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

Today's number is 877-226-8163 and the access code is 718778. So always, we'll maintain decorum during the hearing. Anyone participating, either in person or remotely, who is disruptive may be asked to leave or have their connections muted. We're holding the Committee hearing in room 113. We do not yet have a quorum, but we will proceed to presentation information. We'll take up items for discussion beginning with issue number 18. Franchise application and complaint workload. Department of Financial Protection and Innovation. How's the audio? Better. Please proceed whenever you're prepared.

Good afternoon, Mr. Chairman and Members. My name is Sophia Smith and I am the deputy Commissioner of Administration at the Department of Financial Protection and Innovation. With me today are Sheila Oliver, Deputy Commissioner of Escrow and Mortgage Lending Colleen Monahan, acting Deputy Commissioner of Legal George Gaboric, chief of our Information Technology Office and Nicole Hisatomi, Deputy Commissioner of Legislation. In regards to the franchise application and complaint workload, BCP AB 676.

A 2022 Bill by Assemblymember Holden gives the Department an expanded role to stop illegal franchises, oversee franchise transfers, and regulate a broader scope of franchise offers and sales. The department's applications, complaints and enforcement workloads will increase. DFPI has two drivers of new workloads in this program. DFPI currently receives over 2000 applications annually and as a result of this new law, three to 5% will require further investigation, and DFPI anticipates 25 to 50 additional franchise registration applications annually.

With $1.3 million ongoing funds and five positions, the Department will ensure franchise applications are reviewed by the deadline, ensure complaints are reviewed for compliance under the new law, and conduct investigations and take enforcement actions based on the new law. With me today is Colleen Monahan, and if you have any additional questions, we'd be able to answer.

Thank you very much. And prior to that, we're joined by the distinguished Senator Niello. So let's establish a quorum.

[Roll Call]

Thank you. Do we have any additional testimony. Welcome.

No, I'm here to answer questions if you have any.

All right, I'll bring it back to the Subcommitee. Other questions for Members. The chair has no questions on this item. Right. This item will be held open. It'll bring us to Department of Alcoholic Beverage Control issue number 19, administrative support for evolving program operations. Thank you.

Good morning and welcome. Please proceed when you're morning.

Good morning, Mr. Chairman, Members of the Committee, my name is Eric Hirata. I'm the Director for the Department of Alcoholic Beverage Control. With me here today is Randy Deems, chief of Administration for ABC. Thank you for the opportunity to provide an overview of our proposal today. The proposal before you has two major components. First, it requests 19 positions to provide administrative support to ABC's actively evolving program operations.

Secondly, it includes a request to transfer the balance of funds from the licensed renewal fee waiver program, which ended last month, directly into the ABC Fund. Under this proposal, the transfer of unused General Fund to the ABC Fund would occur over a three year period, and it would keep the ABC Fund solvent in the short term. First, regarding the proposal for positions, this proposal is rooted in the commitment to continuing the major positive changes currently in motion at ABC.

These changes stem primarily from our information technology project called Business Modernization RBS Project, as well as a program performance improvement initiative. Both of these projects were initiated four years ago under the 201920 Budget act. We've made tremendous progress on modernizing our technology and enhancing online services for our stakeholders. Most notably, we created seven different online portals for several of our key programs, and we're working on final piece of our project by developing online services for businesses to be able to file their applications online.

The industry and other stakeholders have been waiting for a long time for these online services, and they're pleased with the positive momentum, as illustrated in a recently conducted survey of our stakeholders. Since having multiple online services in different hosting environments, increased security risks for Department ABC is requesting positions under this proposal to help ensure information security in these new environments, as well as to protect cyber threats from entering our workforce in the telework space.

The Department is also making progress improving services in our licensing and enforcement programs under the Performance Improvement Initiative, and under this proposal, we're requesting positions that will provide it support in building a reliable, remote, digital based workforce for licensing representatives and agents as they're out in the field conducting licensing and compliance checks.

Lastly, the Department has made progress with this community engagement efforts, and under this proposal, the Department is requesting a position that will help evaluate our community engagement as well as our programs, policy and regulations through the lens of economic and demographic equity. In summary, there has been a lot of positive momentum at ABC. There's still work to be done, and the addition of these 19 positions will help us address information security risks in our rapidly growing online presence.

It'll provide it support as we adapt to the remote, digitally workforce rather than the pre pandemic, paper based, office centered workforce, and it will provide program growth in the areas of community outreach, public affairs and communications. Secondly, regarding the proposal for funding, ABC entered the Covid-19 pandemic with a Reserve of about 8 million in the ABC Fund. But the pandemic disrupted our licensing revenue and this disruption proved to be more than the Fund could handle.

Unfortunately, the pandemic had a significant impact on the restaurant and hospitality industry and on thousands of ABC licensees. The pandemic also prevented the allowance of special events. Therefore, thousands of daily licenses and catering permits were not able to be issued throughout the state for nearly two years. Collectively, this totaled a $26.2 million loss of anticipated Department revenue in the years 201922,021.

In attempt to address the shortfall, the Department reduced expenditures wherever possible, such as reducing our grant program to local law enforcement by half each year since the pandemic began. The typical approach resolving this Fund balance issue would be to propose trailer Bill Language to increase license fees to sufficiently cover this impact. However, in this particular case, the disruption in licensing revenues is due to the industry being significantly impacted by the pandemic.

Rather than placing additional cost pressures on licensees that manage to financially survive the pandemic, the Department is proposing that the unused funds from the fee waiver program be transferred into the ABC Fund over a three year period, thereby ensuring its solvency. In doing so, it would be consistent with the intent of the fee waiver program and support the licensed businesses it was created for. This would allow the original plan for the funding of our program improvements to get back on track.

This concludes my overview of the proposal. We could answer any questions you may have, or we could speak further and present summaries of the positive changes this proposal would continue to bring. We're also prepared to present any specific components of the expenditure side of the proposal, as well as details of the ABC Fund. Thank you.

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

Thank you, Mr. Chair and Senators, I'm Jared Sippel with the LAO. So regarding this proposal, we recommend that the Legislature reject the proposed positions and the General Fund transfer. We arrived at this recommendation really based on two key points. The first is that the ABC Fund is currently imbalanced, and so the expenditures out of the Fund are exceeding the revenues into the Fund.

And so while we believe that the proposed positions do have merit, the increase in expenditures to support these proposed positions would cause the Fund to be insolvent. And so, given this current condition and the fact that there are certain unknowns right now around certain expenditures, such as employee compensation increases, we're hesitant that that could swing the Fund further into balance, imbalance and insolvency.

And we think increasing expenditures for these proposed positions should be reserved for those that are filling kind of a critical, immediate need to maintain existing service and program levels. And in our view, we find that the proposed expenditures do not rise to that level at this time.

And then the second point we'd like to just make is that to support the proposed expenditures and the positions for the expenditures, and to stabilize the Fund in light of some of this uncertainty, the Department is proposing to transfer $48.5 million in unspent General Fund to the ABC Fund. So these unspent funds would otherwise revert to the General Fund at the end of the fiscal year. And so, effectively, we are viewing these as kind of a new General Fund expenditure.

