Assembly Budget Subcommittee No. 5 on State Administration

Good afternoon and welcome to our Assembly Budget Subcommittee Five hearing on consumer protection. Today's hearing will review budget proposals impacting four entities: the Department of Consumer Affairs, the Department of Alcoholic Beverage Control, the Department of Cannabis, Control in the Department of Real Estate. Throughout this hearing, we will examine these budget proposals to ensure that they uphold our state's commitment to safeguarding consumers' interests and upholding fairness in the market.

The agenda and supporting background documents are available on our Committee website, and physical copies are available outside of the hearing room. A few housekeeping notes: this is an in-person hearing with all panelists testifying in person. We will take questions from Members of this Subcommittee after each panel. All public comments will be taken in person at the end of this hearing. If you are unable to attend this hearing in person, you may submit your comments via email to assemblybudget@asm.ca.gov. With that, roll call, please.

[Roll Call].

Seeing that our other Members are either chairing other Committees or presenting bills, we will begin as a Subcommittee. Our first issue is budget change proposals, Department of Consumer Affairs, and if you, as panelists, would like to join us, we will review five proposals, two related to informational technology, three related to various boards under the DCA umbrella. Welcome. We appreciate you coming, and we will go ahead and have you do short summaries of your proposals, and you can go ahead. And I think we're starting with IT modernization. Is that correct?

Yes. Hello. I'm Taylor Schick. I'm the Chief Fiscal Officer for the Department of Consumer Affairs. Thank you, Chair Quirk-Silva and fellow Members for having us here today. I'll actually do a brief overview of all five BCH proposals. I'll start out with the IT. Testing again. There we go. So I'll go ahead and do an overview of all five proposals, and then I do have members from the Department, as well as each Board present here if you have any additional questions.

So, as you mentioned, our first two proposals are information technology-related requests. First, the Department is requesting three million in one-time funding in 2024-25 to continue our business modernization efforts for our cohort two programs. This includes the Bureau of Household Goods and Services, the California Architects Board, the Landscape Architects Technical Committee, Cemetery and Funeral Bureau, and the Structural Pest Control Board. Of that three million dollars, 243,000 is to support credit card processing fees on behalf of users of credit card payments.

And then our second IT proposal is a request for 14.7 million in 24-25 and ongoing to continue maintenance and operations of our BreEZe system, and that supports 18 of the boards and bureaus within the Department. Of this funding, nine million is to support existing staff and software costs and 5.7 million is to support credit card processing fees. Our next three proposals are board-specific requests.

We have the Board of Osteopathic Medicine, and they are requesting a budget augmentation of 357,000 in 24-25 and ongoing to fund increasing attorney general costs to support enforcement of the Board's growing licensing population. In the past five years, the number of cases that the Board has referred to the Attorney General's Office and their overall case hours have more than doubled, necessitating this request.

Second, we have the Board of Pharmacy, and they are requesting a budget augmentation of 1,265,000 in 24-25 and 1,225,000 ongoing to support five positions to address increased workload in sterile compounding renewals and inspections, as well as to address an overall increase in the Board's enforcement operations. The Board has seen a significant increase in inspections, investigations, and licensees on probation that these resources would address.

And finally, we had the Veterinary Medical Board, and they're requesting two-year limited term budget augmentation of 807,000 in 24-25 and 799,000 in 25-26 to fund one manager and four analyst positions to address the Board's growing complaint and enforcement workload. The Board has been experiencing a significant increase in complaint volume, and these resources are needed to continue to improve their investigation cycle times. That concludes my overview, and we're happy to answer any questions you may have.

Thank you, and thank you for all of you joining us. I do have a question on the 5.9 million for certain boards to pay for credit card processing fees. We see that other boards have decided to pass those costs directly to licensees and applicants. Has the DCA considered enacting a uniform credit card processing fee policy across all DCA entities for consistency?

So, in short, no. We leave that individual policy decision on the credit card processing fees to each individual program, board or bureau. Some entities choose to cover the cost of the credit card processing fees to promote utilization of online payments and online functionalities, while others choose to pass on that expense to applicants and licensees, and that could be for a variety of reasons, but most often it's due to their Special Fund concerns for their individual Special Fund that supports them.

