Senate Budget and Fiscal Review Subcommittee No. 4 on State Administration and General Government

If anyone breaches that here in the hearing room or via teleconference, the chair will have the prerogative to interrupt that person's testimony or to cut it off. Welcome, everyone, for your participation today, we will be taking the items for discussion on today's docket. Let's establish a quorum for purposes of a quorum. Senator Padilla?

Present.

Senator Caballero. Senator Niello. Mr. Chair, you have a quorum.

Thank you. Let's proceed. We'll move for the discussion items beginning with issue number 20. Governor's Office of Business and Economic Development. Welcome. Starting with issue 20, California competes grant program, those presenters could please come forward.

Welcome. Go ahead and proceed when ready. And please state your name and title for the record when you do. And welcome. Let's double check the audio there. It sounds a little faint.

Think.

I think it may not be activated.

There we go.

There we go.

Good morning, Senator PDM Members. My name is Scott Dosick. I'm the Deputy Director of the California Competes Programs at the Governor's Office of Business and Economic Development. And did you want to intro to the program?

Yes. Please proceed with issue 20, and whomever your presenters are, please identify your title and name for the record.

Sure. So the California Competes grant program is being requested as part of the governor's proposed budget and it's an additional one time funding of $120,000,000. The opportunity that we have right now is very unique. With billions of dollars in federal funding from Federal Chips Act.

We have the opportunity to leverage 120,000,000 CalCompetes to bring in hundreds of millions, if not billions, of dollars in federal funding to support the semiconductor industry in California. The California Competes program tax credit and grant program have proven extremely successful in bringing jobs to California, jobs that would otherwise not be created by the businesses that apply to the program. It gives us probably the state's strongest tool to compete with other states to keep businesses in California.

I'll keep it brief today, since you have a long meeting, but available to answer any questions you might have.

Thank you very much. Are there comments from the Department of Finance?

Peter Obaja is the Department of Finance. We have no additional comments at this time.

Thank you, LAO.

Brian Uhler from the LAO. An important piece of context, we think, for the Subcommittee's consideration of this issue is there are two recent academic studies that were released on California Competes, and they're actually fairly well done studies, and they do provide some good evidence that CalCompetes does encourage recipients to make new investments that they wouldn't have otherwise made in the state. A couple of important kind of caveats to that conclusion, though.

One is that those studies looked at this program prior to the expansions that have taken place in the program over the last couple of years, when the program was the tax credit program with the size of $180,000,000 and before the grant program existed. So there's less certainty about how much those conclusions apply to an expanded program with the grants and some of the additional funds that have been provided to the program in recent years.

One thing the Subcommittee could consider to mitigate some of that concern about whether or not an expanded program can continue on some of the apparent successes of the past tax credit program, would be to make some changes to align the grant program if you were to go forward with that, to look more like the tax credit program as existed over the last several years.

One key distinction, so far, between the way that the grant program has operated and the tax credit program, is that the grant program tends to focus on providing larger grants to a much smaller number of recipients.

And so taking a look at making a change to that element to maybe spread the funds out more, make it a more kind of a competitive among more businesses, to more mirror the credit program might give you some more assurance that you're getting some of those benefits that was documented in that recent research.

Thank you for that.

I'll bring it back to the Subcommitee for questions or comments. Senator Caballero.

If that works.

What you're saying is that the difference in how it's awarded or whether it's a grant program or a tax credit program may affect the, the success of the program.

I think what I'm saying is we have this evidence on the tax credit program and the way that it was operated, and that evidence appears to suggest that that program was largely meeting the objectives that we have for it, encouraging new investment in jobs in the state. And so it's almost a suggestion, if it isn't broke, don't fix it, that we have this evidence on this thing, we should continue to leverage that program that we know works. And so that's kind of the idea.

Behind our suggestion.

makes a lot of sense.

Do we know where a majority of these grants went, or was it the uptake all over the state?

Yes, Senator, I do have a list of all of the grant awards with me right now, and it's also publicly available on our website and published. Again, we've only had the grant program for two years, whereas the California competes tax credit has been in operation for nine years now. So obviously, a little more of a track record with the tax credit.

But as far as the grant, and I think it's important to remember that the grant program focuses on companies that can't take advantage of the tax credit, either because of extensive r and d credits, net operating losses, or maybe startups that are about to go to scale. But they're pre revenue, and so the non refundable tax credit doesn't do them any good.

So the grant recipients that we've had have been all over the state, from, I'm looking at, from the Los Angeles and San Bernardino region to Livermore, Irvine, San Diego, San Francisco, Sunnyvale, Los Gatos. Santa Clara, San Joaquin, Barstow and Calipatria.

I appreciate that. I think the reason that I asked the question, and it's become, I think, more of a bigger issue is, which is way beyond what this budget discussion is, but I want to get it out there. Is that there has been some concern raised that our housing policies, transportation policies, and our funding policies through Gobiz don't align, and that we are starting to punish the communities that live.

Well, let me put it in the reverse, that many times the grants go to communities that don't have affordable housing. So people move further away. Which then affects our climate goals, because they're commuting every day in single occupancy vehicles. And then if those communities that are providing the housing, provide the housing.

There is now a requirement that they account for the fact that people are commuting from their communities into the big cities that is starting to rise or increase the cost of housing in those communities. So, I bring that up because I'm going to start talking about it all the time, because again, our policies don't line up to incentivize those communities to keep building housing. They're penalized now through a vehicle miles traveled assessment against them when what they're trying to do is just meet the RHNA number.

So anyway. There is some discussion, at least in the Senate, that we align the goals of Gobiz with the housing goals that we have. In other words, the money should go to those communities that are building the housing, and that would leave a whole bunch of areas of the state off limits because they're just not meeting their housing needs. The reason the Central Valley has seen an influx of people is from the Bay Area.

And yet we have to account for vehicle miles traveled as if we created that problem. So I just put that out there and I don't expect an answer, but it is a concern that I have. And so, again, thank you for your indulgence, Mr. Chair.

Not at all, Senator. Totally concur. Senator Neillo. I think for this Member, I would just comment as well.

I think it's going to be interesting as program evolution continues, just to look at the link, not just the program incentive to bring and invest in permanent jobs to the state, but the strategic focus on emerging and strategic industries, and to see the relationship between dilution of the grant program, whether it's an ongoing, in terms of a fewer amount of grants for larger funds that are more strategically focused, visa vis just a broader application of a lower standard.

And so the strategic element here in a time of constrained resources is really important to this Member. I wanted to just put that on the record. Are there any other comments on this matter? All right, this matter will be held open. That'll take us to issue 21, increased staffing for California business investment services. And again, when you're ready, please proceed and state your name and title for the record.

Lauren Greenwood, Deputy Director of Legislation for the Governor's Office of Business and Economic Development. Good morning, Mr. Chair. Thank you for the opportunity to present before the Subcommittee today. The governor's Office of Business and Economic Development is requesting support for its California Business Investment services unit, Calbiz, in order to continue providing business concierge services to support companies looking to invest or locate in California. Gobiz is requesting six positions and 740,000 ongoing General Fund to support the unit's workload.

Of the six requested positions, three are new positions and the other three are limited term positions that would be made permanent. Calbiz is also responsible for attracting new business to California, as well as mitigating potential closures of large employers within California. One of the key tools to business attraction and retention is Calbiz's ability to identify and leverage state and federal resources, including tax incentives, relocation services, workforce development opportunities, and retention strategies.

With recent large scale investments by the Federal Government, this incentive packaging has only grown more complex and time sensitive. Calbiz existing staff is managed by the Calbiz Deputy Director and is supported by the assistant Deputy Director. But given the growth and complexity of projects, additional structure to include this SSM two is needed within the Calbiz organization to better reflect the organization's growing portfolio and support staff retention.

Augmenting Calbiz's existing staff would result in much greater hiring and retaining diverse groups of Californians interested in and ready for advancing business development across the state. Thank you.

Thank you very much.

Charles LaSalle, Department of Finance. No additional comment at this time.

You, LAO?

We had no issues to raise on this item.

Bring it back to the Subcommitee. Are there questions or comments on this issue? I'm sorry, Senator Caballero.

I just needed to think about how to posit this. I think part of the challenge for me at a time of limited resources is why now? And a real specific question about where are we going with these new positions that tell us that we need to do it now as opposed to next year or the following year. I'm really concerned with the pace at which we're expanding government, and it seems to me that when you look at what the size of Gobiz, five years ago or 10 years ago, it's significantly increased. And if there's some real specific activity.

Gobiz does a great job and they work within the rules that the Legislature and the Governor agree on. Right. So I'm not picking on you. I'm kind of just overall stating that I'm concerned with expanding government. And when we have limited resources, you can't disexpand.

Right. I mean, it's grown, and I want to make sure we're really targeting. And let me just preface it. Let me just say that I worked for Governor Brown for five plus years, and part of my job in the agency that I had was to downsize. And we did. We eliminated three or four organizations that were either commissions, offices or advisors. We had created an advisory office.

And having gone through that kind of a downsize, it's always difficult to tell people that they're no longer going to be doing the jobs that they were doing before. And that's because we had a $26 billion deficit. So I'm concerned with expanding at a time when we do have a deficit, number one, and I'm wondering if there are some of the growth that we can wait a year or two for and including some of the growth that we thought was really good last year.

But then when you look at it at a time of limited resources, you say, really, do we want to do this right now?

That's my statement on new requests and six positions is significant, significant growth. I didn't see any department that I had agency over that grew by six staff members when I was working for the Governor, and he was notoriously frugal.

And I appreciated that because the reason I ended up up here is because I came from local government and I was tired of the state coming in and saying, we're going to take your money because we don't have any. So it's a challenge.

Senator, I remember those days. Senator Niello.

Excuse me. I echo your comments about Governor Brown. He was a cheapskate and I mean that in the most generous of ways. Now, to add to Senator Caballero's comments, how can we prove, how do we know that the efforts of Gobiz actually resulted in the increased investments and the increase in jobs? And could they have happened anyway?

Thank you very much for the questions. My name is Kaina Pereira. I'm senior advisor for business development over at the governor's office of Business and Economic development. So I run the Calbiz team as well as the Office of Permit Assistance and the community and place based solutions team, all of which are geared towards increasing economic development opportunities within our local jurisdiction.

And to answer your specific question, most of the incentive programs that are available to companies, especially on an attractive basis, are requiring what is called the but four case. Illustrations, that there are additional offers from other jurisdictions and other localities that could prevent those jobs from being created here. In most of those programs, there is a requirement for attestation by the company, illustrating that these jobs would not be created if not for that credit or for those series of credits.

Not all incentive programs have that requirement, but the major ones like CalCompetes and the economic development rate, which is a reduction on utility costs. Those do both require that those are the primary vehicles for the determination of major projects landing in California.

Some of the other ones, like sales and use tax provisions or exclusions and exceptions, are used by existing companies on a predominant basis and are not as much of an attractive lever, but are also used in relation to the package of attraction. In relation to the number of deals that we would normally get our ability to have staff within the territories increases the likelihood for conversations with companies who are interested in those territories.

And oftentimes there is a disconnect between local programs and state programs and the availability and the resources available to some of those companies. And so our team is able to provide both the state understanding of the incentives and how they work, but also tied to local projects to federal dollars. That could also accelerate the attraction of those companies.

