Thank you very much.

Billion.

Thank you.

We're going to move on to issue number 6 on consumer protections. Last one at the panel buys lunch. Please begin when you're ready. Thank you.

Hi, Madam Chair. Colby White, Department of Finance. I'm just going to be starting off giving a broad overview on the update on cannabis tax revenues overall. So the May Revision revised the revenue forecast for cannabis excise tax revenue down relatively substantially from 642,000,000 to 485,000,000 in fiscal year 2223 and down from 715,000,000 to 496,000,000 in fiscal year '23/'24.

So the main driver behind this revision downward is really the first two quarters of data, of tax data, for fiscal year '22/'23 that came in at 243,000,000. It was substantially below the projections or the expectations that we had at Governor's Budget. Going forward, there's a significant uncertainty with the forecast. Whenever you're forecasting you had cannabis tax revenues increasing substantially before and during the pandemic, and then we've had a substantial correction or perhaps a better characterization as a normalization.

And so the basic assumption behind the forecast is simply that we're assuming the revenues stabilize at the lower levels that we saw in the first half of '22/'23 and grow from that point, roughly in line with the economy.

And Andrew Hong, Department of Finance, I'll be providing additional information on the cannabis tax Allocation Three. So Proposition 64 specifies the allocation of resources in the Cannabis Tax Fund, which are continuously appropriated.

Expenditures are prioritized for regulatory and administrative workload necessary to implement, administer and enforce the Cannabis Act, followed by research and activities related to legalization of cannabis and the past effects of its criminalization. Once these priorities have been met, the remaining funds are directed to what is known as Allocation Three programs, which include youth education, prevention, early intervention and treatment, environmental protection, and public safety related activities.

AB 195 requires that these Allocation Three programs are funded at a baseline of approximately 670,000,000 to the extent available, and included 150,000,000 General Fund appropriation to backfill revenues to help meet that baseline. The May Revision estimates 567.4 million will be available for Allocation Three in '23/'24, which includes 150,000,000 General Fund to backfill the estimated decline in revenues. These figures reflect a total decrease of 102.2 million compared to the Governor's Budget estimates.

Allocation Three provides funding to three areas. 60% of allocation three funding is dispersed for the education, prevention, and treatment of youth substance use disorders and school retention. May Revision estimates 340.4 million is available for'23/'24. 20% of Allocation Three funding is dispersed for the cleanup, remediation, and enforcement of environmental impacts created by illegal cannabis cultivation. May Revision estimates 113.5 available in '23/'24. And the remaining 20% of Allocation Three funding is dispersed for public safety-related activities. May Revision estimates 113.5 million is available for '23/'24 and I'll also be presenting on the California Privacy Protection Agency's MR proposal.

Let's go through all of them and then we'll go to LAO, if that's okay, and then questions.

The California Privacy Protection Agency is tasked with the implementation and enforcement of the nation's first comprehensive consumer privacy law, the California Consumer Privacy Act, known as the CCPA, which is amended by Proposition 24, the California Privacy Rights Act. The CCPA gives California consumers important protections, such as the right to access, delete, correct, and stop the sale and sharing of their personal information, among other protections, and applies to businesses above a certain threshold.

The Agency is requesting 1.8 million General Fund and seven positions in '23/'24 and 1.2 million in '24/'25, and ongoing cumulative cost of living adjustments as provided in Proposition 24 to implement and enforce the CCPA. The Agency's enforcement authority commences July 2023, and the Agency will require expert staff who can understand, interpret, and respond to complex data use practices. Five of the seven positions being requested are within the Agency's Enforcement Division to meet its statutory obligations of enforcement.

The other two positions are within the Agency's Audit Division to develop and apply privacy compliance audit procedures and will work closely with the Enforcement Division and businesses to address deficiencies. Lastly, the proposal includes a request to increase the Agency's budget for ongoing cumulative cost of living adjustment for fiscal years 2021/'22, '22/'23 and '23/'24.

This will result in a one time COLA true-up to fund a public outreach and education campaign focusing on small to medium-sized businesses and to promote public awareness of the risk, responsibilities and rights related to the processing of personal information. The ongoing augmentation will fund the seven positions which are necessary for the agency to fulfill its mission to protect California consumers.