And as you all are aware, the state is facing a budget problem, and so new General Fund expenditures are coming at the expense of other legislative priorities, whether those be to buy down the current budget problem or to Fund other priorities that are slated to be reduced. And so, for these reasons, we would recommend rejecting the proposed positions and the transfer.

We think it's important in the near term to make sure that we keep the ABC funds expenditures lower and so we can get better clarity around what ongoing revenues and expenditures will be in the future. And then at that time, we could consider a proposal, or the Legislature could consider a proposal like this.

At that time, I do want to acknowledge and set that aside, that we acknowledge that the ABC Fund could face insolvency even without these proposed positions, and that specifically, if certain revenue projections don't hold, or again, if certain expenditures are higher than anticipated, such as the employee compensation, the ABC Fund may need near term support.

So in the event that that happens, and to address this issue, we would also recommend that the Legislature consider adopting provisional language that would authorize a General Fund loan in the event that this support is needed to keep the ABC Fund solvent, the Legislature could work with the Department to determine what an appropriate size and payback period would be for the loan for the 23-24 period. And I'll pause there, and I'm happy to answer any questions you may have. Thank you.

Do we have any recent data set that seems to indicate a return to anything resembling the normal trend in renewal applications in terms of the primary revenue source in the Department?

I could probably speak to that. Questions about future revenue stream?

Yeah. In the last cycle, have we seen somewhat of what is the current trend in terms of applications for renewals, of licenses that exist and new applications?

Yeah. So we have been watching this very closely since the pandemic began. As the Director mentioned, we went into the pandemic with a fairly Low Fund balance. So what we saw immediately was that applications dropped to under 50% of their normal level. So we're looking at kind of 2019 as sort of our baseline application volume. As far as applications, which includes everything from new to transfer licenses, that volume dropped to under 50%.

And then as things started to open back up, we saw volumes cash back up to a bit of normal, maybe even slightly a bit of normal. That's likely some pent up demand for people's business model they thought could work right where they had put off and then accelerated. It has since then decreased a little bit and leveled off. The complicated thing about our licenses and the application volume as it relates to what the overall volume is going to be is that there's transfers involved here.

So many of our licenses hold value on a secondary market, and so even if someone goes out of business, they may hold on to that license because it has value and they may be selling it later. So it's a little difficult to tell just from one side of the equation exactly what's going to happen as far as the overall volume of licenses in the future, based on just on applications, we have to know what other things are going on in the industry as well.

Overall, the other key component that went to zero for almost two years is those permits for daily events, whether they're nonprofit fundraisers, weddings, caterings, up to, like, Coachella, music festivals, all that revenue went absolutely away. It was gone. That has recovered to at highest, we've seen about 70% of 2019 levels. We're assuming in our projections here that it'll recover to 80%, but we're hesitant to go further given it just hasn't recovered the way that we thought it would.

Overall, our license volume, our licensee total population, the lowest level it got, was about 1.5% from its peak, so it dropped about 1.5%. But our typical growth is about one to 1.5% every year. So there's now a gap because there's two years where there wasn't growth. There's probably a gap of about 4% between what we anticipate as revenue from renewals and what we're actually getting right now. We are, though, seeing a volume increase in our licensees, which is a positive.

Would it be accurate or inaccurate to suggest that there might need to be a reevaluation of the fundamental revenue structure for the agency, given some of the more permanent shifts in the industry and in the market for the industry, the nature of the industry, or would that be premature or inaccurate to characterize it.

That way at this point? I would think that that is premature. That would be my gut instinct. I think one of our major adjustments is that daily, which is maybe it's operating differently. In 201920 we did a massive overhaul of our fee structure. So those fees at that time were the same as they were in many cases, 1968 and other cases 1983.

What we did at that time is that we took the approach of looking at what it actually cost to process an application, the investigation involved, and set the fees based on that. So that principle still holds water. So the question would be whether or not the rest of our program, enforcement, compliance, education, which is funded primarily through our renewals, is in balance. So the increase is a way to adjust to meet these needs. But when we're looking at the numbers, it really is this Covid?

Hit that we experience that is causing the disruption and causing it so that our ongoing program, including these improvements, can't be funded by that original plan that we put in in 1920. So the General Fund allows us to bridge the gap, allows us not to pass on that Covid? Hit that we took to our revenues because the industry was taking a hit. We don't have to pass that to them. Again, another Covid? Hit in the form of increase.

Thank you.

From Members of the Committee. Senator Caballero.

All right.

Thank you very much. Appreciate the presentation here today. I guess I look at this and I say the recommendation is to hold it open, and I assume it will be held open, but you're asking for 16 positions. And the justification for those positions is the need, well, increased administrative support and licensing, enforcement and education. But the big one is it's the modernization and the ability of employees to telework.

And so one of the things that's really important to me is that we look at what's the cost to do telework from a real practical perspective. The work information has to be protected, which means that the state should own the equipment that they're working on and they shouldn't be using their own equipment if they're going to be doing work that has data on it, that is people's personal data, licensing those kinds of things.

But also are the savings that you don't have to rent space and you're giving someone a computer to be able to take it and then can monitor the work product to make sure that it's getting done. Or is it more cost efficient to just keep people working in an office where they can access information? I mean, I've done both, right? And frankly, I get way more done in the office than with all the distractions of being home. But I'm not saying that's true of everybody.

I'm just saying that if we're going to move to this model, that I don't think that if it costs more to telework from home, whatever we're calling it, I don't think it's fair to put that on the licensees. All the revenue that you use is license revenue. And as I see, the work that we've done over the past number of years is we've made it easier to less complicated in terms of different rules for different license holders. Right.

So to me, the process has gotten a little bit easier to manage from my perspective, but I could be wrong. So I guess I'm just struggling with getting looking. The Lao said, no, you probably need these positions. And then they gave their reason. I just have a real question about whether we need 16 positions this year and then 19 positions next year when the Fund is out of balance or will be taking this action that you request would put it more at risk.

And we're in this stage where we're trying to figure out are all of the licenses coming back? And I can tell you from my calls, I get calls from people all the time looking for licenses. So I don't see a diminution of people asking for licenses. As a matter of fact, I see people that want more licenses because people like to drink. I was going to make a complicated sentence, but the bottom line is people like to drink.

When you go out and have dinner, you want to be able to have a drink. So I'm wondering if you can address the issues of the increased workload. I just have some real concerns about that.

Understood. And the cost and benefit of telework is a complicated equation I won't be able to solve for you right now. However, I do want to clarify that there are only two or three positions in this proposal that are really supporting the infrastructure of moving to technology that can support a more remote workforce. Right. And so that's not the majority of this. So, for instance, our information security, there is some telework complication that gets into that workload.

But the vast majority of that information security workload is driven by the fact that we went from being a Department that had no public facing applications, other than a website, to one that has six public facing applications, including things that the industry has long asked for, like the ability to do an application online.