In all these cases, we require them to prove that they are in negotiations actively with other jurisdictions, in other states, and as part of the applications themselves, they're required to attest to that.

And just really quickly to address the specific workload question, we've seen an increase in people requesting Calbiz services from 182 inquiries in 2018-2019 to 310 for 22-23.

Thank you to both my colleagues. And to follow up a little bit, I mean, I think would be helpful too, is to have some granular empirical data that takes a look at not just the services that are utilized, but the actual resulting analysis of the actual impact relevance program relevance to the ultimate determination to make an investment.

Right. Because that's the policy goal. I think the other thing that sort of flows along the same lines is one of the things the Department on the request has indicated. There's a difficulty in recruitment and retention, and at the same time we're adding six ftes in the budget cycle, but I'm assuming they're in the same framework in terms of compensation. And so how are we reconciling expansion of the staffing levels with the fact that per se, we're having a problem with retention and recruitment?

Because I'm assuming that compensation is a factor and others, and competing for some of the best talent. How are we addressing that and how is that reconciled with the west?

Thank you very much, Chair Perdilla, for that question. The added positions are actually under the classifications of the existing positions to create more of a ladder structure for us to bring in folks who maybe have less of the targeted experience and could get more practical application in the work that we do to then be promoted into those that are really the more competitive arena.

So on the higher end of our senior business development specialists, that would be the equivalent of an economic development manager at the local level, in terms of the workload and the functions that they perform. Now, at the local level, it is a substantial increase to those types of opportunities, but they do have a more condensed territory that they are working on.

So that is an attractive element for some of the participants who are shop, however, in terms of the competition and once they have a region, because the way that we bifurcate our staff is by regionality. And so once they've entrenched themselves in the region, they become extremely attractive to that region itself as far as bringing them in from the state's interface, because of understanding of all the state programs and how to layer those along with the federal programs and local opportunities.

And so what we found very much so systemically, since I've been here for about five years, is after about a year and a half, they have enough skills to then be poached from our firm to a more local establishment and be able to run basically the same way for us to be able to replenish our needs.

I'm hoping that the ability to bring in those with less of a developed skill set and bringing them up to the talent level that we require would both enhance the retention but also eliminate territorial loss during this time.

I think I understand the premise of the approach you're taking to articulate what the benefit would be. Not sure I'm completely convinced, but I appreciate the answer. Other questions from Members of Subcommitee. If not, this item will be held open. That'll bring us to item 20, issue 22, international trade staff and resource augmentation. Please proceed.

Lauren Greenwood, Deputy Director of legislation for Gobiz thank you, Mr. Chair. Gobiz is requesting 327,000 ongoing in General Fund and requesting to make two existing limited term positions permanent. The need for this capacity is a reflection of the workload expected for federal Small Business Administration's state trade expansion program and so grant and currently getting received from CDFA. And this increase in demand for Gobiz, we're expected to administer, oversee and grow the program.

Additionally, both requested positions have responsibilities beyond but complementary to the STEP program that also reflect the increased demand on services for the international team as a whole. Existing law makes it express policy of California for Gobiz's international affairs and trade unit to increase access to foreign markets. And one major way Gobiz is able to support small business exporters is through the STEP grant. The international team has seen sizable growth in demand for our services in recent years across program areas, including the STEP program.

For example, in 2018, the STEP program received 152 applications for funding consideration. Last year in 2022, when Gobiz took over full Administration of the program, there was a total of 629 applications submitted. That's almost a 320% increase. The increased workload stems not only from an increase in the number of businesses seeking support in the STEP program, but is also reflected in the operational requirements of taking on the STEP program full time.

In previous years, the Administration of the Federal step grant was done by the California Department of Food and Agriculture, and the step Director position was housed outside of the state with a full time position at CSU San Bernardino Inland Empire Center for Entrepreneurship. Gobiz had an AGPA level staff person whose primary responsibilities were supporting the Gobiz portion of the STEP program when we served as subcontractors with CDFA and CSU San Bernardino.

There's broad recognition agreement between the three entities that the state needed to house the program fully within the agency designated as lead on the state's international affairs and trade strategy, Gobiz. Now that Gobiz is taking the full grant on, including oversight and full Administration, we've brought that STEP Director position in house under a limited term position and also still need to make permanent that a GPA position that continues to support the program.

We've built new systems and processes with the current limited term capacity, including transitioning all of the step small business clients to Salesforce and launching a new website and grant portal. Gobiz has regularly been hosting webinars for potential step applicants since the website's been live and grant portal were launched. These live sessions give business representatives the opportunity to learn and ask questions about the new application process and program as a whole.

As of December 22, just a few months into the new federal grant, we are directly engaged with over 1000 California small businesses through the webinars. The full workload for both these positions is outlined in the BCP, and both positions have the responsibilities beyond but complementary to the step program. Without making these limited term positions permanent, current staffing on the international affairs and trade team would not be able to support full Administration and oversight of the step program.

This BCP will ensure that small business exporters will continue to receive the attention they deserve.

Thank you very much. Comments from Department of Finance.

Charles LaSalle, Department of Finance. No additional comments at this time.

Thank you. LAO.

Yes, so as your agenda notes, we did raise some concerns about the workload justification for one of the two positions that were listed in the BCP based on our original understanding, also as outlined in your agenda, that one of the positions was to administer STEP and the other was to address General increases in workloads in the unit more broadly based on some additional, more recent information.

And some of that was kind of shared in this testimony, that actually the Department is providing information that suggests both of these positions are needed to administer the STEP program. That does somewhat lessen our concern about the lack of workload justification on these positions.

Thank you. We'll bring it back to the Subcommittee. Senator Caballero.

Thank you very much. Well, you know what? It appears, and maybe. Not be true. But it appears that the program was operated by the California Department of Food and Agriculture, and then it gets transferred. And now the positions need to be made permanent. Maybe we put it back at California food and agriculture because they can seem to do it, but give me a reason.

Through the chair. Thank you. So it was a little structured a little differently, and it was the Department of Food and Agriculture and the California State University of San Bernardino and Inland Empire Center for Entrepreneurship, and they had the Director housed full time within CSU San Bernardino.

And so now, as we've seen greater applications and businesses taking advantage of the STEP program, just the volume and workload and the goals of the state, and supporting international exports and growth, I think having it aligned within one agency to provide continuity and consistency would be beneficial to the state.

Thank you, Senator Caballero. I understand the shift to STEP and I understand the target for small business access to a lot of trade, information and infrastructure, and that facilitation has some value. But more broadly, as the lead agency on international trade, obviously I represent the CaliBaja region.

I represent the entirety of the California Mexico border, and I want to understand a little bit more about maybe future development based upon what we're requesting here in terms of the more broad strategic work of the Department as a lead agency here, because I'm very familiar with the unique dynamics and challenges that are present at the international border with the State of California.

And it's important to remember, I'd like to kind of get a brief comment about sort of focus generally about the CaliBaja binational region. Remembering the fact that there are unique challenges here, both with regard to infrastructure that supports the movement of goods, frankly, the De facto reality that we are having workforce development issues that are reliant on that international bilateral relationship. Mexico will become our number one trading partner at some point, and we already coproduce 40% of our exports out of North America with Mexico.

But it seems to me that the focus on this particular area is critical strategically to California's future economic development. I'd be interested in some comment with respect to that.

Sure. Gobiz is in the process of implementing various cross border economic development activities and projects with Mexican counterparts. The activities are intended to support and promote the California Mexico relationship and to develop or expand business and economic development efforts. We've conducted analysis of existing cross border programming at the state and federal level via statewide stakeholder engagements, specifically, Gobiz's focused stakeholder engagement under the Commission of California's Comcal MOU with Baja California and Baja California Sir.

California's interagency MOUs with an overall focus on climate change mitigation and adaptation, and federal partners to further identify special projects not currently being funded or supported with the state funds.

Special projects include supporting an LGBTQI plus trade mission to Mexico support for delegation of California institutions of higher learning to conduct a trade mission to Mexico to promote sustainability, environmental stewardship through education and a water technology best practices and trade mission to Baja California and Baja California Sir, we'll continue to meet with existing stakeholders and Mexican counterparts to event to identify future opportunities for ongoing collaboration.

And we've had a series in the last year of engagements, including in person convenings, a San Diego chamber trade mission to CDMX, California Mexico 2030 forum with UC Alianza and a variety of other projects. And we look forward to continuing to working with your office, especially as your district covers, like you said, the Mexican border.

And just to wrap it, I mean, I think that the dialogue is always important. The bilateral understanding is important, the interaction is important. But what's important to this Member ultimately and with some frustration is to get to really understanding the 21st century strategic priorities that can actually have some actual form and substance that are appropriate for bilateral coordination to achieve a specific outcome. Not enough always to just say we're doing a lot of trips and we're talking to people all the time.

That story has been going on in this region for 30-40 years and there's still a lot of unmet demand. So that would be my comment. I also want to thank you for making the offer to my office to have an individual more in depth brief. I hope you make it available to other Members sub if they're so inclined. So thank you very much, Senator Caballero.

That brings up another issue. There used to be an organization that. Was the US Mexico border States organization. Does that still exist? Because that should be developing the coordination and the tasks that each state is going to take in regards to the relationship we have at the border.

And in particular, one of my interests is as we start talking about the Colorado river and not taking water out of the Colorado river, that really impacts Mexico tremendously. But the fact that we have been putting up barriers at the border affects natural resources, which means the animals going north and south and migrations and all that kind of good stuff. So I'm not sure that it was waning at one point and I'm hoping that it still continues because there is some pretty good goals set in that organization. Whether anybody's really doing anything is another subject.

I'll check in with our Deputy Director for international affairs and trade and circle back with your office.

That would be great. Thank you very much.

Thank you, Sarah. I would just say, too, as I was aware that at one time, as you were well aware, there was a legislative collaborative of all the border states with companions in Mexico that did exist, as well as the governors of the border states and their counterparts. And sadly, it's sort of waxed and waned depending on the administration's in power and the legislative balance of power and the different priorities.

So I think it's a really good point to sort of check in and understand where are we with that, because those kinds of sets of infrastructure really can facilitate the right kind of collaboration. All right, without any other comment, this item will be held and bring us to issue 23, which is increased staffing request for administrative Services division.

Lauren Greenwood, Deputy Director of legislation for Gobiz. For Gobiz's Administrative Services division due to the increased number of programs, increased program complexity and more funding streams, including more federal money available, Gobiz is requesting seven positions and 955,000 ongoing to support the increased workload. Gobiz is now around 60% greater than it was five years ago, with additional limited term programs jumping from one in 2021 to 16 in 2022 to 2023. These additional programs and staff require more coordination and support across the administrative teams.

An example of program complexity impact on the Administrative Services unit is the ibank Venture capital program, funded by the Federal American Rescue Plan act. These funds support three distinct investment initiatives, and Gobiz Administrative Services unit is responsible for setting up third party fiscal agents to help administer this program, navigate the federal funding requirements and compliance issues, and ensure consistency and coordination across other federally funded programs across Gobiz's other program areas.

Finally, these federal funding opportunities layer complexity for the Administrative Services unit as to administer a federal award.