Amy Sencio, Department of Finance. The last issue is a technical adjustment for the Department of Consumer Affairs, and they're requesting a net zero adjustment to move an indirect distributed cost in the department's internal pro rata. And this is moving $7,000 from the Physical Therapy Board to the Acupuncture Board. Thank you.

Thank you. LAO, please.

Seth Kerstein with the lao. We have a couple of comments on cannabis tax revenues. The administration's cannabis tax revenue estimate for '22/'23 is nearly identical to an estimate that we published a couple of months ago, shortly after the Department of Tax and Fee Administration published their most recent quarterly tax revenue estimates. And so in that sense, we have no disagreements there. So typically, the Department of Tax and Fee Administration publishes their next quarterly revenue update in late May.

And we expect to update our revenue forecast at that time, one more time before the Legislature needs to finalize the budget. And then our other comment is that the administration's cannabis tax revenue allocations assume a $150,000,000 disbursement from the controller to support 2023/'24 spending. So just to recap, AB 195, passed last year, appropriated this $150,000,000 General Fund and set it aside to be split between two possible disbursement dates, one in '23/'24 and another in '24/'25.

So under the administration's projected allocations, the entire 150,000,000 amount would be used in '23/'24. So then, as the Administration noted, they're already anticipating that funding will fall short of the baseline target in '23/'24. And then under their projections, considering that the entire 150,000,000 backfill would be used up in '23/'24 then funding subsequently would decline yet again in '24/'25, even lower than the '23/'24 levels. That concludes our comments. Thank you.

Thank you very much. Are the cannabis tax revenues anticipated to stabilize or trend down?

Colby White, Department of Finance. So at this juncture, we expect them to stabilize. What we saw during the pandemic is we saw wholesale prices really increase and demand driven. We saw some oversupply in the cultivation market, and we have some evidence that those things have stabilized. And so the assumption in the early 2023, I should say, so it was really 2022 where you saw this happen.

And so going forward, that is the assumption that prices stabilize consistent with what we've seen in early 2023 and that we would have modest growth from here in line with the economy.

Cannabis consumption increased during COVID? What are the odds? LAO, any response?

Seth Kerstein, LAO. In our February projections, we actually anticipated a somewhat larger year over year growth than the Administration. We'll see if our later numbers are similar, but we agree, as the Administration noted earlier, this revenue source is tremendously uncertain, but our best estimate most recently was some growth in the next year.

Thank you very much. Any additional comments or questions? Yes, Majority Leader?

we do know that there is legislation being proposed by our colleague, Assemblymember Rubio, to bring everybody into the legal fold so that we can then actually collect the taxes.

Would you anticipate that, should that legislation pass, that that would make a change in the tax revenue growth, knowing that we are now requiring that, I think under the legislation there are so many illegal growers and we're not able to collect the taxes that we would have anticipated should the legislation pass? Do you anticipate a change as a result of that?

Seth Kerstein, LAO. We haven't had a chance to take a close look at that Bill. Certainly any substantially successful effort to move some activity and consumption from the illicit market into the legal market would of course have a positive effect on revenues. But we haven't had a chance to really dig into that legislation to develop sort of a viewpoint on the magnitude of that effect.

Thank you.

Thank you. If there are no additional comments or questions, we're going to leave this item open for the moment. Thank you very much. We're going to move on to general government, issue 7, starting with a presentation from the State Controller's Office. Please begin when you're ready.

Jim Doyle, Department of Finance. And I have two requests from the Controller's office. First one is the California State Payroll System project request, which is, break it down into like new money and old money. I mean they want almost $50 million General Fund in the budget year and two thirds of that is conditional upon the project receiving approval from the California Department of Technology for their stage four PAL process submission. That's the 28.393 million for DART Department agency readiness teams.

And so we're using the same condition that was in the budget last year for the funding that was appropriated in the 2022 Budget Act for the system integrator contract. It's another part of the request, the old money part of the request. We're requesting reappropriation of that funding. So it's the same condition that was put in place last year for the system integrator funding that the project has to really get some traction.