Previously, they walked in, they filled out our forms, they walked in, we took it from them, we put it into our licensing system, so that, and then the RBS system, which has grown our user base by hundreds of thousands of people, those have complicated our technology environment. So now we have applications hosted in the cloud, at the data center. It's a much more complicated environment than we had five years ago. That's what these positions are primarily for. Some of these other positions are for equity improving.

We're pushing our programs forward. We're really trying to revamp and take advantage of the additional capacity that the 1920 proposal got us as far as sworn management in district offices. And so we have the public affairs and equity position really trying to help those sworn managers in districts throughout the state deliver a program that is mindful of equity and community engagement. That's what we're trying to move for.

But to get back to your point about the efficiency of telework, one other point that I want to make is that a lot of our staff work in the field, right? They're going out to licensees to look at the premises, to do investigations, as well as agents in the field. Right? So that's a little different than if we had a large headquarters with everyone there and then teleworking. Right.

So there is some efficiency from them being able to work from home, travel to their sites and back, rather than having to come into an office and then travel somewhere. So we see some value. The biggest value that we have captured already is going to online hearings where rather than sending agents, licensing representatives, aljs and attorneys traveling off somewhere and then have a case settle right before it starts. It's a huge efficiency. That teleworked and online approach has really helped.

Very good. Well, we can continue to have some of these conversations. It seems to me that with those efficiencies, I guess the question I have is, in terms of the tech people, whether those are temporary to set up the system or whether it's ongoing, that needs, because everybody keeps replicating them within their own departments. Right.

And what we were trying to do at 1.0 is have the Department of Technology have that ability to come in and to help departments, rather than having every Department having their own staff that know their system but nothing else about the rest. And so it sounds like something that's going to be held open. But I appreciate what you're saying, and I appreciate the changes that are coming that we have to be able to adjust to.

Mr. Chair, I have a few comments. Amy Asencio with the Department of Finance in an effort to provide economic relief to licensees hardest hit by the Covid-19 pandemic, such as restaurants, bars, and other specialized licensees, ABC was authorized to waive license renewal fees from March 2021 through February 2023. $93 million in General Fund was appropriated to ABC to backfill the ABC Fund to offset the estimated total revenue loss from the two year fee waiver program.

At the conclusion of the fee waiver program, 48.5 million is estimated to remain of the original appropriation. This Governor's Budget proposal aligns with the original intent of the fee waiver program by avoiding a significant fee increase to an industry already recovering from the economic impacts of the Covid-19 pandemic through the transfer of the remaining General Fund backfill of 48.5 million to the ABC Fund.

This transfer will help to help the Department to become solvent when it has faced over $26 million in revenue loss between 1922,021. The Department could not have predicted this loss, and it will allow ABC to continue its program improvement and modernization efforts.

The proposed plan to phase in $48.5 million of General Fund transfer through 2526 will have the benefit of allowing for reassessment of the level of need for resources in future years, as well as it will allow ABC to avoid a fee increase that would otherwise put the burden of the revenue loss back onto the licensees who are already facing an economic uncertainty.

Planning for a fee increase now would be increasingly difficult as there are those uncertain costs, ongoing costs, including the employee compensation increases that have not yet been negotiated. This will make it difficult to determine what the fee increase should be. To address this suggestion to authorize a General Fund loan to keep the ABC Fund solvent, I would note that a loan would still need to be recovered through fee increases.

The loan would create pressure on future fees and would require licensees to pay again for the revenue loss that the ABC Fund faced as a result of the pandemic. In contrast, the General Fund transfer would avoid the need for a statutory fee increase in the foreseeable future. The ABC's 1920 modernization proposal was a positive turning point for the Department, and it affected every program area. The continued success of these proposals, including the responsible beverage service program.

ABC needs to maintain its existing services and program levels, and that largely depends on the positions requested in this proposal. ABC is still a largely paper based Department, and these it positions are crucial to the deployment of new tools such as tablets for field agents, and web based support is essential for updating and serving consumers and licensees. The responsible Beverage service program has enabled ABC to focus on community outreach and communication.

Positions in this proposal are necessary for ABC to engage with consumers and the hundreds of thousands of alcohol servers to keep them informed about the current laws and regulations. Thank you, and I'm happy to answer any questions.

Thanks to the Department for your Comment, and I apologize to my colleagues. I overlooked the Department a couple of times already this morning. The caffeine has not kicked in yet. So with that, we'll come back to Senator Niello.

One specific question. How many employees does ABC currently have?

Roughly. 520.

Okay. And an interesting point of context is that prior to our proposal, in 2019-20 ABC was the same size as it was in 1955 when it was established.

520 in 1955, 520 Now.

520. Now. We've added about 60-70 positions in our big change effort over the last four years. Okay.

Aside from assistance from the General Fund, which are going to be loans, as I understand it. And so therefore, the insidious thing about loans is you got to pay them back. So allowing for that, I'm not sure that I understand your long term plan for ongoing sustainable solvency for the agency.

Yeah. So I can walk you through this. So the General Fund proposal is a transfer so that it would not be paid back. That is what we're proposing. The LAO is suggesting potentially a loan, a much smaller one. So what we're looking at is that we put together a plan four years ago at this big inflection point where we're trying to push forward these positive changes. That overhaul of the fee structure increased our revenue by about 30%. And the idea was to get the revenues. Yes.

Right. Because Covid happened just six months later. Right. So that disrupted our plan, but that is the original plan, that we revamped the structure and then increased overall revenues by 30%, and that that revenue stream would roughly match what the expenditures were, and then they would grow together. The revenues would grow because we get volume growth, but. And then we also have the authority to increase fees annually through an administrative process.

We provide notification to the Legislature, and then we can increase fees annually by the consumer price index. So between CPI and growth, our projection is that we can catch up when there is a discrepancy between revenues and expenditures. And so that's part of what's going on here.

The other big part of what's going on here is that there are some one time costs that are happening next year and budget year plus one, that are things that we restructured and moved to these years as we are trying to get through this Covid period. And so there is a bit of a bump in the next two fiscal years that a one time infusion of General Fund money to address takes care of.

And that's part of the complication that finance mentioned about how do you size a fee increase to address this issue is that we have this one time bump we have to get over. So if we have to do that through a fee increase, we'd have to shoot high. And then arguably in the future, we could forego CPI increases to make up. But having to overestimate upfront right now at this point in time, given the industry, doesn't seem like the best option for us.

So as you discussed when I indicated, you anticipated what would happen, you couldn't anticipate the pandemic, which has upset everything. And even as it's transitioned to an endemic and things in the marketplace returning to a normal, whatever that normal is. It might not be what was normal a couple of years ago, but based upon what you've said, if your anticipated projections at this point don't pan out, your plan B is to increase rates. Do I conclude that correctly?

That would be the typical approach, yeah. Okay.

Thank you, Senator. All right. If there are no further questions, this item will be held open and it'll take us to the next issue, which is issue number 20 under the FPPC political reform Education program. And welcome. Please proceed when you're prepared.

Thank you and good morning. My name is Lindsey Nakano. I'm senior legislative counsel with the FPPC. With me today is Galina west.