A Gobiz program must work closely with the Administrative Services unit to create and implement new forms of project tracking in fiscal document expenses carefully, including by adjusting labor cost allocations in response to shifts and implementation plans consult with business services and state controller agencies on compliance, prepare and or respond to state and federal audits and research identify and implement a range of new and often evolving federal guidelines and requirements. Thank you.

Comment from DoF.

Charles LaSalle, Department of Finance. No additional comment at this time.

LAO we don't have an issue with this request. We do think that it is warranted, given the expansion of the scope and scale of the number of programs that the Department has been asked to administer over the last couple of years.

But we would suggest that it is kind of important context to keep in mind as you consider some of these other proposals to add additional new programs or efforts within Gobiz, both on this agenda and maybe perhaps going forward, that this BCP is a downstream consequence of adding that additional complexity and number of programs to Gobiz's plate.

And just keeping in mind that if we continue to lay onto that, there are these additional kind of downstream administrative and other kinds of costs that will need to be taken into account and considered, and perhaps especially as Senator Caballero mentioned, given the kind of constrained resource environment that might make you be maybe a little more critical about the potential longstanding value of some of these new ideas that may be added on to Gobiz's plate going forward.

Thank you. We'll bring it back to the sub. Senator Neillo.

This seems like a continuation of a theme in this Administration generally, not just Gobiz. But last week we talked about the homelessness programs, and we have, I think, 32 of them and counting, and homelessness is getting worse. We had several Budget Committee informational hearings a couple of months ago, and in just about every area that we received presentations, there has been an increase in programs. During the informational hearings, I couldn't keep up with how many different programs there were and what each of them did.

Getting to the point of Senator Caballero and a couple items ago about the concern of growth in government, especially with revenues declining, maybe it's time to call time out and take a look at what we have done and whether or not it's worth continuing each one of these programs assess their effectiveness.

Thank you, Senator. Senator Caballero.

Thank you, Mr. Chair. Well, the only thing I would add to that, and I've already made my comment about whether this is a good time to grow government or not. And I am sensitive to the fact that as we add more things, because everybody's got a great idea, except for that it all costs, is that we need to start looking at ways that we can consolidate and make things a little bit more efficient. Every Single Department has a climate change unit.

And the difficulty with that is that it, from my perspective, is with a couple of exceptions, we should have an administrative policy about how we're going to reach our climate change goals, and then air, water and EPA should have climate change, and that's it. So we start replicating things over and over again.

And again, this is not germane to the fact that you need administrative positions, and they're probably very much needed, as everybody thinks. But why we need, and the minute you start naming these people who work in these units go, my gosh, all the work that we're doing, but a zero emission vehicle market development unit when we already have.

We're doing that in the transportation sector and all of transportation grants that go out, or through the EPA for that matter. Anyway, it just seems to me like we're reproducing. One of the things that we were trying to do back in the day was to figure out how we could consolidate services so that we'd get best value.

So that every single Department didn't have to have the same services over and over and over again. And then there was no coordination. And I think part of that was to put the services in dgs and then you contract for them. And I'm just wondering, I think we're going to have to look and decide, can we really afford to be doing all these things without them coordinating with each other?

And then the minute we say you should coordinate, then you need more staff to be able to coordinate. I'm just concerned with the growth of government.

Thank you, Senator. I appreciate those comments and concur. Senator Niello.

Just one more quick comment about great ideas. Everybody has a great idea, but unfortunately, not everybody else necessarily agrees that the other great idea is greater than their great idea. And in an environment of flush funding, we take them all because when you have a lot of money, you don't have to set priorities. And that's where we've been in the last five years, and that's exactly where we're not right now. Just a quick comment.

Thank you, Senator. Always good to reiterate that I think there's a lot of legitimacy in looking, even here with Gobiz alone, looking at sort of macro strategic lens at the growth in the Department from a strategic standpoint, not just taking it program by program, because there may be unnecessary duplication. And if we can save on that, you can increase the effectiveness of other more strategically focused things or things that have a higher priority. And that's always something to continuously be evaluating.

Of course, with that on other comment that will be held will come to item issue 24, which is maiden, California program relaunch.

Welcome, and please proceed whenever you're ready. And again, state your name and title for the record.

Good morning. My name is Tara Lynn Gray . I am Director of California's Office of the Small Business Advocate, the California made BCP before you request 1.54 million General Fund in 2023-24 to be spent over three years to pilot the implementation of the maiden California program, CalOSBA also requests statutory changes to increase program participation. California Made is not a new program.

It was established 10 years ago with a goal of supporting instate manufacturing and increasing consumer awareness of California Made products due to overly restrictive statute requirements. Only two firms to date have qualified for California Made certification since the program's launch. GO-Biz and CalOSBA have spent time working with California manufacturers on what changes could be made to this program to make it more successful.

Through focus groups and surveys, we've been able to pinpoint three changes that we think can make the program more successful. One, reduce the cost and complexity of certifying that they are California Made. Right now, all certification requires a third party verification, which is costly and time consuming, to remove the additional made in USA requirement that prevents the majority of California manufacturers from being able to participate in the program.

Global and shifting supply chains make it hard for small businesses to ensure that they are always meeting the 95% that is based in the United States, and three, provide additional value to participating businesses in the form of networking, trade shows, marketing and promotion. These changes would bring California made in line with successful made in programs found in many other states. Thank you for your time, and we're happy to take any questions.

Charles Lasalle, Department of Finance. No additional comments at this time.

LAO.

Thank you very much. Comments from Department of Finance

As the Department mentioned, this is an existing program and to date has had very low uptake. And so I think it's fair to say that the program so far has not been successful at achieving its goal. Further, although the Department has noted there are a handful of other states that do have programs of this type, we haven't seen any necessarily good evidence that those programs are actually effective at achieving their goals.

The simple existence of the programs isn't, to us, enough evidence that they are actually effective. The changes that the Administration is proposing to perhaps expand uptake of the program, we do think, especially allowing self attestation would increase uptake. However, we do have some concern about whether or not the program would still be providing a meaningful value to consumers, that they could be ensured that they are getting some sort of increased quality product that really does have something they would consider to be made in California.

And so given kind of this uncertainty about whether or not this really would be an effective investment right now, and maybe even looking back at the comments I made on the last item about being a little bit more critical of expanding the portfolio of efforts within the Department, we would suggest that given the kind of fiscal condition right now, that this is a proposal that the Subcommitee consider rejecting.

Comments from the Committee, Senator Niello, thank you.

I must confess, I'm always a bit skeptical of these buy only whatever programs in the Trump Administration, significant tariffs were put on steel and aluminum. Those were not buy only America programs, but they were functionally the same thing, and it created a lower supply and increased prices and profitability of local companies at, to the expense of those, and particularly other businesses that consume those products. To buy only California will serve to reduce competition for the limited choices that result.

And I would suggest that we would be, and I think manufacturers and other businesses would wholeheartedly agree with what I'm about to say, that their success would be much better served if we lowered the regulatory burden on them. It's not a budget issue, but it certainly is an issue that relates to this particular program, particularly since it's evidently not so successful.

Thank you, Senator. I would just briefly add that understanding. We want to take pride in production occurring in our great state. The reality should be driven by some real solid empirical data that suggests that we can discern on the consumer and demand side of products produced here that there's an added value with that knowledge in the environment in which we operate. Right.

There's a whole process, third party certification, to get Made in USA status, which seems to be more familiar to most folks in any state, even here in California. And the degree to which an added distinction that says, yes, it's Made in California has some market impact or some consumer actual impact in terms of helping to improve the value of the brand or to increase consumption. To this member seems not really clear. All right.

That any other comment on that, I'll be held, and we'll move to issue 25 Covid small business relief grants reduction. Thank you very much.

Senators. Tara Lynn Gray, Director of California's Office of the Small Business Advocate. The Governor's Budget proposes to pull back approximately $92 million in General Fund from the California Small Business Covid-19 relief program. The California Small Business Covid-19 Relief Grant Program is only one of several pandemic relief funds which operate under GO-Biz and CalOSBA. And now that the Covid-19 State of Emergency has been lifted. The Subcommitee may want to inquire about the status of the other programs as well.

If you'll remember, the grant program was administered by OSBA through a competitive bid award to its intermediary, lendustry and its statewide network of community based lenders and partners. The program provides competitive micro grants ranging from 5,000 to 25,000 to eligible businesses and nonprofits impacted by Covid-19 and the related health and safety restrictions. This program has been augmented three times and is the largest small business grant program of its kind in the country.

Nearly 55% of the businesses that received grants were minority owned and over 50% were women owned. Over 327,000 small businesses received grants at an average grant amount of approximately 11,000. Awards are still ongoing for the latest round, which is round nine, which will continue until all funds have been exhausted due to declining General Fund revenues. The governor's January budget proposes to remove 92 million General Fund from this program.

The budget proposes to remove 92 million due to declining General Fund revenues, which represent only 2.3% of the original amount as of December 2022. We actually I'm sorry, I'm repeating myself, I apologize. We have noted that this is an incredibly successful program and are appreciative of the Governor and Legislature for enabling the state to make this historic investment in small businesses that continue to be the backbone of our economy.

Senate all right, the side will be held. It will move us to issue 26, the update on immigration immigration programming excuse me, I need my reading glasses. Go ahead and proceed.

LAO

No comments on this item.

Thank you very much. Comments from Department of Finance?

Charles Lasalle, Department of Finance no additional comments at this time.

Lauren Greenwood, Deputy Director of Legislation for GO-Biz the local Immigrant Integration and Inclusion Grant intended to provide one time funding of 8.2 million to California cities and countries to develop or expand immigrant integration efforts. As the border region relates to this funding, GO-Biz has engaged with counties such as San Diego, Riverside, San Bernardino, and Calexico, and cities near the US Mexico border, about the upcoming LILIG opportunity GO-Biz is in the final stages of finalizing the request for proposal for this program.

The funding availability is intended to provide the one time funding for California cities and counties to develop or expand on immigrant immigration efforts. GO-Biz has taken a series of actions to roll out this grant program. The first action, GO-Biz has conducted a landscape analysis of existing immigration programming at the local government level, city and county, and conducted statewide stakeholder engagements. The stakeholder mapping is based on where significant foreign born populations reside in economic regions identified by the Community Economic Resilience Fund, known as CERF.

In addition, GO-Biz has also focused its stakeholder engagement on rural and hard to reach populations, including the Central Valley, Inland Empire Central Coast, and Imperial San Diego. The hard to reach populations include black immigrants, Asian Americans, Pacific Islanders, indigenous, and newcomers from Afghanistan and Ukraine. GO-Biz engagement to date included one on one meetings with over 30 stakeholders statewide. The second action, GO-Biz has deployed a statewide survey to collect additional input from local governments and NGO organizations to inform the grant development.

We've had over 100 participants in the survey, and this survey will help us identify existing immigrant integration efforts, gaps and opportunities to expand those initiatives. With the help of legislative offices, GO-Biz was able to conduct this widespread outreach, including to the city manager of Calexico. Action three before the request for proposals released. GO-Biz plans to facilitate a meeting with existing Office of Immigrant Affairs to share best practices and identify opportunities for collaboration.

We anticipate releasing the request for application for the 8.2 million in local government grants around June 2023, if not earlier, and we'll hold that information session prior once the date is finalized for the request for application, GO-Biz is happy to continue working with legislative offices to conduct outreach with stakeholders. Thank you.