All right. Thank you, and I see that we have the LAO here and Department of Finance. Welcome. Do you have any questions for the team here? No? Any other comments? All right, and we don't have any other Members, so we will hold this item open. We appreciate you coming and sharing. Thank you so much.

Appreciate your time. Thank you.

Next, we have Department of Alcoholic Beverage Control, ABC. Welcome. For this issue, we will receive an update on the Department's fund condition and review one budget change proposal related to information technology and document digitization. In addition to the Department of Finance and the LAO, I'd like to welcome ABC Director Joseph McCullough, who is joining us, and if you would briefly present on the Department's fund condition and the request budget change right now.

Excellent. Good afternoon, Honorable Chair and Members of the Committee. My name is Joseph McCullough, and I'm the Director of the Alcoholic Beverage Control. With me today is Mr. Randy Deems. He's the Chief of Administration at ABC. We are prepared to present on our fund condition and as well as the proposal that's before you today. Mr. Deems is all things budgets at ABC, so we're going to let him do the presentation. And of course, if we have any questions from the Committee, we'd be happy to take those at the end. With that, I'll turn it over to Mr. Deems.

Thank you.

Thank you. Randall Deems, Chief of Admin, ABC. As far as the fund condition update, the Department of Alcoholic Beverage Control is funded almost entirely from license fees which are deposited into the ABC Fund. Five years ago, in 2019-20 trailer bill language was proposed and approved to increase revenues by 30 percent to address both a structural deficit that had developed and to fund program improvement in modernization efforts the industry had been requesting for years.

Shortly thereafter, however, the Covid-19 Pandemic broke out and had significant impact on ABC revenues. As the agenda notes, over a two-year span, revenues came in at 26.1 million dollars less than anticipated, putting a very large hole in the ABC Fund that already had a very low balance. Despite efforts to reduce costs through hiring freezes and program reductions, revenues did not recover sufficiently to cover the Covid revenue hit, and the ABC Fund was projected to be insolvent by the end of 2023-24 or early 2024-25.

The Budget Act of 2023 provided authority for the Department of Finance to transfer up to 20.5 million dollars from the General Fund to the ABC Fund this current year in order to keep the fund solvent. In January, the Department of Finance notified the Joint Legislative Budget Committee of its intent to transfer the 20.5 million, and as described in the agenda through discussions with the LAO and the JLBC, ultimately a transfer of 15.5 million was determined to be sufficient to keep the fund solvent with at least a minimal fund balance, and that transfer has been completed.

With the transfer completed at the 15.5 million dollar level, the fund balance is expected to be as low as just three to four million dollars in 2025-26 and 2026-27 and then increased by two to four million dollars per year thereafter, as license growth and CPI-based increases are expected to outpace increased expenditures.

For context, the fund balance of 3.5 million in 2025-26 represents only about two weeks worth of operating costs, so if revenue or expenditure projections turn out to be less favorable than currently estimated, additional action may need to be taken. If that happens, we will discuss our options with the Department of Finance and come back to you should legislative action be required. There are no current plans for future action to involve the General Fund.

I should mention that the agenda notes the LAO's suggestion that ABC could reduce expenditures in its Alcohol Policing Partnership Program if there is a need to reduce expenditures to keep the fund solvent in the future. The APP Program is a local assistance program that provides grants to local law enforcement to address alcohol-related issues in their jurisdictions. ABC did reduce this program from three million to 1.5 million as one of the measures we took to offset the loss in revenues during the pandemic.

And because this is a grant program to local law enforcement and grant funded activities can be halted fairly easily, it is a fairly quick way to reduce expenditures in an emergency and we certainly would see that as an option in the future as well. However, it is a cut to an important public safety program, so we do not take the reduction there lightly.