Can you move the mic just a little bit closer?

Yes, I can. Thank you again. Lindsay Nicano, senior legislative counsel with the FPPC. With me today is Glena west, our Executive Director. For background on this item, the political Reform act governs governmental ethics, including in the areas of campaign finance, conflicts of interest, lobbying disclosure, post governmental employment and gifts.

The act grants the Commission broad authority to administer and implement the act and the responsibility to educate officials on their duties and to enforce the act as part of its duty to educate the FPPC has developed various programs, materials and resources to help officials comply with their duties, including in person and online trainings, detailed campaign manuals, fact sheets, and other educational materials, as well as email and phone advice services.

As part of its duty to enforce the act, the FPPC has also developed various internal programs and procedures for managing an increasingly complex and high volume caseload. To continue to improve the Commission's work in educating officials and in enforcement of the act, the Commission launched a pilot program known as the Political Reform Education Program, or PREP.

The program combines the officials, excuse me, the Commission's duties to enforce and educate by offering a training and education option in lieu of an enforcement action and monetary penalties for individuals who commit lower harm violations and have less experience with the political Reform act. In its current limited pilot program form, the program includes one course on statements of economic interests. The program so far has been very successful. Since June of last year, 51 individuals have completed the program and 16 are currently enrolled.

This budget request is for 455,000 in the fiscal year 23-24 and 421,000 in subsequent budget years. This would include three positions which would enable the Commission to expand the program to additional subjects. Thank you. I'm available for any questions.

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

Department of Finance. No comments at this time.

Thank you from LAO all right, we'll bring it back. On the enforcement side, volume caseload what kind of percentage of total known violations and remedies for these violations are we talking about? That would be referred to education program. What percentage does it represent of your total enforcement workload?

I don't have a percentage, but it's about 100 to 200 cases per year.

All right. Thank you. Questions from Members? No, they indicated no. Senator Caballero.

So, as I understand the request, it's three positions for the education program, essentially?

Correct.

And so are these three permanent positions?

Yes, they would be three permanent positions for this particular program to allow it to expand to other subjects beyond the current pilot stage.

But I'm assuming they're full-time employment?

Yes.

And so how many programs will you have? I think it's a great idea, and I really like the idea that rather than a fine of $100 or something that's fairly minimal, that people take a program that teaches them what their violation was and how to overcome it. I'm just wondering at the need for full-time employees once the programs have been created. If there are 100 to 200 people taking the class, it's not thousands, which is a blessing, which is a good thing, but it doesn't seem like the workload would support it.

The number of courses, we're looking at about 8 to 10. So this covers campaigns, visa payments, lobbying, late filer, late reporter, advertising, mass mailing. So there's a number of courses. And what it would include beyond just the normal day-to-day operations is developing those courses and keeping them updated. So every year there would be updates depending on statutory or regulatory changes. So it includes, I think, both components of the day-to-day operations, helping individuals through the program as well as making sure the materials are updated and accurate.

And I'd like to add something. Galena West. The other things that we anticipate is as the enforcement division gets more used to making the referrals, it'll be a quicker process as opposed to the numbers that we have are based on enforcement cases that occurred. So we do anticipate the numbers going up of participants as they get transferred over to the program as opposed to being in enforcement because they're more of the lower priority cases. So sometimes they don't get the attention that they need right away, and then this is a way to expedite those. So we do anticipate the numbers going up.

Yeah, I guess I don't have any opposition to it. Three full-time employees seems like it's not enough work for them, but maybe we can get a report afterward, as things progress, as the programs progress, get an idea of what you're seeing and whether it makes sense or not. And I don't mean to denigrate education programs. They do take time, and there's a whole lot involved in it. But once you get it set up, it should move fairly smoothly. So thank you. I appreciate that.

Thank you, Senator Caballero. Senator Niello.

Thank you, Mr. Chair. Not a question, it's a comment. As I returned to the Legislature after a brief 12 year absence, one of the exercises I was not looking forward to was filling out form 700 forms. I'm sure that you can appreciate that, but it's not because of the FPPC. I have found your organization always to be helpful and very reasonable. And at times when I made mistakes, it was politely pointed out without any particular fanfare. And the help is very good.

So I compliment you for that. But particularly, on this particular recommendation, I can't support it because it's an additional feature to what you're doing, which I would classify as a nice to have but not necessarily a need to have in the context of a very challenged general fund and perhaps becoming more challenged. So there's just going to have to be areas where we do not grant augmentations. And in my opinion, this is one of them.

Can I make one pitch to you?

Sure.

So we feel that it's a need to have, not because it's an educational program and it's a great thing and it's going to really help a lot of people, but because one thing that the Commission has identified is that the need to change the way that we handle enforcement cases, because, as you know, the enforcement workload has gone up exponentially over the past 10 years. The number of referrals has almost tripled and the number of complaints steadily gets higher in election years.

So the thing that the Commission is really focused on right now is finding new ways to handle enforcement cases that expedite that. And I would say that that is a need because that's what causes integrity in elections and in our public officials and has the great side effect of letting enforcement focus on the serious violations. And that's really what everybody wants enforcement to do. So for us, we see it as a need because this is the way that we're going to use our resources the best way possible in order to address an issue that we've identified.

I appreciate that and I fully understand it. And I wouldn't debate the points that you made. I would go back to the issue of a challenged budget.

Thank you, Senator. The Committee will return to this item after public comment. Thank you. That'll move us on to issue item number 21, Privacy Protection Agency, consumer privacy implementation. Good morning and welcome. Please proceed when you're prepared.

Good morning. Chair Padilla and members of this subcommitee. My name is Ashkan Soltani. I'm the Executive Director of the California Privacy Protection Agency. Here with me is my Deputy Director of Policy and Legislation, Maureen Mahoney, and Deputy Director of Administration, Von Chitambira. We're also joined by members of LAO and DOF. Our agency's mission is to protect the privacy of Californians. We're tasked with the implementation and enforcement of the nation's first comprehensive consumer privacy law, the California Consumer Privacy Act.

This is the agency's second time appearing before this Committee, first time in-person. By way of background, the agency was created in 2021 after California voters voted to approve Proposition 24, the CPRA, which amends and extends the CCPA of 2018. The CCPA, as amended, gives California consumers the right to access, delete, correct, and stop the sale of personal information, among other protections. The CCPA does not apply to all businesses.

It protects California consumers by imposing obligations on certain businesses that specifically have over $25 million in gross annual revenues. Sellers share personal information of 100,000 or more Californians, this was increased from 50,000 from the previous year, or derive 50% or more of their annual revenue from the sale or sharing of personal information. The statute appropriates from the general fund $10 million each year for expenditures to support the operations of the agency.

The agency is governed by a five-member board that consists of experts in privacy, technology, and consumer rights, and those members are appointed by the Governor, the Legislature, and the Attorney General. Our agency has three key responsibilities, issuing regulations and furtherance of the CCPA, enforcement of the CCPA through administrative enforcement actions, which begins on July 1 of this year and we share that enforcement authority with the Department of Justice, and finally promoting public awareness of consumers rights and businesses responsibilities under the CCPA.