Thank you very much. Comment from Department of Finance

Charles Lasalle, Department of Finance Notice no comment at this time.

No comments.

Thank you, Senator Niello.

I'll just comment. I am pleased with the Senate Budget Plan does include the 2 million allocation to communities in the region, particularly Calexico, who've been dealing for a long time with the exaggerated impact to the communities there, particularly Calexico, is one great example, and utter lack of facility access to adequate support from Federal Government from here.

And so California, I think, I hope, continues to lead with some pragmatic compassion here in understanding not just the individual impacts, but the impacts of communities in the United States that are marshaling already underinvested in communities with limited resources, through individual help and through NGOs, to be able to provide support for folks who are in this status, who are simply legitimately trying to seek a better life.

And I was very, very happy to see that in the Senate version, and I wanted to put that comment on the record as we took the update report. I appreciate it very much. This item is information only. We'll continue with an update on GO-Biz workforce development programming.

Tara Lynn Gray, Director, California's Office of the Small Business Advocate as noted in the agenda, GO-Biz coordinates with the Labor and Workforce Development Agency on a variety of programs with workforce development components, including the employment training panel, the Division of Apprenticeship Standards, the Joint Venture Program, and California's Workforce Development Board. In most instances, however, LWDA is the primary administrator of these programs related to workforce.

GO-Biz undertook a one time investment in fiscal year 21-22 to stand up the California Dream Fund, which Provided Micro-Grants of up to $10,000 to seed entrepreneurship and small business creation in underserved small business groups that faced opportunity gaps. The program was made available to eligible startups that have completed trainings and advisory services designed to accelerate business startup rates and ensure successful business outcomes for participating small businesses.

Trainings and advisory services were provided by the 100 plus Technical Assistance Centers funded by the State's Technical Assistance Program. The Small Business Technical Assistance Program network of centers are specifically charged with expanding services to underserved business groups, which include women, minorities, veterans, as well as communities that are low wealth, rural and disaster impacted.

In addition, CalOSBA works with an expanded network of small business support providers who bring extensive cultural and linguistic expertise in working with target populations that face significant barriers to employment and often seek entrepreneurship as a pathway to creating their own job by starting their own business through the small business Technical Assistance Centers.

The California Dream Fund assisted the startup growth and sustainability of small businesses by coupling access to startup capital and technical assistance targeted specifically at known barriers to success, including, but not limited to, compliance, legal, financial, sales and marketing and operations. A total of more than 4,000 new businesses have been funded to date, accounting for $29 million.

Deployed with $3 million in the queue, this program is on track to fully spin down all funds and to date, 66% of Dream Fund grants were awarded to women owned businesses and over 73% of the grants were awarded to minority owned businesses. We could not have had such incredible success with this program without the support of the Governor and the Legislature's permanent investment in the small business Technical Assistance Centers.

Thank you. Happy to take questions.

Thank you. Department of Finance

Charles Lasalle, Department of Finance no additional comments at this time.

No comments.

Thank you. We'll bring it to the Subcommitee. Commissioner, Senator Niello.

The tremendous success of the program is measured in terms of money being invested in the targeted firms.

That's inputs. We need to look a little bit at outputs. So what has the result of those investments been? What have the success of the businesses into which those investments have been made is or has been?

So if I may address the inputs. First, it is noteworthy that this program was oversubscribed and that we have approximately 602 applicants for this program, which indicates the high demand from the small business community. Speaking specifically to the outputs of the program, we are documenting the success of this program through success stories from folks that have participated, and I'm very happy to share the many impactful stories that we have collected from the technical assistance centers.

I would also add that those technical assistance centers just recently did a professional development program this week, led by the five California SBDC leads and attended by more than 100 TA professionals across the network. And they overwhelmingly expressed the support for the Dream Fund Program and a desire to see the program continue because of the ability to work one on one with the businesses and to intervene in business formation at the very beginning.

Most small businesses go on what we call the entrepreneur's journey and rarely get intervision at the beginning of that journey. Most of the time, they are at step 345 looking for capital, and they haven't even done formation and the legal and accounting work that needs to be done to create the infrastructure for the business.

This program turned that normal cycle on its head, which increases the likelihood of success for the businesses who have participated because they are getting a solid foundation at their start, rather than getting help somewhere further down the journey.

Very good points. And that, in fact, is what happens in venture investing. The venture funds and venture investors don't just invest in firms, but they actually help the firms to help them succeed. So it's very consistent with that model. But if we're going to be asking for additional funding, we should really lead. No, this is not asking for additional funding. Is this just an information item? Okay, I misunderstood that then.

But even in the information item you mentioned, the success stories, you should really lead with the success stories so that we know what the results have been. Thanks for correcting.

Thank you, Senator, I appreciate. Are we having a specific sort of metric or protocol to sort of see how we're targeting emerging industries and how the resources are sort of how much effectively they're being aligned with the demand side.

The CalOSBA team is working with the technical assistance centers that are working most closely one on one with the entrepreneurs and small businesses. So CalOSBA is working also guided by the Small Business Administration, on coming up with those metrics and looking at a number of things, such as training events, industries focused on number of jobs created, number of jobs retained, and then, of course, looking at the types of businesses that we're serving, such as women owned, minority owned, veteran owned.

So there is some tracking that is going on.

Thank you. All right. If that any further comment? That is also an information item that'll take us to Issue 28, California Cybersecurity Integration center. This OES, CHP, Department of Technology and the Military Department. all I think it's still morning, almost barely, right. Good morning and welcome. Please proceed when ready and state your name and title for the record, please. It's.

Highway Patrol, that's better.

For $28.7 million, 17 positions and the continuation of limited term resources authorized in 2021 to enhance resources to support the responsibilities of the California Cybersecurity Integration Center, or CalCIC. With me today is Mr. Osborne, who will describe our proposal.

Thank you, Eric. Good morning. Thank you. Chair and distinguished Members of the Committee, I am Tom Osborne, Deputy Director of the Homeland Security at the California's Governor's Office of Emergency Services, where I currently lead the Homeland Security Division, which oversees our State Threat Assessment Center and the California Cybersecurity Integration Center are referred to later in my presentation as the CalCIC.

I first would like to thank you for your ongoing partnership and the opportunity to address the Committee regarding our budget proposals to help the CaLCIC meet its expanding obligations to safeguard the state's cybersecurity. Also with me today are representatives from the California Military Department, California Highway Patrol, and California Department of Technology, who are part of the CalCIC, as referred to as kind of our core four entities.

Of that while the CalCIC is doing tremendous work in executing its mission, our resourcing remains well below what is required for it to meet the intent set forth by the Legislature. Given that our statutory responsibilities continue to grow and the three year funding commitment the Legislature made in 2020 is set to expire this June, the need for new budgetary support is that much more critical. Our current budget proposal for your consideration builds upon that previous funding commitment with minimal increase.

Considering the threat environment and our ongoing workload and statutory responsibilities, the four departments that I previously mentioned associated with this program are jointly requesting 28.7 million General Fund ongoing and 17 positions to make permanent the temporary resources authorized in fiscal year 2020 to 2021 and enhancing resources to support the responsibilities of the CaLCIC. Permanent resources will continue our established and core staff and organizational structure, which includes three branches.

These three branches include one, our Cyber Operations Branch, which is responsible for incident response and cyber forensics second, the Cyber Incident Cyber Threat Intelligence Branch, which leverages information sources from our federal state, along with our commercial fees to stay abreast of current and emerging cybersecurity threats and three, the Mission Support branch, which provides various professional and unique it services, which enable the other two branches to perform and focus on their core missions, along with our forming our initial our organization, California has experienced numerous cyber incidents and through lessons learned, we have embarked on several key initiatives to improve statewide cybersecurity, and these include an operational technology lab, which enables us to study and prepare for specific threats to critical infrastructure in an isolated and protected environment a cyber forensic computer lab to analyze compromised hardware and maintain chain of custody.

This forensic lab enables us to process digital evidence to support ongoing law enforcement investigations, and to develop cyber threat intelligence via forensic identification of indicators of compromise and new malware variants. A robust cybersecurity intelligence capability, allowing us to share cyber threat intelligence with partner agencies and community stakeholders across the state. The CalCIC has also directly supported our state's election security task force by performing vulnerability assessments to all 58 counties and their election computer systems.

California's cyber risk continues to grow, and our threat environment is getting more complex. In our 2022 data from the California Cyber Incident Reporting System, or Cal CalCIRS, those numbers showed that the number of cyber events in 2020 was 2,621, an increase of 21% from 2021 and an increase of 202% from 2020. Cyber incidents that were received from other sources were up 14% year over year.

Ransomware incidents and data breaches were by far the most frequent, accounting for 35% and 34%, respectively, across all cyber incidents in California in 2022. We anticipate the number of incidents will continue to climb anywhere from five to 12% year over year. Given these historical trends, the demand for CalCIC services have also vastly outpaced our resourcing. Subscriptions to our cyber threat intelligence services have shown a 54% to 92% annual increase since 2020, an unprecedented demand which has exhausted our current capabilities in this capacity.

And from 2021 to 2022, our incident responses conducted by our Cyber Operations Branch rose by a dramatic 48%. As it stands now, despite having the highest cybersecurity risk profile in the nation, California ranks towards the bottom in the list of terms of per capita rate of investment in cybersecurity. States like North Carolina, New Jersey, Arizona, and New York are all investing significantly higher rates of per capita than in our state.

Our proposal before you provides minimum and prioritized position growth essential to perform services at a level commensurate with California's risk and address critical cybersecurity and information security gaps.

Thank you. Thank you. Are there comments from Department of Finance?

Tess Scherkenback with the Department of Finance? No additional comments at this time.

Thank you. LAO?

Good morning. Brian Metzker with the Legislative Analyst Office. We recommend the Legislature approve funding for CalCIC to make permanent 23 existing positions approved in 2020-2021. However, we also recommend the Legislature direct CalCIC to report back to the Legislature on what new funding and positions are most critical to furthering CalCIC mission.

We understand that CalCIC views all requested funding and positions as priorities for CalCIC, but the current budget problem requires the Legislature to decide what activities, programs, and services across different departments most align with legislative goals and priorities. The absence of any prioritization here makes those discussions more difficult and limits the ability of the Legislature to consider a smaller amount of funding or positions if these requested General Fund resources are needed to address the immediate budget problem.

We also recommend the Legislature adopt provisional budget Bill language that conditions any new funding or positions on specific and measurable goals and outcomes. These goals and outcomes would allow the Legislature to better hold the Administration accountable for the use of these resources to improve state entities information security defenses and preparedness. This recommendation for more accountability and reporting on state information security activities is consistent with other recommendations we have provided to the Legislature about information security proposals more broadly that are included in the Governor's Budget.

Our recommendations include annual reporting on the implementation of the state's first five year information security roadmap. CalSecure a more standardized approach to the disclosure of information in support of information security budget proposals and the prioritization of information security services for shared service contracts that are procured by the Department of Technology. Were the Subcommitee to be interested in some of these recommendations alongside individual proposal actions, our office would be happy to provide technical assistance.

Thank you, Department of Finance.