In summary, the ABC Fund is expected to remain solvent, but if for some reason things get tighter than expected, we do have options in time to address the issue without any further assistance from the General Fund. With that, I will shift to the budget proposal. The budget proposal on the agenda for discussion is a proposal related to ABC's modernization efforts. The proposal has two components totaling 2.3 million from the ABC Fund in 2024-25, dropping to 1.3 million in 2025-26.

The first component is an existing project that is winding down, which is called the Business Modernization and Responsible Beverage Service Project. This project was initiated in 2019-20 and created two online portals: the RBS Portal to implement the RBS Training Program Act 2017 and the Licensing Services Portal to provide basic online licensing services. Development cost for this effort has been budgeted incrementally.

This is the fifth BCP we've done for the project, so there is currently no ongoing budget for support of the RBS and LSP Portals when the current development contract ends in March 2025. This request would establish that ongoing budget for maintenance and operations for the portals. The proposal reflects ABC's plan to reduce contracted support from forward contractors to two and add one state staff position.

This creates a net reduction in annual cost of approximately 250,000 dollars compared to the current annual contract cost of one million dollars for the four contractors. This shift from contractors to state staff decreases the cost of ongoing support and further reduces ABC's dependence on contractors to support the portals by developing expertise in-house. The funding for the ongoing support and maintenance of our RBS and LSP Portals is essential to ensuring these online services remain secure and available to the public.

The second component of the request is for an effort that is complementary to the first, which we are calling eRecords. It is simply the conversion of ABC's paper licensing files to electronic files and the purchase of a document management system to store and manage them. With ABC's shift to online services and online application specifically, this is the right time to convert our existing paper licensing files so all files can be stored in a similar manner, simplifying operations and addressing various risks inherent with paper files.

Specifically, this request includes 1.3 million in 24-25 and 260,000 dollars ongoing for this scanning and document management of all licensing files, one two-year limited term position to provide project and organizational change management, and one position to serve as a system administrator for the document management system scanning operation on an ongoing basis. This is a fairly simple, straightforward project of limited scope. The objective is to create an electronic file room rather than maintaining 23 paper-based file rooms spread across the state.

This is expected to improve consistency of file storage and availability, security of documents, the availability of files to all appropriate parties within the Department, including program personnel in the field or working remotely. It will also improve responsiveness to Public Records Act requests. We appreciate your consideration of this request, and we're available to answer any questions you may have.

Thank you. I do have a few questions. You started by emphasizing that your license fees are where you generate your funds from, and obviously through the pandemic, we saw a huge decrease in those license fees. What is happening since the pandemic? Are they continuing to go down? Just kind of what's trending out there in the ABC world?

Right. So as the agenda notices, where we took the biggest sort of hit is in our daily applications. This is for festivals, weddings, catering authorizations, those types of things. That's 5.5 million dollars a year, and that essentially was shut down for about two years. That has recovered to about 80 percent of the 2019 levels. We expected that it would completely recover, but it hasn't, and we have now been assuming that lower level going forward and that seems to be staying fairly stable right now.

As far as overall license count--which is really important given most of our revenue comes from renewals, so the number of licensees we have is a big variable here--that took about a one percent dip in total volume during the pandemic, and it has recovered and we are now above our pre-pandemic level.

We're just behind where we likely otherwise would have been. Licensed applications are largely recovered, maybe five percent lower than 2019 levels. That being said, we also made major changes in 2019 to our licensing structure, so sometimes the volumes don't kind of even out the same way.

For the most part, we're back on track, and with the actions taken last year, we're in position to continue the efforts that we have been taking on as far as modernization and program improvement with our original financial plan, with just the fee increases that happened in 2019-20 and the CPI authority that we were granted at that time.

Kind of on a more macro level is have you seen the habits of consumers' change regarding to what's happening as far as alcohol goes? I mean, I know I see a lot more energy drinks, tea houses, coffee houses. Are you seeing that impact as well?

You want to take that one?

So there's certainly been a lot of new products that have been introduced into the marketplace. You have, as you mentioned, drinks that are appearing in our stores, that our licensees are selling, that are affiliated with soft drink brands and energy drink brands. From a budgetary standpoint, it's just another product that's in the stores, so it doesn't really affect us.