And by that I mean it has to pass stage four of the PAL process and become an approved project and then it can have access to the funding for the system integrator contract and also funding for the department agency readiness teams. Besides that, there's some funding in there for ancillary contracts, external consulting contracts and some IT positions for the Controller's Office and some trainer positions for the Controller's Office. But the vast majority of the request is conditional upon the project getting traction, and getting through the PAL process stage four, at which time they'll have an approved project and can move forward. And then the other proposal is a modification of what we submitted in the Governor's Budget, which is a renewal of the IDMS contract. At the time, the Governor's Budget proposal was estimating a five year term of the contract, 10% increase in the cost. That's standard renewal practices.

But as it turned out, as a result of final negotiations with the vendor, they're only offering three year and it's an extra about $2.5 million a year. So the total cost has gone down a little bit. But they're only committing to three years, to support this system for three years. And the state really doesn't have any choice. I mean, these are mission critical systems. Some of them are supposed to transition to fiscal or to the payroll project.

And until those capabilities are developed, the state's going to be dependent on this IDMS platform. So we really don't have any choice but to pay whatever the vendor's asking, it seems, to continue with this platform. So those are the two requests from the Controller's office. Happy to take any questions.

LAO?

Nick Schroeder with the LAO. The CSPS proposal is for both SEO and CalHR, and a colleague of mine will address that when CalHR is up here at the next panel. So other than that, we don't have any comments on this.

There are no comments or questions. We're going to move on to Exposition Park. Thank you.

Good afternoon. Mike McGinnis with the Department of Finance. There are six proposals included in the May Revision. There are six proposals included in the May Revision for Exposition Park. The first is the park-wide surveillance system supplemental appropriation. This proposal requests an additional 600,000 from the Exposition Park Improvement Fund for the Park-wide Surveillance System project.

The Department of General Services has nearly completed the preliminary plans phase of the project and has identified that there's a significant amount of additional real estate due diligence work that needs to be done resulting in this request. The second proposal is the Southeast underground parking structure. This proposal includes 14 million from the Public Building Construction Fund to start the new Southeast underground parking structure project. This project will provide an additional 1500 underground parking spots, surface-level green space and event space.

This project will prepare Exposition Park for the upcoming Olympics, World Cup and other large events in the park and will provide long term revenue generation for the Exposition Park Improvement Fund. Next is the operational startup for the California Science Center phase three proposal. This proposal includes three positions and 1.4 million Exposition Park Improvement Fund. This is the first step towards staffing the California Science Center phase three project, which is a new 200,000 square foot facility expected to open to the public in spring of 2025.

Then there are the park partnerships and operations proposal and the Administration supervisor proposal for the Office of Exposition Park Management. These positions will support additional revenue generation and community outreach in support of Exposition Park. And last, there is the Peace Officers Exposition Park reappropriation proposal. This proposal reappropriates funding from the 2022 budget to provide training for the museum security officers within Exposition Park to meet peace officer standards and training certification requirements.

Thank you. Rachel Ehlers with the LAO. We're looking in particular at the underground parking structure proposal a little bit more closely. Some of the questions we're looking at is what funding source is being proposed for debt service and is that the appropriate source and also the urgency of that project. So we expect to have specific recommendations to you later this week.

My questions are also related to the Southeast underground parking structure. Is there a particular reason why the proposal was submitted during the May Revise and not during earlier discussions?

So this proposal was informed by a study which identified the most effective way to add this additional parking within Exposition Park while meeting the existing legal requirements of various leases within the park and providing for the maximum amount of green space on the surface level.

When was that study released?

The study was completed only just recently. I don't know that it has actually been released, but we can certainly look to provide it to your staff.

Okay, thank you. And at this time, what is the best projection for the total cost should the park construction project move forward?

So the total cost would be approximately 380,000,000. And that would be a Public Building Construction Fund debt.

I'm sorry?

From the Public Building Construction Fund. So lease revenue bond financing.

Thank you.

And again, Madam Chair, one of the important questions is what will be paying the debt service on that lease revenue bond?

Thank you. Any additional comments or questions? Seeing none. You say you have two Members of the dais here who are trojans, looking to see what all of that's going to potentially look like for the larger community around the students, the community. And it's really interesting, I think just a comment. We're doing a lot of work around legislation related to parking and housing.