Thank you, Tess Scherkenback, Department of Finance I would just like to note for the record that the Administration does continue to support the request as it was originally proposed in the Governor's Budget, recognizing that CalOES requested growth was conservative compared to the expanding cyber threat that the state is facing and that the positions originally requested reflected the prioritization of the most critical functions of the CalCIC.

Thank you. All right, we'll bring it to the sub. Senator Niello.

Just very brief comment. Goals and outcomes, as you can tell by previous comments I've made, is very important, but acronyms are important, and I just have to make the observation that using the word sick in an acronym might not be the best thing. You don't need to answer that.

Thank you, Senator. And just obviously critical operational infrastructure here, not all of which is frankly, appropriate for the budget policy discussion. Understand the request. I think I understand the internal challenges and so appreciate your testimony. This item is recommended to be held open. That'll move us to Item 29, I believe, which is school cybersecurity AB 2355 yeah,

The next proposal on your agenda is a request for 5.4 million General Fund and 17 positions, seven positions at CalOES, five positions at CDT, and five positions at the California Military Department to implement AB 2355 until the repeal date of January 1, 2027. A smaller amount of 3.9 million General Fund is proposed from 2024 through 2026-27. Mr. Osborne will again describe the proposal.

Thank you, Eric.

Our second proposal for your consideration relates to resourcing for the implementation of Assembly Bill 2355 which requires the California Cybersecurity Integration Center, or CalCIC, to establish one, a database that tracks and reports cyberattacks submitted by local education agencies and I refer to those as LEAs and two, prepare an annual report to the Governor and relevant policy committees of the Legislature that includes summaries of the types and numbers of attacks on LEAs, data breaches reported to the Attorney General, and any activities provided by the CalCIC to prevent or respond to such cyberattacks or data breaches.

Within California's 58 counties, there are over 1000 school districts, over 10,000 schools, and nearly 6 million students. Federal and private sector research shows that cyber threats to the K through 12 education sector have continued to escalate since at least 2018. Schools in most states have reported cybersecurity incidents on their systems. The impacts of these cyberattacks can result in a theft of our children's PII, which then is usually offered for sale on the dark web, allowing for future victimization to occur.

Additionally, ransomware deployed by cybercriminals can encrypt entire school networks, which we have certainly seen here in the State of California, including HVAC systems, renting them inoperable for weeks, if not months, in hot California climates. Reported incidents in the United States between 2018 and 2021 have risen from 400 in 2018 to an accumulated total to over 1300 incidents, and this is a report from DHS CISA.

According to a recent report also by the Multistate Information Sharing and Analysis center, or MSISAC, 29% of the ISACs K through 12 school and district members reported being victims of a cyber incident. Even without the reporting requirements of AB 2355 the CalCIC observed a total number of 36 cyber incidents targeting California's education sector in 2022, an increase of 33% compared to the 27 reported incidents observed in 2021.

With so many schools in the state, we expect that increasing awareness of AB 2355 will certainly lead to an exponential increase of incident reporting to the state, many of which will lead to requests for support by the CalCIC the CalCIC certainly has been concerned about the vulnerability of local education agencies to cyber attacks even before the passage of AB 2355. LEAs generally have very limited it staff or cybersecurity resources, but nevertheless maintain sensitive records for millions of students across the state.

And even with cybersecurity insurance policies, they do not have the consistent standing relationships with external cybersecurity support resources. These challenges are real, and they highlight the need for CalCIC to conduct an extensive training and outreach to the LEA community so that schools and local school officials are aware of support that we can provide if our budget proposal is approved.

The CalCIC intends to, one, establish a reporting mechanism for all California education institutions to provide and help them improve their defensive posture and, if needed, three, conduct a more robust analysis of active threats affecting schools and four, respond to requests for support with sufficient on site responders to stop active attacks and conduct cyber forensics to prosecute cybercriminals. Thank you.

Tess Scherkenback. Department of Finance no comments at this time.

Thank you. Department of Finance

Brian Metzker, LAO we recommend the Legislature only approve the resources for CalCIC to plan, develop and implement the database that is required under AB 2355. AB 2355 requires leas to report cyberattacks that impact 500 or more staff or students to CalCIC to establish a database that tracks these reports of cyberattacks and annually report the number and types of cyberattacks and associated data breaches to the Legislature.

Thank you. LAO?

This proposal goes beyond those requirements to respond to every request from LEAs for assistance, provide onsite incident response, and establish data sharing agreements and other arrangements with LEAs to integrate data with CalCIC all of these activities have merit, but they are not mandated by the Bill.

Furthermore, most of the requested resources are based on a preliminary estimate that is not informed by the number of cyber attacks reported by LEAs, the number of requests for assistance submitted by LEAs, and the number of incidents that may require CalCIC to respond under AB 2355. After the publication of our analysis, CalCIC did provide some LEA data in support of their proposal, but the historical data cannot predict the response of LEAs after the passage of the Bill. In other words, this is a preliminary estimate.

It's a best guess. Of the 5.4 million General Fund and 17 positions proposed in 23-24 the Administration confirmed in its responses to our office that about 950,000 General Fund and three positions would be needed for the database. We recommend the Legislature approve this smaller amount and reject the remainder as an alternative for the remainder of the funding, the Legislature could consider provisional budget Bill language that would provide some smaller amount of additional funding based on actual experience with LEAs under AB 2355.

This language could also request data on the number of reported cyberattacks, requests for assistance, responses to those requests, and incidents that warranted response, and have that before any additional expenditures are authorized.

Thank you. We'll bring it to the sub. Senator Niello.

Thank you. With regard to the LAO's comments, it really would require additional policy setting by the Legislature to go beyond the funding. As the LAO pointed out, the LAO indicated budget language. We have about 110 spot bills sitting available to put budget language in, and I take great exception to that approach. When I was here before as Vice Chair of the Assembly Budget Committee, 10 or 20 Trailer bills would be a lot, and we've gone so far beyond that.

It really compromises the transparency of the budget process, which I will continue to bring up. If the Legislature needs to adopt additional policy to go beyond what the original Bill authorized, we ought to do that through the normal legislative process.

Mr. Chair, may I provide a quick comment?

Absolutely. Department of Finance.

Thank you. Tess Scherkenback with the Department of Finance. Just wanted to, for the record, provide a quick response in response to the LAO's comments. Just wanted to note that the Administration does continue to support the proposal as originally put forth in the Governor's Budget, and we anticipate that schools reporting of cyber incidents and attacks will likely be accompanied by requests for assistance from CalCIC to manage and respond to the attack.

And so if we only partially approve the funding that is being requested in this proposal, we run the risk of CalCIC being under-resourced and unable to provide that help to schools in that event.Thank you.

Thank you. Appreciate the comment. Oh, I'm sorry. I thought I had already requested your input. I go right ahead.

Brian Metzker, LAO I just wanted to respond to those comments again. I think the point of our testimony was that this absence of data makes it difficult to anticipate how LEAs are going to respond when they're asked to submit evidence of, you know, we have just a very wide variety of LEAs, some of which have cyber insurance providers that require them to use certain vendors before they contact CalCIC for assistance.

We have others in which they don't have very much on site staff for it and information security. That wide variety means we don't really know how each of these LEAs is going to respond. And so again, we may not have the resources on hand initially, but I think that provisional budget Bill Language was a recommendation to allow for at least some data to inform how much money we're going to be approving for this Bill.

Appreciate that conversation. The recommendation is to hold this item open. That'll bring us to issue number 30, State and Local Cybersecurity grant program thank you.

The final proposal in this series is our spring finance letter request for a new federal, state, and local cybersecurity grant program. Our request is for approximately 8 million in one time federal trust Fund authority to implement the grant program. There is no General Fund impact associated with this request, and let me turn it over one more time to Mr. Osborne.

Thank you, Eric.

Finally, as Eric mentioned, our third proposal for your consideration would provide the authority to Cal OES to administer California's allotted share of a new Federal Grant, the state and local cybersecurity grant program. I'll refer to that here in my testimony as the Federal Cyber Grant. DHS, via the Federal Cyber Grant, will distribute 1 billion nationwide over four years to support projects throughout the performance period up to four years.

State administrative agencies are required to distribute at least 80% of these funds to local governments, with a minimum of 25% of those funds to be allocated and distributed to rural areas. California's cyber grant for FY 22 allocation was roughly 8 million. Cal OES is requesting 400,000 in state operations and 7.7 million 600,000 in local assistance.

Federal Trust Fund authority to implement the program the Federal Cyber Grant notice of funding opportunity, or NOFO, requires funds to be allocated according to a state cybersecurity plan developed by a Cybersecurity Planning Committee. The California Cybersecurity Integration Center, or the CalCIC, has formed a Subcommitee within its California Cybersecurity task force called the Cybersecurity Investment Planning Subcommitee. For this purpose, I'll be referring to this Committee as the Subcommitee.

The Subcommitee, per the requirements of the NOFO, has multidisciplinary membership with representatives from cities, counties, towns, rural and suburban populated areas, public health entities, and public education entities. The Subcommitee is required to produce the state's cybersecurity plan, which will determine how Federal Cyber Grant funds shall be allocated. This contrasts with other grant programs where these details are generally known upfront.

The cybersecurity plan is a statewide planning document that must be approved by the Subcommitee and the state chief information officer and the state chief information security officer and the Director of Cal OES, as well as DHS CISA. The CalCIC, along with its partners with the Department of Technology and the California Highway Patrol, are currently working with the Subcommitee to ensure that the cybersecurity plan will be submitted by the federal deadline of September 30 of 2023. Thank you.

Department of Finance

Tess Scherkenback, Department of Finance no comments at this time.

Brian Metzker, LAO we have no concerns with this proposal.

Thank you,

All right. Thank you all very much. I think that may be bringing us to Department of General Services in Issue 31. This might be, with the concurrence of Senator Niello, appropriate time maybe, to take a brief five minute recess and stretch and take care of need for folks who are here in return, if that's appropriate. Thank you, sir. The Subcommitee will stand in recess for about five minutes.

All right, let's reconvene. Thanks for everybody's patience. That'll bring us to issue 30 in the Department of General Services, adaptive reuse of underutilized state buildings, AB 2594. Thanks for your patience. Welcome. Please proceed when you're prepared and state your name for the record and title. Thank you.

There you go. So, good afternoon. My name is Ana Lasso and I'm the Director of the Department of General Services. Thank you for your indulgence and allowing me to share a little bit about our Department. And thank you for the opportunity to provide the information regarding the mission and the business needs driving the budget requests before you today.

The Department of General Services, or DGS, serves as a business manager for the state and serves the public by providing a variety of services to state agencies, including but not limited to, procurement, acquisition solutions, real estate management design, environmentally friendly transportation, professional printing, web services design and construction of K-12 public schools, community colleges, and funding for school construction and disability access.

Our mission is to deliver the results by providing timely, cost effective services and products that support our customers while protecting the interests of the State of California.

And today, before you today, the 2023-24 Governor's Budget and DGS' budget proposals, which you will hear about in the upcoming presentations, will enable our Department to ensure the completion of critical fire life safety repairs to state buildings, partner with the Department of Housing and Community Development to increase affordable housing, strengthen the infrastructure for zero-emission vehicles, and make database decisions to increase equity and opportunities for vendors doing business with the state.