I'd like to highlight three accomplishments by our agency since I last appeared before this subcommitee. One, staffing. From approximately two members when we appeared here last at the beginning of 2022, to nearly two dozen now, which is about half of our expected complement under our existing appropriation. Two, development and filing of our first substantive rule-making package with the Office of Administrative Law. And three, our first public awareness campaign. I'll touch on each in detail.

Hiring. So the CCPA has been expanding significantly since 22-23. I was brought on as the agency's Executive Director and first employee in October of 2021, and we've since grown to over two dozen full-time and temporary staff by October 2022 of this year. Filling CEA level positions and executive team has been the agency's priority, and the agency hired a Deputy Director of Administration, a general counsel, a Deputy of Policy and Legislation, and most recently, a Chief Information Officer this fiscal year.

Our focus now is on hiring our Public Affairs Deputy, and importantly, the Chief of Enforcement so that they can begin being involved in hiring their own staff. We're actually in the process of interviewing for those candidates at the moment. In addition, on our rule-making, on February 14 of this year, the agency filed its first substantive rule-making package with the Office of Administrative Law, which now has 30 business days to review.

The agency is grateful for strong public response pursuant to our rule-making and the many views shared with us during that process. In addition, on February 10, the CPPA also issued an invitation for preliminary comments on our proposed rule-making on the topics of cybersecurity audits, privacy risk assessments, and automated decision-making, and we'll be receiving preliminary comments until Monday, March 27. Lastly, our statute also directs our agency to promote public awareness of consumers rights and businesses obligations under the law.

The agency embarked on its first initial public awareness and consumer education campaigns last year. This consisted of a mixed terrestrial radio and streaming audio campaign in two languages designed to raise awareness about the agency's mission and to encourage participation in our rule-making. We've also been continuing updating our educational materials about consumers rights and businesses obligations on our website. Lastly, on to the budget request.

In our 23-24 BCP, we request seven positions for 23-24 and ongoing to provide additional staff resources necessary to allow the agency to develop its enforcement and information technology divisions, pursuant to our statutory responsibilities. The agency has requested five positions for enforcement activities which will require expert staff that can understand, interpret, and respond to a constantly changing business, technical and social environment. And with respect to it staff, the agency has requested two positions.

These will provide for specialized IT resources to support the enforcement, but also the consumer complaints function that we're tasked with. The resources requested in our BCP will allow the agency to permanently hire for key functions necessary to fulfill our mission to protect California consumers using our existing appropriation of $10 million from the general fund. Thank you for your time and I look forward to your questions.

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

Andrew Hong, Department of Finance. No additional comments.

Thank you. Comments from LAO? All right, we'll bring it to the Subcommitee. Obviously a newly minted agency with an important, unique mission that's played a leading role here and across the nation. Congratulations on the work you're about to do and continue to be doing. And obviously a lot of attention on matters that, depending on your position, may or may not be something that the agency can address that are pressing and important. First and foremost, can you comment on the agency's jurisdiction regarding content on social media websites and applications? And following that, I have a couple more questions.

Thank you for that question. Indeed, harms emerging from social media are an important issue. Much of the social media ecosystem functions on the use of personal data, and these protections in the law will allow consumers greater transparency and control of their personal data as well as impose data minimization requirements on businesses that handle social data. So we believe that these protections will help improve mitigate some of the harms.

However, our statute does not address the regulation of content and may not be appropriate for taking down inappropriate content, and so there are gaps with the law and the use of social media.

Your testimony is basically that there are areas in the enabling statute that don't address it directly, but they don't specifically preclude or exclude either. Would that be accurate?

All right. With respect to the elements in the stand up budget that deal with investigations per se, the statute does allow you to initiate, not just respond to investigative requests, as I understand it. What do we anticipate in terms of the quantity of major investigations and what kind of capacity in the investigative budget? What kind of investigative capacity does that give the agency quantitatively?

That is accurate.

That's a great question. So in terms of our investigative capacity or enforcement capacity, the statute does allow us to initiate investigations in response to either consumer complaints or research that we do in house. Just as background, I'm a technologist. I'm not a lawyer. I was previously the Chief Technologist of the Federal Trade Commission, where I built the kind of Office of Technology, Research and Investigation where we helped initiate. I worked on some of the biggest investigations with that agency.

We've modeled our enforcement team after what we've seen other state agencies, sister agencies, do with their initial staffing once they've been granted new enforcement authorities. This is agencies like the Department of Justice when they came into enforcing the CCPA of 2018, as well as other agencies like DFPI and similar organizations. Because we have not yet begun enforcement, we don't have metrics yet on what our enforcement capacity will be.

But we anticipate and we plan to implement strong metrics in terms of workload analysis to understand what our enforcement capacities can be, as well as take direction from the board, as we've not yet received that guidance on what our enforcement priorities should be.

It's interesting because to the degree that the agency may decide to self-initiate investigative scope in areas that may go to content or as it addresses consumer protection. There's going to be a big dialogue around that, both in this building and the building in Washington, DC, as you well know. In thinking about that, and it may be a little premature, we have examples on the federal level where FTC went after Facebook.

There was a record assessment there, I think in the billions of dollars, $5 billion, and there was some sort of post mortem about the fact that looking at the structure of that assessment authority at the federal level, even as much larger than the kind of assessment authority we have here in this agency that you're starting out, which I think are $2,500 per violation, up to 7,500 if it involves children.

In terms of the content, there was a lot of conversation at that level that it was just cost of doing business because of the scope and size of the budget of the entity involved and it was simply absorbed, never mind recouping any element or any portion of the costs involved in actually exercising the enforcement. How are we looking at that in your agency? I know that we're just getting started, but are we already thinking about revisiting that structure?

If we end up in a scenario where the agency is undertaking protection enforcement with these very low sort of assessment parameters, I wonder what our thinking will be in the future about whether it just gets absorbed by the alleged violating entity and whether it's even sufficient to recover a percentage of costs. Can you kind of address that question?

That is a great question. I do recognize that a number of the players in the industry we're regulating are the size of nation states, and therefore we'll have resources that go beyond our agency. As I said, the board have not expressed their enforcement priorities, and so I'm not yet prepared to speak on how they intend to address this. I do envision that guidance from the board and the Legislature will be crucial in helping identify kind of the scale and topics that we address as an agency under our law.

I will also add that in addition to the privacy protections, the statute does require businesses to provide meaningful information with regards to how automated decisions are made, as well as how consumers can effectuate or object, essentially opt out of automated decision-making. And that's an area that we've, as I mentioned, invited comment to. It's a very complicated area, but it touches algorithmic targeting, newsfeed ranking.

It touches a number of areas that I think overlap with some of the concerns and harms with regards to discrimination, as well as some of the other harms that occur in social media, so we look forward to our rule-making in that area and feedback, and then ultimately how we approach enforcement will be really guided by the board and the direction of the public.

Thank you for that. To the Subcommitee, are there questions?