And it's interesting that we're also looking at more parking as we reduce parking in other areas, we're looking at more parking at Exposition Park, but there's such an incredible opportunity, I think, for tourism and to bringing in folks into that particular community. And really excited also now that we're post COVID to see so many students return to the museums and now that the shuttle is going to be facing upward.

I was just there and it's one of the last events at the Mayan exhibit at the California Science Museum. Incredible. If you happen to be there, go check it out because they have some really beautiful pieces from the Mayan community visiting for the first time at Exposition Park at the California Science Museum. Thank you. We're going to leave this item open for the moment. Let's move on to the Secretary of State and Veterans Affairs. Please begin when you're ready. Thank you.

Good afternoon, Chairs and Members of the Committee. I'm Charlie LaSalle with the Department of Finance. I will provide a brief overview of the Secretary of State proposals we were asked to mention and then hand it to my colleagues to provide a brief overview of the Department of Veterans Affairs proposals. The Secretary of State's staffing resources is where I'll start. The Secretary of State requests 1.377 million General Fund and 1.324 Business Fees Fund ongoing to support operations at the Secretary of State.

Specifically, the political reform, the information technology, the managerial service divisions and the State Archives Program have experienced increased and more complex workload over the last several years, resulting in increased ongoing costs. The total request is $2.7 million. Next, I'll go on to the Cal-Access Replacement Project. The Secretary of State requests 6.923 General Fund one-time to support the Cal-Access Replacement Project. This brings the total amount available for this project in '23/'24 to 12.310 million Fund.

This funding supports 33 existing positions, contract services, technology costs, and project planning and execution activities. I'll turn it over to my colleagues to discuss the CalVet proposals.

Good afternoon, Chair Carrillo and Members of the Subcommitee. As Charlie mentioned, I'm Anthony Franzoy with the Department of Finance and I will provide a brief overview of the California Department of Veterans Affairs, three budget change proposals for the 2023/'24 May Revision.

The first BCP, titled Increased Support for Nursing Operations, requests $25 million ongoing General Fund to provide continuity for the Department's critical nursing duties. Overall, the goal of the BCP is to increase retention and hopefully recruitment of permanent registered nurse, licensed vocational nurse, and certified nursing assistant positions across the veterans homes. The second BCP, titled Yountville Fire Service Contract, requests $535,000 General Fund in '23/'24 and $800,000 in '24/'25 and ongoing to fund an increase in costs for fire prevention services at the Yountville home.

These additional resources will help avoid negative impacts to the home's operations since the home cannot absorb these increased costs on an ongoing basis. And the third BCP titled Headquarters Building Electrical Maintenance requests $21,950,000 one-time General Fund to upgrade the department's outdated electrical infrastructure at its downtown Sacramento headquarters building. With the system being so old, replacement parts are unavailable and a vast majority of the electrical panels, excuse me, are over capacity. This presents a serious fire, life and safety issue for the staff working there.

And any electrical outage at the HQ building also affects the eight veterans homes and services to veterans themselves across the state. So with that, I'm available for questions. And we also have CalVet representatives here in case there are any detailed program questions.

Thank you. LAO?

Nick Schroeder with the LAO. We have no comments on the Secretary of State's proposals but on the nurse staffing operations of the Veterans' homes. We have some outstanding questions both to the Administration as well as to the union, SEIU Local 1000. As the Administration indicated, the proposal is intended primarily to address recruitment and retention issues among nursing staff at the homes.

And considering the Administration is currently negotiating new MOUs with most of the state's bargaining units, including those represented by SEIU, we think that it might be premature for the Administration to think that cannot resolve recruitment and retention issues at the bargaining table. But again, we still have outstanding questions. So we're still looking into it.

One possible option could be if these funds are necessary to create some sort of transition to implement something that were adopted at the bargaining table, there could be a one year limit term approval of this funding rather than being an ongoing $25 million appropriation. Or if the problem of recruitment retention can be addressed directly at the bargaining table, then the request could be denied outright.

Thank you for that. Some follow up questions on the Veterans Affairs proposals. Can you clarify how the 25 million for nurse overtime will be used? And in addition, is this to support state positions or third party staffing contracts?

Of course. So the $25 million was developed from two different sources.