Thank you for allowing us to present this information to you today, and we appreciate your time and consideration of our proposals. I will now turn this over to our Assistant Budget Officer, Dhruv Mehta.

Thank you, Director.

Good afternoon. My name is Dhruv Mehta, Assistant Budget Officer for Department of General Services. This proposal, the first proposal we have, is seeks 1 million in one-time expenditure authority from the General Fund to implement AB 2592 by Assembly Member McCarty, which requires Department of General Services to prepare a plan for transitioning underutilized, multistory state buildings into expanded affordable housing development and adaptive reuse opportunities.

And I'd like to request Deputy Director Jason Kenney with Real Estate Services Division to add additional details and address any questions you may have.

Good morning. There we go. Good morning. Jason Kenney, Deputy Director for real estate services for DGS. Just a few additional words, as this one has been the subject of some misunderstanding. Adaptive reuse as a term is very specific. It's taking a building that exists and converting the interior into an alternate purpose. And so if you have a building that you're going to demolish and build new, that's not adaptive reuse. If you've got a green field or a parking lot and you're building on it, that's also not adaptive reuse.

So in 2019, when we did an inventory of all excess state property that could be repurposed for housing, we identified about 100 sites across the state that were suitable. We've been in the process of developing those. We're at 21 developments and about 5,500 units now, but very few of those have buildings. And of the ones that actually have buildings on them, without fail, they have been deemed unsuitable for adaptive reuse. So it's a very small subset that will actually be adaptively reused.

Where adaptive reuse is most likely in the state is actually here in Sacramento. And so when this Bill was signed into law, our pitch and a proposal is to essentially look at buildings that we believe may become available in the city, proactively study them for adaptive reuse potential, so we can identify when the time comes whether to sell them, to demolish them, build new, or to adaptively reuse them. That would be the subject of this report.

Thank you very much. Are there comments from DOF?

Courtney Massengale, Department of Finance. Nothing to add at this time.

And LAO?

Jared Sippel with LAO. No comments on this item.

I bring it to the Subcommittee. Questions or comments on this issue? If there are none, we'll hold this item open. Thank you very much. That'll bring us to issue 32, direct digital control upgrades.

Dhruv Mehta, Department of General Services. This proposal requests 11.8 million in limited-term authority from the General Fund for three years beginning in Fiscal year 23-24 and 972,000 limited-term authority from the service revolving fund and four limited-term possessions for three years to upgrade the direct digital control systems in buildings managed by DGS to improve safety and efficiency of the building operations and reduce energy use.

This proposal incorporates lessons learned in the recent extreme heat event, and these technology investments would result in cost savings from more efficient energy operations. With me is Deputy Director Jemahl Amen with the Facilities Management Division to answer any questions you may have.

Good afternoon, Committee Members. Jemahl Amen, Deputy Director of Facilities Management Division. As Drew stated, this has been a mission for us to not only modernize our buildings moving forward, but also to make sure we're moving in the right direction in terms of the larger picture that's been presented by the Governor and certainly Members of this body and the other body as well. We have to be more energy-conscious and also effective in delivering the services in a way that's cost-effective over time.

Appreciate that. Department of Finance.

Natalie Griswold, Department of Finance. Nothing additional to add at this time.

Thank you. LAO.

Jared Sippel with the LAO. For this proposal, we have a few comments for your consideration. First, we originally recommended withholding action on this proposal until the Department identified which buildings with direct digital control systems were in critical need of replacement, as it was unclear if all of the buildings being proposed for replacement needed to be.

The Department subsequently reprioritized its list of buildings to identify those with systems that are in critical need of replacement and indicated that it plans to put the requested funding towards those systems. We would agree that funding these systems merits approval. However, we would continue to recommend that the Legislature adopt provisional language that limits the use of any funding to specific projects it chooses to approve.

In reviewing DGS documentation on the condition of these systems, we found lower costs than what the Governor is proposing or is requesting as part of this proposal. So this suggests that costs could be lower than what is being requested or at a minimum, that there is some uncertainty around the cost. And so as a result, there could be some unspent funds. So as such, the provisional language would ensure that any unspent funds are returned to the General Fund.

And with that, I'm happy to answer any questions. Thank you.

Further comment, response, or questions? Bring it to the Subcommittee. Senator Caballero.

Thank you very much, Mr. Chair. My apologies for having to leave the Committee for check in on something, and I apologize if this is not the question that goes with this particular item, but one of the issues in renting state buildings is the percent of the building that's vacant or is not utilized by a state agency. So I wonder if we could get a report on that, because at one time, many of the departments were electing to leave the state-leased facility they were in, into privately rented space.

Partly because it was upgraded, right? It was newer. Their Department may have grown, and to be able to colocate altogether was really important, but what it did is it left significant vacancies in some of our state buildings. And during the downturn in the economy, we asked departments to go back when their leases were up so that they could go back into this space that was less expensive. State buildings were a lot less expensive than the private leases.

And I'm wondering, as we do these assessments, including the prior assessment, which is to see whether a building might be appropriate for housing, for affordable housing, we should look at how much of it is leased. Because it seemed to me that there was significant vacancies in many of the downtown buildings, in particular in downtown LA and downtown San Diego.

And as we look at that, whether those buildings are old and can't be retrofitted to meet our climate change goals or our decarbonization goals, so that we're doing this as one system rather than doing it in a series of analyses that don't mesh. I'm concerned with this having space in state buildings that's underutilized and yet we're still heating it and we're still air conditioning it, and it's pretty hard to turn off part of a building when it's been developed as a whole.

So I want to kind of put that out there as a look to. I'm concerned with the decarbonization. Our efforts will be that departments will move out of a building because they can't decarbonize it because it's ours, move into expensive privately owned property, and then leave us with abandoned buildings we can't do anything with.

Thank you, Senator. And if you're not able, I have no objection. If there's, feel free to respond to the Senator's office with her inquiry on that, or if you want to provide some comment at this point just to give a preliminary response, I'm happy to accommodate that as well. The Senator is juggling a lot of balls right now. Thank you.

Hi again. Jason Kenney, Deputy Director for Real Estate. No, it's a very valid point, and so maybe just a few additional words that might be helpful for context. So you're right, there is historically been a desire for state agencies to move out of older state buildings and into upgraded and newer, nicer spaces. In statute, we do have the ability to stop that from happening. But if you were to look outside of Sacramento, you mentioned San Diego, for example. That building for years was about 50% full.

So in 2019, one of the analyses that we did was to look at the cost to take some of these old, efficient buildings and bring them up to just normal operating standards. We assumed a lease revenue bond-financed approach, and then we compared that to 30 years' worth of lease costs. And in those instances where the buildings were so deficient and those costs were actually more cost-effective to be in lease space, we elected to get rid of the buildings.

And so our portfolio plan in 2019, incorporated into our real estate fugitive plan, actually proposed getting rid of nine buildings, maybe it's eight, throughout the state. The San Diego building downtown has actually been awarded to a developer. It's a $1 billion housing project right now. It should yield about 1,500 units of housing. And so there is absolutely, in our part, a desire to sort of get rid of those buildings where it doesn't make sense to own them and convert them into housing.

Another example is our Stockton office building. We're in the process, again, probably 50% occupied, in the process of vacating those tenants into less or equally expensive lease space, not more expensive lease space. And that building will be up for solicitation as well. So that is actually our plan, and we've been actively doing that for about 3-4 years now. Another quick example, in case you're interested, is up in Redding. We actually had an office building where the primary tenant was DMV.

Rather than getting rid of that building, we transferred jurisdiction to them, and they took two other locations they had in the area, and they'll be consolidating into that location to make their offices more efficient. So we've been looking at this from a housing perspective as well as a government efficiency perspective for a while now.

That's great. Really appreciate that update.

Sure.

Thank you, Mr. Chair.

Thank you, Senator. All right. Any additional comments or questions from the Sub on digital control? Not the site will be held open. It takes us to issue 33. Facilities management division fire alarm system deferred maintenance. Boy, that's a scary title. All right. Yeah. Looking forward to get educated about this one. Please proceed.

Dhruv Mehta, Department of General Services. This proposal requests 20.4 million one-time General Fund for the most critical fire life safety projects. With me is Deputy Director Jamal Amen with Facilities Management Division to address any questions yet you may have.

Jamal Amen, Facilities Management Division. It is a critical operation component of all of our buildings. If you can imagine our portfolio that's aged over time, this is certainly a critical component that we look to replace strategically. We've identified the buildings that need, have that more immediate need, and you're looking at a division that is used to doing more with less. And so, over time, we've been asked to do that, given certain budget constraints, certain time periods. But at some point, you have to replace the system.

And so for us, we've arrived at that point, and the buildings that we've identified will allow us to do that.

All right, thank you very much. Department of Finance.

Natalie Griswold, Department of Finance. No additional comments at this time.

Thank you, LAO.

Jared Sippel of the LAO. For this particular proposal, we recommend that the Legislature approve the funding as the systems are at or near the end of their useful life. With that said, we do have a broader recommendation that relates to this proposal, as well as the direct digital control system proposal that we just discussed. We recommend that the Legislature require DGS to provide a plan on how it will adjust rental rates going forward to incorporate building maintenance needs.

The rental rates that DGS charges its tenant departments do not fully cover building maintenance needs as of right now, and in our view, they should. While the state has provided some General Fund support in the past for DGS building maintenance, the state is currently experiencing a budget problem. And so, as a result, any additional spending from the General Fund comes at the cost of already funded legislative priorities.

Moreover, we find it's not appropriate for DGS to rely on General Fund augmentations on a long-term basis to fund its deferred maintenance needs because it disconnects the rental rates that are being placed are paid by rental tenant departments from the cost of operating and maintaining the buildings. It also places a disproportionate share of the cost to the General Fund rather than allocating some of the cost to special funds that support some of the DGS building tenants.

And so with that, I'm happy to answer any questions you may have. Thank you.

Thank you very much. We'll bring it back to the Subcommittee. All right. This item will be held. It'll take us to. Did I just lose my place? Issue 34, Facilities Management Division, new building ops and support. Thank you, Senator.

Dhruv Mehta, Assistant Budget Officer, Department of General Services. This proposal requests 22.4 million in Fiscal Year 23-24 from service revolving fund and 149 position, then stepping up to 29.867 million in ongoing authority to support a total of 199 positions beginning the following year to staff, manage, maintain, operate the newly constructed Richards Boulevard Office Complex and the newly acquired California Environmental Protection Agency CalEPA building, both located in Sacramento. With me is Deputy Director Jamal Ahmed with Facilities Management Division to answer any questions that you may have.

Thank you. Department of Finance.

Natalie Griswold, Department of Finance. No additional comments at this time.

Jared supple with the LAO. No comments on this item.

Back to the Sub. Senator Niello.

Thank you, Mr. Chair. So we've been talking about vacant, partially vacant buildings and use for affordable housing, and we have gone to, through the pandemic, work from home and to at least a partial extent that continues to exist, that would not seem to indicate that we need to build new buildings, and yet we're talking about new buildings here. Right? So help me to understand that.

Hello again. Yeah, so it's really also a good question. So two buildings are at play here. One is Richards Boulevard. The other one is the CalEPA building. So the CalEPA building has been in operation for decades. It was built in the '90s, if memory serves, and it was a capitalized lease ultimately. So basically, it's like you built a house in the, just paid off the mortgage. So that's essentially what's happening in this particular building.