I will note that it does require some training for our staff that are out in the field, but we're able to absorb that and we're also doing a lot of outreach with trade associations in that space for those new products. I'm not sure if that totally answers your question or not, but--

I was just wondering as far as revenue, just in that space of consumers, if they're in essence drinking less or more.

We don't have the metrics to be able to tell one way or the other in that particular case, and we typically look at the amount of licenses that are out there when trying to judge whether or not there's a demand.

All right. What I would do is open it up to our LAO or Department of Finance. Any questions?

Jared Sippel with the LAO. We have no comments on ABC's budget proposal this year, and Mr. Deems did kind of summarize our comments from earlier this year where we recommended reducing the General Fund transfer. So I'm happy to answer any questions on that as they arise. Thank you.

You mentioned in your comments that you didn't think there was a need for additional General Fund support. Is that correct?

Correct. I think that the existing transfer gives us wiggle room to make adjustments and some time to make adjustments in other ways if we need to.

I'm sorry, go ahead.

Oh. Just Amy Ascencio, Department of Finance, and we have no comment today.

Okay. I noticed also that you were talking about technology, of going from--in essence--your paper to putting these on eRecords. I know it's something that we're hearing about from a lot of the agencies, about not only updating, but making sure that we have the technology for it. So I certainly think that that's a good investment. I think that's it. Thank you for your presentation.

Thank you.

Next, we will bring up Department of Cannabis. For this first cannabis panel, we will receive a short presentation on the history of cannabis taxation in California, as well as receive an update on cannabis tax revenues from the LAO. In addition to the LAO, the Department of Finance will be available for any additional questions.

Thank you. Seth Kerstein with the Legislative Analyst's Office. I'll be providing a brief three-part overview of cannabis tax revenues. I'll start with first, the basic structure of the state's cannabis taxes, and then I'll talk about where the revenue goes, and finally, I'll summarize recent revenue trends and our revenue forecast. So California started licensing and taxing adult use cannabis in 2018, and the state's initial cannabis tax policies came from two laws: Proposition 64 of 2016 and SB 94 of 2017.

Under those laws, the cannabis industry was subject not only to the state's broad-based income and sales taxes, of course, but also to a retail excise tax and a cultivation tax. And revenues from these two taxes went to a new Special Fund called the Cannabis Tax Fund. The retail excise tax raised about 80 percent of the revenue going into that fund, and the cultivation tax raised about the other 20 percent.

In 2022, the Legislature passed and the Governor signed AB 195, which made several changes to the state's cannabis taxes. The biggest change was the elimination of the cultivation tax, so that left the retail excise tax as the only revenue source for the Cannabis Tax Fund. Cannabis Tax Fund revenues are continuously appropriated for purposes that fall into three major categories. The first category, Allocation One, covers administrative and enforcement costs for various departments, such as the Water Board and the Department of Tax and Fee Administration.

Allocation Two includes fixed amounts for some research and programmatic purposes, and all of the remaining revenue goes to Allocation Three in the next fiscal year. So, for example, 2024-25 Allocation Three funding will depend on 23-24 cannabis tax revenue. The programs funded by Allocation Three fall into three thematic groups. So 60 percent of the money goes to a youth account, 20 percent to an environmental account, and 20 percent to a law enforcement account.

So I mentioned earlier that AB 195 eliminated the cultivation tax, and sort of as that was being discussed, it raised some concerns about funding for the Allocation Three programs, and so, in an attempt to address those concerns, AB 195 contained some additional provisions. So, first of all, it established a funding target for Allocation Three, and then it created some administrative mechanisms intended to try to hit that target. So the first one was 150 million dollar General Fund appropriation, and that is available to support funding for the Allocation Three programs in 23-24 and 24-25.

And then the second major mechanism was to authorize the Administration--or not authorize--to direct the Administration to raise the retail excise tax rate starting in 25-26 to collect the amount of revenue that otherwise would have been collected by the cultivation tax. And so, before I get into our revenue forecast, I'll briefly recap the trends we've seen in cannabis revenues. So, from the time licensing began in 2018 through about the third quarter of 2020, revenues grew every single quarter.