To the issue of enforcement. How do you delineate the enforcement responsibilities between your agency and the Attorney General? And what are either or both of you doing to avoid duplicative work?

That's a great question. So we have administrative enforcement of just our act, of the CCPA, and we share that authority with the DOJ, has civil enforcement over the act, as well as quite a broad mandate of other privacy laws and general UCL protections. We are in close contact. In a past life, I worked for former Attorney General Harris, and I'm quite close with that office. We intend to work closely and we do plan to coordinate. Both agencies have, per chair Padilla's comments, have limited resources.

And so we expect to coordinate closely and make sure that we are not, for example, misusing resources or looking at the same entities unnecessarily. We regularly do meet and collaborate with them to understand, even prior to our enforcement direction, what their thinking and agenda are. And I do expect moving forward that we will continue in close collaboration. I'll also add that they have a provision in the law that essentially allows the Attorney General to step in and take over any of our investigations. So there is a provision so that there's not necessarily double jeopardy by two agencies.

Thank you Senator. Senator Caballero.

Thank you very much. So one of the things I'm concerned about is kind of fairness in the regulatory process. It's my understanding, and interested in what LAO and the Finance Department believe about this, but my reading of Proposition 24, which was the proposition that set this all up, it basically says that enforcement, that the regulations should be finished by July 1st 2022 and enforcement should begin a year later, July 1st 2023. But the problem with propositions is they sometimes are unrealistic.

And, of course, it was very difficult to set up an agency and then start the rule-making process and then get it done by July 1st 2022. You can't pass a proposition and then within a number of months have the regulations in place. So it looks like the regulations are going to go into effect in April of this year, 23. And so then to start enforcement three months later doesn't seem to make a lot of sense to me. So is this something we need to change?

Well, do you believe it's wise to change it so that it's very clear to the industry that they're going to have some time to make the adjustments that they're going to need in order to comply with the new regulations and give them a period of time in order to do that so that we're assuring them?

And I know you haven't set up the enforcement unit yet, so it would be probably pretty difficult to start doing enforcement if you don't have the unit there. But I also think it's fair to the business community for them to know what your expectations are. So is that something we can deal with in the budget?

That's a great question, and I appreciate your consideration for that July 2022 budget. We were at, as I mentioned, two or three staff members to undertake that rule-making. We had the good fortune that the board, prior to my appointment in October, in September of 21, began a pre rule-making process whereby we received some 900 pages of public comment that we helped inform to develop the regulations. And then we initiated our rule-making in July of 2022.

We filed our initial package and held multiple hearings, workshops, informational sessions, a public awareness campaign, and received thousands of pages of comment. The board felt that this was the right balance to strike with regards to receiving public input on a very complicated area, as well as providing timely guidance.

I'll also add the board have been sensitive to this issue of the timing of the regulations, and, prior to our final package being filed with the Office of Administrative Law, have essentially directed the agency to add a provision laying out that we may consider the amount of time the regulations have been in place with regards to initiating an enforcement action or providing a company the ability to cure that violation.

And the Attorney General, in the past, all of their matters have been, with the exception of one, have been provided the 30-day cure period that businesses could essentially come into compliance. Now, to your question, kind of my message to the small business community is that the agency has three priorities: rule-making, enforcement, and public awareness.

And our hope really is that with the adoption of this package, which we hope to be at end of March or essentially April of this year, that we are then able to use our public awareness function to help essentially consumers as well as businesses know what their obligations are under the law and drive voluntary compliance to the point that we can essentially guide those businesses that meet those thresholds of over $25 million, or selling or sharing 100,000 or more consumers data, that we can help them come into voluntary compliance prior to any enforcement activity.

The board have not directed. We've not set our enforcement priorities as of yet, as I said. But I do know the board are sensitive to this issue.

I appreciate all of that. It sounds to me like the board has been very sensitive to it. But I also think that, from my perspective personally, is that we do a disservice to our business community when we don't give them enough time to at least know and understand. And while cures are always great, support them 100%, just allowing them the ability to see it, to know that they've got a year in which to spend money to change their practices is the wise thing to do.

So I'm hoping that budget language will allow them that time. So just from my perspective. But I really appreciate what you've said. Thank you.

Thank you. The Subcommitee will return to this item after public comment. Thank you both very much. That'll bring us to issue number 22, under the Department of Veteran Affairs, Yountville roof replacements.

Good morning. Welcome. Please proceed when you're prepared.

Good morning. Good morning, chair. Good morning, Members of the Subcommittee. My name is Thomas Martin. I am Chief of Future Operations and Planning for our veterans homes with CalVet. With me is Andrew Deller. He's a manager in our research and planning unit. Before you is a budget proposal to fix some critical infrastructure challenges at our Yountville Veterans home.

I'm going to go ahead and turn it over to Andrew for a summary of the request, and then after that, we'll be happy to answer any questions you have.

Okay. Good morning, everyone. As Thomas said, my name is Andrew Deller. I'm manager of research and strategic plans at CalVet Homes Division. As part of this plan, CalVet is essentially requesting approximately 15.8 million to replace five roofs at the Yountville Veterans homes, At the Yountville Veterans Home, sorry. The requested augmentation will cover construction and DGS project management costs and associated fees in regards to these five roofs, specifically the five roofs in question, three are residential buildings where residents live at are DOM residents. It's independent living.

Those three buildings, the roofs on them date back all the way back to 1929 in the Lincoln, Washington and Wilson Halls. Essentially, it's a clay tile roofs. Essentially, they're starting to become loose and fall, which is a one handed danger in regards to clay tile roofing falling for residents and staff, but also it's causing leaks throughout the building. It's caused leaks in our residents rooms.

We had an instance in 2019, in fact, where a fire marshal cited the home for a fire and life safety violation because of damage to a fire door, essentially because of a leak to the building. So it's a known issue there; in addition, there's the Lincoln Theater. It's a 1200 seat theater at the home. It was built in 1957. The roof there has a pooling on the top and has had damage to some acoustic ceiling tiles as well as wooden panels.

Additionally, there's also the armistice chapel, which is built in 1918. It's the oldest building on the campus. It has a cedar roof that is as old as the building itself. Essentially, the plan for the home is to hopefully use the chapel for group therapy or recreational use. However, every time it rains, it leaks. It's not usable with the current roof.

So these are known issues that we've known at the home for a while back in fiscal year 2021-22 based on recommendations from our subject matter experts at the home and plan Ops, we had an ANE firm look at potentially doing some working drawings, preliminary plans to look at the home or look at these particular structures because we knew about the leaking, highlighting how much they need to be repaired or replaced is this past around New Year's when we had the storms throughout Northern California

All five of these roofs had leaks throughout those storms. So I think we have identified them as critical, and I think the current leaking that we're still experiencing with them shows that they are more critical structures that need to be repaired at the home. So essentially, we would like to request your support for this proposal. We would hope to provide better care, improve services and enhance living environment for our residents through this recommendation. And if you have any questions, feel free to ask. Thank you.

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

Anthony Franzoy, Department of Finance no additional questions at this time, but happy to answer any. They arise.