And so the maintenance for that has been the responsibility of the city, who's been the partner, and now the building becomes state ownership. Our Building Maintenance Division is ultimately taking that over. So that's why the need for staff on that particular one on Richards Boulevard and more in general. It also kind of goes back to what Senator Caballero mentioned.

In Sacramento, we have obviously a huge concentration of state government, both in historically pre-pandemic, tremendous amount of own space, and even just as much lease space as well. And in Sacramento, if there was an office footprint of any significant size, we snapped it up again. This is all pre-pandemic, pre-telework. Post-pandemic, in this new age of hybrid. You're absolutely right. Departments are transitioning into some degree of not-in-office work that will completely depend on the Department and their operational needs.

But that is the transition that we've seen happen and will continue to happen. At the end of the day, what we've been doing in these building projects, this Richards Boulevard, predated the pandemic as well. It started in 2018, is we've leveraged the opportunity to consolidate programs into those buildings out of lease space and to densify them. So, for example, one of the new buildings that was constructed in the middle of pandemic was the resources building. The new resources building that was planned for 3,250 seats.

The occupancy of that building is about 1,000 more people because we pulled additional folks out of lease space or out of other buildings that need to either be gotten rid of or renovated.

And so in the same way, this is not necessarily a net add so much as it is newer space that allows us to actually pull out of some of those more egregious leases, consolidate apartments for operational consistency, or allows us to repurpose some of the buildings that we have into housing, like the three on Capitol Mall that has the solicitation out today.

Great, thanks. Senator Caballero.

So the building where CalEPA is right now, that is not owned by the state. Sorry.

It will be very soon, but historically, no, it's a JPA transaction with the city and a private developer.

I'm just trying to figure out why we're moving EPA.

We're not moving EPA. They're staying there again. It's like we paid off the bank loan and now we own the building, but the residents stay there.

I get it. Thank you so much. I appreciate it. I misunderstood.

Yeah, I echo that. Thank you, Senator. Thank you for the nimble responses, by the way. I'm impressed with that delicate dance. All right, if there's nothing further, I think it takes us issue 35 leg. office building roof replacement.

Dhruv Mehta, Department of General Services. This proposal requests 5.9 million in one-time General Fund authority in Fiscal Year 23-24 to address critical repairs caused by water intrusion at various locations in the legislative office building located at 1020 N. Street in Sacramento. The requested resources will be used to bring the legislative office building into safe, functional, and operational compliance with local, state, and federal regulations, avoid costly emergency response situation, and the risk to public health and safety.

With me is Deputy Director Jamal Amin with facilities management division to answer any questions you may have.

Thank you very much. Department of Finance

Natalie Griswold, Department of Finance. No additional comments at this time.

LAO.

Jared Sippel with the LAO. No additional comments. Thank you.

Sure. Back to the Subcommittee. All right, that item will be held that will take us to issue 36. Sacramento Region New Richards Boulevard Office Complex.

Dhruv Mehta, Department of General Services. This proposal is for 402,000,000 for a portion of expenditures for the design-build phase of the Richards Boulevard Office Complex. The General Fund appropriation is intended to offset the project expenditures that were incurred outside of a three-year window required under the federal rules governing the use of tax-exempt bonds.

Thank you. DOF.

Apologies. Zach Lierly, Department of Finance.

Just want to note that financing costs for both taxable and tax-exempt bonds have increased significantly over the past year. For instance, if we were to finance the 402 million in project costs that are not eligible for tax-exempt financing, the interest costs associated would be 400 million, or approximately twice the principal amount. As such, we see this as a good fiscal decision which provides long-term fiscal benefits despite the condition of the General Fund.

LAO.

Jared Sippel with the LAO. We have some broader comments on financing approaches to capital outlay projects that are also relevant to this proposal. So using bonds or cash are both reasonable ways to finance capital outlay projects, but each come with their own unique trade-offs. So, for example, if the state has a budget deficit, bonds can fund important projects without forcing the state to cut into existing programs that otherwise might need to be cut in order to fund the project.

On the other hand, using cash can lower overall spending for a project because the state does not have to make interest payments. So given the current budget problem facing the state, including that the problem may be even larger than the Governor currently projects, the Legislature could consider switching to lease revenue bonds instead of cash financing for this particular project. That would free up some General Fund cash to maintain funding for existing programs that might otherwise need to be cut to address the budget problem.

Even though interest rates are relatively high right now, if they come down in the future, the state typically has the opportunity to refinance at that time.

Thank you and appreciate the comment. Back to the Committee. Senator Niello.

Have a question about lease revenue bonds? I might have this wrong, but my understanding is that a lease revenue bond is associated with a lease that generates the revenue to pay the financing. And lease revenue bonds typically do not have to go to the voters because it's presumed it's a third party to which the lease is and therefore so funded. But this is essentially the General Fund.

The payment of the lease revenue bonds will come out of the state's General Fund, so there isn't any difference in the parties. It's from one pocket to another, which isn't what lease revenue bonds are essentially supposed to be. Do I have that wrong or help me to understand that, whoever wants to answer it?

Drew Soderborg, Legislative Analyst's Office so my understanding is that the way that lease revenue bonds typically work is that the State Public Works Board, the entity that owns the building, and then the Department where the state is sort of paying it back there. It is a bit of a workaround, and I'd be happy to go into more detail and consult with experts in our office to give you more detail and happy to allow the Department to provide any more detail as well.

I'm sorry. I've been talking the entire time without the microphone on. I'm assuming that you heard what I said before. It's assumed to be--with unrelated parties, it makes the revenue source to pay the bond off, obviously disconnected from the state, and that's not the case. And seems to me it's an abuse of the tool and we do it all the time. I think it's become routine and I have concerns about that.

Senator Caballero? All right. Yeah, I think that's always the distinction and the difficulty with that particular structure of financing when you have public ownership and public lease tenants. Makes it a little tough. I understand the proposal and that will also be held open. I think that brings us to Item Issue 37: Office of State Publishing. Welcome. Please proceed. State your name and title for the record, please.

Dhruv Mehta, Assistant Budget Officer, Department of General Services. DGS requests ongoing expenditure authority of 1.3 million from the Service Revolving Fund beginning in fiscal year 23-24 to lease and operate a new warehouse facility located in West Sacramento. As a result of supply chain disruptions due to Covid-19 Pandemic, global unrest, and economic uncertainty, including shipping delays and paper mill closures, the Office of State Publishing adjusted their purchasing model to ensure adequate supplies for continuity of required printing services.

Purchasing greater quantities when they become available in order to mitigate delays required additional warehouse space. This existing warehouse space was not able to safely accommodate the increased inventory levels without fire, life safety, and workplace concerns. This proposal will provide the resources necessary to ensure continuity of required printing services, including the Governor's budget, voter information guide, legislative printing, child support payment forms, the vehicle registration forms, among many other services. With me is Paul Dixon, Chief of Office of State Publishing, to answer any questions you may have.

Thank you very much. Department of Finance?

Natalie Griswold, Department of Finance. Nothing additional to add at this time.

Thank you. LAO?

Jared Sippel with the LAO. For this proposal, we recommend that the Legislature approve the funding for three years as opposed to ongoing as proposed by the Governor. The ongoing need to store an increased supply of printing materials is uncertain, and the Office has the option to terminate the lease after 2025 to 2026. The Administration can then reassess the ongoing need for the warehouse space at that time and submit a request for resources for legislative consideration as part of the 2026-27 budget process if needed.

We would also note that the Department entered into this lease during the 22-23 budget year, but did not notify the Legislature before doing so as it was required to do. This limited the Legislature's oversight because it did not have the opportunity to review and provide input. It's our understanding from the Department that they had originally determined that it was not needed to notify the Legislature for this lease, but subsequently acknowledged that it should have and plans to do so going forward. Thank you.

Thank you. I'll bring it back to the Committee. Senator Caballero.

I appreciate the comments from the LAO's Office, and I agree with them 100 percent. After the fact, 80,000 square feet is a lot, and my concern is that back in the day when we had a delayed budget, there was a need for storing paper because if you didn't have a budget, then you couldn't buy paper during the time that the budget was delayed. That is not happening anymore.

But during the downturn in the economy, when we went into the storage facilities, there was piles of paper, unbelievable amount of white paper stored there because of the need for the printing office. I don't think that's the case anymore, and so I think reviewing it in three years is going to be really important. I agree.

I would add my voice to that comment as well, and thank you very much. That brings us to Issue 38: Office Sustainability, Electric Vehicle Service Equipment, Infrastructure Assessment, and Facility Development. Welcome. Please proceed.

Dhruv Mehta, Department of General Services. This proposal requests one-time General Fund augmentation of 35 million spread over three years to support DGS five year Zero-Emission Vehicle Infrastructure Investment Plan to continue performing installation of electric vehicle service equipments at state-owned and leasing facilities to meet California's clean transportation and greenhouse gas goals.

Thank you very much. Department of Finance.

Courtney Massengale, Department of Finance. After reviewing the LAO's comments on the agenda, the Department of Finance respectfully disagrees with the LAO's proposal to shift this BCP from the General Fund to the ZEV Package. This would result in impacts to other priorities of package programs included in the Governor's budget because it'd require the Administration to shift existing General Fund or Greenhouse Gas Reduction Fund dollars as those are the only two fund sources in the ZEV Package aside from federal funding.

Thank you. To the LAO.

Jared Sippel with the LAO. In light of the General Fund climate, we recommend that the Legislature consider funding the cost for this proposal from the existing Zero-Emissions Vehicle Package rather than as a new General Fund expenditure. As you may be aware, the previous two budgets committed significant funding for programs intended to promote the purchase and use of zero-emission vehicles. Funding for this package is spread across five years through 2025 to 26.

The DGS proposal has merit because it would install additional charging infrastructure at a time that agencies are adding more electric vehicles to their fleet to meet statewide zero-emission vehicle goals. However, it would also commit the state to 35 million dollars in discretionary General Fund expenditures when the state is facing a budget problem.

So given the General Fund condition and the fact that overseeing the state fleet is a core state responsibility, the Legislature may want to consider whether it should instead fund this proposal within the Zero-Emissions Vehicle Package over other activities that are not core responsibilities that are currently included in the package. It would require the Legislature to make some reductions to other programs funded by the package. However, we think that could be justified to enable the state to comply with its zero-emission vehicle requirements and given General Fund constraints. And happy to answer any questions. Thank you.

Thank you.

No additional comments.

All right, we'll bring it to the Committee. Senator Caballero?

Yes, I have a question in regards to the different types of EV charging, one, two, and three, and I guess, is there a price difference between the different charging stations, number one and number two? I'm assuming that we've got interoperability, so it doesn't depend on what kind of vehicle you have. You can pull up and charge it. If it's more complicated than that, please explain.

Dhruv Mehta, Department of General Services. I'll take your question back to our experts at Office of Sustainability, and we'll respond in written response.

Okay. That would be good because I think I agree with the LAO in terms of this particular funding, but the questions become important. I don't understand why we didn't just require that every charging station in the State of California have the ability to charge any vehicle, because the minute we walk down this, it's the same thing as with our phones: all of a sudden, you can't find anywhere to charge your phone because you forgot your cord, and everybody's got a different--if you don't have an iPhone, you're in trouble, right?

Here's my concern. Back in the day, in order to comply with the air quality rules, the federal government required us to buy E85 vehicles, and so we did. The problem was that we never had a mandate that the employees that had an E85 vehicle for work, you actually use the E85 product. And so when we took a look at--and the E85 vehicles cost an extra 5,000 dollars, 5,000 or 10,000 dollars depending on the vehicle in order to have that capacity.

So we did it for the federal government, and then we never used--well, I can't say never--we didn't use the E85 product to meet the air quality standards. And so I'm concerned with us going down a road so far that we have all these charging stations, but the technology changes and none of them are operable on newer vehicles or newer heavy-duty vehicles.

And part of the challenge is we spent a whole heck of a lot of money on the product vehicle, and in the end, I don't think we got the bang for our buck that we needed and I'm concerned with us doing something similar with it. I'm not opposed to EV charging stations, I just think that we've got to make sure that in the rush to move in that direction that we're leaving out other energy-efficient vehicles and some that may be coming in the future.

Thank you, Senator. Any other comments? If not, this item will be held. It'll take us to Issue 39: Procurement Division E-Marketplace Implementation. Thank you. Please proceed when ready.

Dhruv Mehta, Department of General Services. This proposal is for 2.4 million and two possessions, one for DGS IT and one FI$Cal to modernize and improve the vendor customer experience by implementing a statewide online public-facing e-marketplace that will interface with FI$Cal. The 2.4 million as requested breaks down to 2.2 million in expenditure authority from the Service Revolving Fund and 224,000 in reimbursement authority.

Trade buyers will be able to browse and order directly from the approved supplier catalogs online through FI$Cal. This will create a user experience similar to an Amazon's shopping environment. With me is Deputy Director Angela Shell with the Procurement Division to answer any questions you may have.

Thank you very much. Department of Finance.

Natalie Griswold, Department of Finance. No additional comments at this time.

Thank you. LAO?

Jared Sippel with LAO. No comments on this item.

All right, back to the Committee. Senator Caballero?

So will this system eliminate all the paperwork that goes around like this when you're ordering anything?

Angela Shell, Department of General Services. I cannot say that it will get rid of all paper, but this is intended to work with the FI$Cal system so that it will be an electronic means for catalogs to be up on the website. Vendors will have access to those, state buyers will have access to those, and it's about being able to click on the item you want to buy and then it funnels right back through the system so that you don't have to have paper in hand, you don't have to have the contract in front of you, those sorts of things.

That's great. Thank you so much. Appreciate your answer.

Absolutely. Thank you very much. If there's not any further, that'll take us to Issue 40: Procurement Permanent Support for California Pharmaceutical Collaborative.

Dhruv Mehta, Department of General Services. This proposal requests 842,000 from the Service Revolving Fund beginning in fiscal year 23-24 to continue support for four positions previously provided as a limited term BCP--in 2020 BCP--for ongoing workload for statewide pharmaceutical programs, California Pharmaceutical Collaborative. With me is Deputy Director Angela Shell with Procurement Division to answer any questions you may have.

Thank you very much. Department of Finance.

Natalie Griswold, Department of Finance. No additional comments.

LAO?

Jared Sippel with the LAO. We have no comments on this proposal.

All right, to the Committee? Are there expectations for additional participation by local jurisdictions?

Angela Shell, Department of General Services. Yes, we are currently working with additional counties within the State of California as well as the UC system on being able to add pharmaceutical contracts to our program.

Thank you very much. Thank you. That item will be held. Takes us to Issue 41: Procurement Division Support for Small Business and Disabled Veterans Business Enterprises.

Dhruv Mehta, Department of General Services. This proposal requests 320,000 from the Service Revolving Fund and two permanent positions beginning in fiscal year 23-24 to support Small Business and Disabled Veteran Business Enterprise Program to support training, communication, compliance, enforcement, and program abuse function. This proposal is responsive to a few combined recent developments, including implementation of recommendations from the State Auditor and the recently passed legislation. With me is Deputy Director Angela Shell with Procurement Division to answer any questions that you may have.

Thank you very much. Department of Finance.

Courtney Massengale, Department of Finance. Nothing to add.

Thank you. LAO?

Jared Sippel with LAO. We have no comments on this item. Thank you.

I'm going to bring it back to the Committee. There are no comments. This item will be held open. Takes us to Issue 42: Ongoing Support for Diversity and Inclusiveness in State Contracting.

Dhruv Mehta, Department of General Services. This proposal requests ongoing expenditure authority of 3.51 million from the Service Revolving Fund and 21 permanent possession beginning in fiscal year 23-24 for the Office of Small Business and Disabled Veteran Business Enterprise Services and the Statewide Supplier Diversity Program to continue increasing diversity and inclusiveness in state contracting programs across all state departments as well as acquiring learning management system license for the Office of Small Business. This request is an extension of an approved one-time General Fund appropriation in fiscal year 22-23.

Thank you very much. Department of Finance?

Courtney Massengale, Department of Finance. No additional comments.

Thank you. LAO?

Jared Sippel with LAO. No comments on this issue.

All right, thank you. Back to the Committee. Anything on this item will be held. Oh, I'm sorry. Senator Caballero.

Let me just say that this request really concerns me, mostly because I wonder if we've been doing it so wrong that we need 21 new staff members in order to do it right. Yeah, I think that's just my comment and maybe having a discussion with the Department at some point about how the program has been run. I thought it was one of the programs that actually worked pretty well.

But 21 new permanent positions during a time of a budget crisis just kind of really shocks me. So maybe offline discussions would be good. I just need to understand what we haven't been doing that we need 21 people. Yeah, that's it.

Thank you, Senator. Did you want to briefly put comment in the record here?

I can provide some additional information based on the Senator's comments. So we have begun implementing some new programs with the resources we have now, and we're looking to make those resources permanent. And so what we've done is add some training programs for Small Businesses and DVBEs that are much more of a technical assistance program on how to get state contracts and how to be successful in state contracts. That's one thing that we've added.

We're also adding support for the state advocates across state departments in ways in which we have not been charged with doing in the past, and that is based on a survey that we did with those state departments to identify what their needs are.

And then we also implemented a Statewide Supplier Diversity Program within DGS in the last year or year and a half where we are really focusing on not just our certified firms, but our diverse firms across the state as well with respect to state contracting. So I'd just like to add that, and again, I apologize. Angela Shell, Department of General Services.

Thank you. All right, that item will be held. It'll bring us to Item Issue Number 43: Real Estate Services Division Affordable Housing Development Program.

Dhruv Mehta, Department of General Services. This proposal seeks 1.1 million in ongoing expenditure authority from the Property Acquisition Law Money Account beginning in fiscal year 23-24. DGS also seeks approval to create a multiyear operating reserve in this account in order to stabilize revenue to support the ongoing efforts to implement Executive Order N-06-19, which requires DGS to lease excess state property to affordable housing developers to increase the supply of affordable housing. With me is Deputy Director Jason Kenney with Real Estate Services Division to add additional details and address any questions that you may have.

Thank you very much. Department of Finance.

No, go ahead.

Courtney Massengale, Department of Finance. Nothing to add.

Thank you. LAO?

Jared Sippel with LAO. We have no comments on this issue.

All right. Bring it to the Committee for questions or comments. Seeing none, that item will be held as well. Brings us to Issue 44: State Surplus Property, Digital Inventory, Affordable Housing.

Dhruv Mehta, Department of General Services. This proposal requests 516,000 in one-time General Fund authority and one permanent possession in fiscal year 23-24, then stepping down to 316,000 in ongoing expenditure authority from the General Fund starting the following year to implement SB 561 and AB 2233 which codify the Governor's Executive Order N-06-19. With me is Deputy Director Jason Kenney to add additional details and address any questions that you may have.

Sorry, yes. Jason Kenny, Deputy Director for DGS. In this particular proposal, the two bills mentioned codified the search that we did in 2019, where we reviewed 44,000 pieces of state property for housing suitability and access to state apartment needs. That took four plus months and the redirection of about 20 staff from other real estate projects.

This proposal would automate and streamline the vast majority of that search year to year and allow us to reduce the workload and redirect those staff to their existing projects and keep my housing staff working on housing projects.

Minor detail. Thank you for that additional understanding. All right. Comments from DOF--did I ask comments from DOF yet on this?

Natalie Griswold, Department of Finance. No additional comments at this time.

Thank you. LAO?

Jared Sippel with LAO. No comments. Thank you.

Thank you. Back to the Sub. All right. Thank you all very much. That'll conclude those discussion items. We'll now move--that item will be held open. We'll move to public comment. The Committee very much encourages and welcomes public participation in comment. We will provide opportunities for folks present in the hearing room as well as via teleconference.

Again, for participation via teleconference, the number's 877-336-4436. Your access code is 7252315. We'll start with anyone present in the hearing room who'd like to provide comment. If so, please come forward. State your name for the record and your time will be limited to one minute. Welcome.

Is this on?

Let's make sure the mic is on there.

Thank you, Mr. Chair and Senators. Rosanna Carvacho Elliot, here on behalf of Universal Hydrogen. Universal Hydrogen--in support of Issue 22, excuse me. Universal Hydrogen is a California-based company that is working to decarbonize aviation here in California and obviously around the country. Universal Hydrogen is on track to do so and begin this transition in 2025. They had a successful test flight earlier this year.

Universal Hydrogen was also able to join GO-Biz in Japan at the Trade Mission in March and saw firsthand the opportunities that this created for them to meet with foreign companies and government officials, which, as you can imagine, is critical for a startup like Universal Hydrogen. So for these reasons, Universal Hydrogen wants to express support for GO-Biz, international affairs, and trade staff, additional staffing and funding, and request your support for Issue 22. Thank you.

Thank you. Is there anyone else present in the hearing room who'd like to provide comment? If not, we'll move to the teleconference lines and ask the moderator to queue it up and advise if there are any folks in the queue.

Thank you, Mr. Chair. Ladies and gentlemen on phone lines, if you wish to make public comment, please press one followed by zero at this time. One followed by zero. If you would like to take this opportunity, we'll give one more final reminder: one followed by zero if you would like to make public comment on today's agenda. Mr. Chair, nobody is queuing up.

All right. Thank you for your help, Moderator. That'll move us then. If you'd like to provide comment, and if witnessed the hearing didn't have a chance to participate, you can submit comments in writing to Committee staff. Thank you all for your participation. That'll take us to the items for vote-only, and we will begin with the first group of issues, which will be Issues Three, Eight, Nine, 12, 13, 14, 16, 18, 19, and I'll entertain a motion. All right, the item has been moved. Facilitator, please call the roll.

[Roll Call].

Thank you. Those items are out. The ayes are three; the noes are zero. That'll take us to the second grouping of items, which will be Issues One, Two, Four, Five, Six, Seven, Ten, 11, 15, and 17. I'll entertain a motion. Senator Caballero has moved the items. Discussion? Facilitator, please call the roll.

[Roll Call].

All right. Thank you. The ayes are two; the noes are one. Those items are also out. Thanks, everyone, for your participation and your work. Appreciate your cooperation through this process. This Subcommittee stands adjourned.