Thank you, LAO all right. Are there questions from Members?Senator Caballero,

Thank you very much, I'm you know looking at this and thinking maybe we need to do a tour of the facility, go in and take a look. It's located on 615 acres, and the cost to replace the roof is so significant that I'm wondering if it just makes sense to redo the facility and to use it to reduce the homeless veterans that we have on the streets. In other words, add extra services and extra opportunities for housing there.

But that's not the subject of why we're here today. It just seems to me if we're going to spend $15 million to redo a roof or it's not redo a roof, it's redo the roofing on a number of buildings, it sounds like we ought to be thinking a little bit bigger. I mean, we're struggling because we can't find enough places to put homes, and yet we have these existing facilities already and we do have resources for veterans housing that we could look.

But anyway, it's a lot of money. It's a beautiful facility. I've seen the pictures of it before. I've reviewed requests for improvements, capital improvements for the facility. And so I'm just wondering if there's another use that we could add to it that would, I mean, it's Yountville, right in the middle of Napa. It doesn't get much better than that.

I'm sure everyone in Napa would agree with that. Well, first of all, I'll say certainly more than happy to do any tours or visits with you or your staff or extend that to the other Subcommitee Members as well. Yeah. So we can certainly arrange for a trip or answer any more specific questions about that with regards to the three residential buildings, they are in use.

So we do have residents in those buildings now, and that's part of what makes it a little bit pressing for us is because we have residents in those buildings and obviously we want to be able to provide them with a good, safe environment for them, and the roofs are leaking. They probably will be leaking today.

The other part to it is the longer that you wait, obviously, that can drive more costs, either because we have to do temporary fixes or because just construction costs rise naturally or because there's more damage. Like Andrew had mentioned, there was damage done to other infrastructure in the building because of the leak. So I'm just throwing that out there as that's part of the timeline challenge that we're looking at. I couldn't speak to the cost to do any more significant repairs.

I'm sure that would take a lot more architectural review from folks much more qualified than me, but again, we'd be happy to have more conversations along that front as well.

Thank you very much. I appreciate that. I recognize you're here for this specific repair. I just think that we might want to think a little bit broader about what other needs we have for veterans and that as we struggle to find property all over the state to be able to house the homeless and people who are living in significantly overcrowded situations, looking at other opportunities to do things a little bit differently with what I'm interested in. So look forward to having those discussions. Thank you. Mr. Chair.

You, Senator Caballero. Senator Niello,

Do I gather by your testimony that these are the original roofs and there's not been any work done on these roofs?

On Wilson, Washington, and Lincoln? One of them in particular could be all the way back to 1929. Not sure, but it could technically be that. But, yeah, we're looking at 1920s, 1930s, potentially with the clay tile roofs with the three residential buildings.

Interesting. Thank you.

All right, this item will be held open, and that will bring us over to Issue 23, CalVet Electronic Health Record Project additional activities and scope increase. Thank you both. Hey, welcome. Please proceed.

Thank you. So, good morning, everyone. My name is Carlos Chavez. I'm the Chief Project Officer for the Department of Veterans Affairs and also the Care Project Director.

So our proposal here today in front of you is for a 2.5 roughly million dollar increase for the fourth year of our project as required by the IT project approval. So far, we are moving along with the new proposed schedule. We have successfully implemented our first two homes, that being West LA and our Ventura home.

We did have a lot of lessons learned from our West LA implementation that we were able to apply to our Ventura implementation, which has made that implementation go extremely well and successful. So the project is making great strides as we move forward now.

As described in our proposal, the project has been delayed by 13 months, an additional 13 months due to Covid one, and then also the implementation of the eprescribed functionality that also pushed some of the tasks forward and also as part of truncated requirements that were found as part of the original contract. We needed additional time to go back and add requirements and do some additional testing and system configurations to make sure that all those missed truncated requirements were added and completed. So at this time, I'd like to open it up to any questions you may have.

Thank you very much, any other additional comments or questions from DoF?

Anthony Franzoy again with Department of Finance, no additional comments but again happy to answer questions.

Great, thank you, from LAO, alright we'll bring it to the members. Senator Caballero.

Thank you, Mr. Chair. I just. It sounds to me like, other than the, which, you know, we understand completely, the project is functioning as it was intended and it's within budget. This is just part of the regular funding cycle of that project.

Correct. As part of our IT approval, we need to ask for funding on a yearly basis. So this is for our fourth year, and it'll enable our phase three, which will be able to complete the rest of our homes.

Very good. Thank you. I appreciate that, and I appreciate projects that are functioning as they said they were going to function number 1 and 2 that are within the budgets that were initially proposed. And so congratulations on a project that looks like it's going in the right direction.

Thank you. It's a great team effort between all of us to make sure that that's happening.

Absolutely. Thank you.

Thank you. Any other additional questions? All right, thank you very much. The Subcommittee will return to this item after public comment. Thank you. And that does bring us to public comment. Subcommittees appreciates and very much welcomes participation by Members of the public. We will take comment from Members of the public present in the hearing room, as well as those wishing to dial in. As a reminder, today's participant number is 877-226-8163 and the access code is 718778.

In the interest of respecting everyone's participation in time, when you are recognized, please state your name for the record, and your time will be limited to 1 minute. And again, welcome.

Good morning, Chair Padilla and Members of the Board. My name is Edwin Lombard. I'm a small business owner, and I represent a number of black small businesses throughout the State of California. The Pharmacy Protection Agency has failed to meet its mandate under Proposition 24, including balancing the need of small businesses and seriously considering their concerns as evidence by

an absence of agency outreach to the small business community and ignoring our small business questions. I've been to a number of Board Meetings dating back to October of 2021, when a brand new agency that's creating a brand new regulation misses its deadlines. It creates a problem for our small businesses to be able to coordinate themselves in a way where we are not being penalized.

I've been told by this agency that we're not going to be affected by the rulemaking here because our small businesses aren't large enough. They don't fit that criteria. Well, I've said this before, and I'll say it again. When corporate America has a cold, we catch pneumonia, meaning that as they're changing their way, they do things and they push these regulations down to us. If we can't function online as small businesses, we have to go out of business.

Because of COVID we left brick and mortar and we went online, and we depend very heavily on that. Now, in order for us to stay alive and be viable, not only small businesses, but what about black churches? They now do most of their services online. They collect all their contributions online. They do most of everything they do online now. This regulation can have a devastating effect on how we do business.

So we're asking that you at least get them to move the date of enforcement to January 1, 2024 so that it's ample time for us to ramp up and make sure that we're doing things the proper way. Thank you very much.

Thank you.

Good morning, Members. Mr. Chairman, again on item 1703 the Privacy Protection Act. Julian Cañete, President and CEO of the California Hispanic Chambers of Commerce. We represent about over 125 diverse and Hispanic chambers throughout the state. More importantly, representing the interests of over 800,000 Hispanic business owners and entrepreneurs. Approximately one in four California businesses in California are Latino owned.

Governor Newsom said it best when he noted in an address to the Latino Community foundation, "it is why we need each and every one of you to come back stronger, because when Latinos succeed in our state truly does flourish". Despite years of hardship, repeated closures, and uncertainty, California's Hispanic owned businesses remain an integral part of the state economy due to the significant part of their ability to innovate and adapt a digital presence. The important role of digital platforms have played in keeping Hispanic businesses afloat

cannot be understated. It's these platforms that have allowed business owners to build relationships with their customers and communities. The state's new privacy agency has repeatedly missed its statutory required deadlines. First, it missed last July's deadline to complete the rule making. Then it allowed compliance to take effect on January 1 without identifying the regulations that businesses must comply with. Now, after this CPPA missed its own deadlines, it wants businesses to make up the difference at the expense of Hispanic owned businesses.

The agency was late by nine months, yet enforcement is slated to begin on July 1, giving business only a few months to comply with regulations that are still not final. On behalf of the California Hispanic businesses, we are asking CPPA to sponsor legislation and work with the legislature via budget trailer Bill Language to extend the upcoming July 1 2023 enforcement deadline for one year. Proposition 24 required a one year compliance period. It is only fair that CPPA correct this after missing its own deadlines.

Their missteps are being passed on to our small business owners and this cannot fall on their backs. So I look forward to working with the CPPA, the Legislature in correcting this. Thank you very much.

And ladies and gentlemen, if you wish to ask a question, please press one, then zero on your telephone keypad. You may withdraw your question at any time by pressing 10. Again.

Any other public comment that are here present in the hearing room. If not, we'll move to the moderator. And if you could prompt the individuals that may be waiting to provide public testimony and advise the chair as to how many folks we have in the queue.

If you use a speakerphone, please pick up the handset before pressing the numbers. And Mr. Chair, we do have one queuing up. Just a moment while we gather the line number.

And if the speaker could just state their name for the record when they're ready, their time will be limited to 1 minute.

Okay, and Mr. Chair, it looks like we have two in queue here. We'll start with line number 17 and please state your name.

Good morning, Chair Padilla and Members of the board. My name is Andrea Cow, senior public policy manager with the California Asian Pacific Chamber of Commerce, and we represent and advocate for over 600,000 Asian American and Pacific Islander, also known as AAPI, owned small businesses throughout the state. The over 600,000 AAPI owned businesses in California generate an estimated $181,000,000,000 in annual revenue. The businesses we represent are vital to California's growth and success as the fourth largest economy in the world.

The state privacy agency's process to implement Prop 24 has been riddled with missteps, confusion, lack of engagement, and a lack of accountability that runs counter to the very practices that advanced our state as a global economic powerhouse. Missed deadlines that were enshrined in the voter approach proposition have forced small minority owned businesses into a state of purgatory, awaiting regulations that could have wide ranging effects on their operations with no time to understand them before complying.

As the fastest growing minority group in the US, with California having the largest share of the AAPI population in the country, the influence of our community on the business sector is significant. Our business owners value their customers privacy rights and wish to meet the important goals of Prop 24, but they also want to do so in a way that does not put them at risk of heavy financial penalties, effectively pushing them out of business. California's AAPI owned small businesses deserve better.

Those we represent are asking legislators to extend the enforcement deadline for these new regulations to 2024. Our businesses need time to adapt to new regulations that could severely harm their ability to prosper. We look forward to working together to make this happen. Thank you for your time.

Thank you. And next we'll go to lines 15. Line 15, please state your name.

Greetings, everybody. Samuel Washington, representing the Silicon Valley Black Chamber of Commerce, reading some just simple things. Number one is there are far, far too many businesses in Northern California who have no idea that Prop 24 has passed, what the details are, even of the organizational or operational structure by which the safety of public or private information is even to be managed. I'm still back at when is the public going to be informed?

When there are advertisements or public notifications going for us going forward to individual companies, individual businesses? And how far down are we going, are we going to be able to engage simple home based businesses, one owner businesses? Because at the moment, even large scale businesses in the State of California aren't even aware of these requirements or that the commission even exists.

So I think there's a bit of a gulf that needs to be addressed between where the goals are of driving this public engagement effort and where they actually sit. And that's going to be far more than a year, if this intends to be, or if we intend to roll this out successfully, so that people are capable of actually being compliant with the proposed laws and measures that will go forward here.

So I'm simply proposing that before we do any of this, any type of enforcement, or even setting up an enforcement team, that we put forward a public advertising campaign directly engaging businesses at every level so that people have the opportunity to respond, even if only just how best to comply as businesses. That's our concern. Representing the black chamber and many of our members who are not black.

Thank you, sir.

have the same concern that I do. Thank you.

Thank you

Mr. Chair there is one more in queue.

All right, again to remind the speakers, we are very interested in your testimony and input, but please limit your comments to 1 minute

And we'll go to line number 18. Please state your name.

Hello, my name is McKenzie and I am the owner and CEO of Wild Fern Marketing. My biggest concern is as a black small business that runs all of my business online is like everyone was stating, we do not have any information on the CPPA and what it will do to our businesses. Chair Padilla and Members of the board, as a leader in the marketing and advertising industry, I am here today to express my concern about the cost and compliance deadlines of the CPPA regulations.

Businesses stay afloat through online advertisements, but the CPPA's new regulations have created a confusing and chaotic environment for business owners like myself. Many small businesses are not even aware of these regulations, let alone their need to comply with them, and there has been no communication from CPPA about how the new regulations will impact businesses like mine. As a business owner, I am respectfully asking that the Legislature intervene to ensure that California businesses don't suffer any further through this process.

We ask for your support in holding the CPPA accountable and collaborating to delay the enforcement of CPPA regulations. Thank you.

Thank you,

Mr. Chair. We have no one else in the queue at this time,

Thanks to the moderator. Appreciate your assistance. I'll bring it back to the Subcommittee to take up the items docketed for action. We'll take these items in issue groups beginning with issues 1,2,4, and 9 through 17, and I'll entertain a motion so moved, the motion is to approve as requested, budgeted. Please call the roll.

Roll Call

Thank you, those items are out. The ayes are three. The nays are no. We'll then move to issue items 3 and 5 through 8, and we'll also entertain a motion so moved, the motion is to approve as budgeted requested. Please call the roll,

Roll Call

Those items are out. The ayes are two. The nays are one. And that will bring us to the discussion. Items, issues. I'm sorry. The next grouping is issues 21 and 23. I'll also entertain a motion.

So moved

Motion is to approve as requested and budgeted. Please call the roll 21 and 23. I'll come back to 20.

Yes, sir. I'll come back to 20. Last. Yes, sir. This is items issues 21 and 23.

Roll Call

Thank you. Those items are out. The ayes are three, the nays are zero. And we'll come back to issue number 20, and I'll entertain a motion.

Move the recommendation.

The motion is to approve as budgeted and requested. Please call the roll.

Roll Call

That item is out. The ayes are two, the nays are one. Thank you very much to everybody who's participated in today's subcommitee hearing. If you weren't able to provide testimony, you will be able to do so by providing that in writing to Committee staff. Thank you again for your work. At this time, the subcommittee is adjourned.