And that growth was particularly dramatic in the first couple of quarters of the pandemic, and then sort of through late 2020 and early 2021, revenues stayed around that elevated level, but then in the second half of 2021 through the end of calendar year 2022, revenues declined for six straight quarters.

So for several quarters leading up to the passage of AB 195, and then also for a couple of quarters after that. And then from that sort of trough or low point in the fourth quarter of 2022, revenues grew for the first couple of quarters of 2023, and then over the last couple of quarters, they've been roughly flat, kind of stagnant. So I mentioned earlier that AB 195 appropriated 150 million dollars of General Fund for the Allocation Three programs in 23-24 and 24-25.

And unfortunately, 22-23 revenues were so weak that the Administration ended up using that entire 150 million dollar amount to support Allocation Three in 23-24 and it still fell short of the funding target. So our forecast is noted in the agenda. Even though we had the benefit of one additional quarter of revenue data relative to the Governor's Budget, it's still very similar to the Administration's January estimate, and unfortunately, it does fall short of that target established by AB 195. So that concludes my summary of cannabis revenues, but I'd be happy to answer any questions.

Just overall, there's obviously been a decline in revenue that we've continued to see. Do you have any responses to why you see that? The reasons?

Thank you. Yeah. I certainly would be interested in hearing if the Administration has any views on that. I would say: wasn't entirely clear. I did get the sense that there were maybe some folks--I did hear some concerns about quite a lot of supply maybe driving down prices, but one thing that we have noticed over the course of calendar year 2023 was sort of this rebound in revenues.

So sort of hitting the low point in late 2022 and then picking back up, and certainly in our forecast, with the caveat that this is a highly volatile and uncertain revenue source, we are not expecting a continued decline.

Before we move on, we'll go ahead and open up the roll since we have a Member here.

Assembly Member Ward.

All right. We do have a quorum. Very small and mighty Committee, right? All right. You're just jumping into the cannabis part of--yes. And we are on the first part of that, the revenue. Sorry, Issue Three. And not sure if you've had time to look for any questions. All right. With that, then, the LAO or the Department of Finance, any responses? No?

Before we start the second one, right? Am I getting mixed up here? All right, so I'm going to ask this question: does the LAO or Finance--Department of Finance--anticipate revenues to be able to sustain the Allocation Three funding at the 670 million dollar baseline in future years?

Charlene Manning, Department of Finance. The current projections for next fiscal year, it does not look like we will meet that baseline at this time.

Any other comments?

That's. Thank you. Seth Kerstein with the LAO. As I noted, our forecast is similar for 23-24 revenues, which fund allocation three and 242-5. Our forecast is somewhat higher than the administrations in the following, sort of in 24-25. I haven't sort of gone through to calculate if that would be sufficient to fund at that baseline level. I think it would be pretty close. Not exactly sure if it would quite hit it.

And the one other thing I'll note is I mentioned AB 195 directs the Administration to adjust the tax rate starting, and it does that starting in 25-26 and so that all else equal, should improve the chances, at least starting in 26-27 of hitting the baseline, because that would bring in additional revenue.

So you did not think we'd meet that baseline, but we have seen the cannabis revenue trending up in recent quarters.

Jacob Kirn, Department of Finance. Yeah, we view both forecasts as reasonable. I think that's especially shown in the short run in 23-24 where estimates are quite similar. It's representative of the last year or so of quarters as the sort of post pandemic slump and then the tax reform kind of fade into the rear view. We think the markets reached sort of a level of stability. Yeah. And then looking forward in the budget year, I think our estimates may be a little more conservative.

We estimate that the market will grow in line with the economy overall, and the LAO sees a little more growth there next year.

Okay, I think we're going to move to issue number four, Cannabis Tax Revenues Allocations: A Proposed Loan to the General Fund. For this panel, we will review the governor's proposed cannabis tax revenue allocations, as well as budget proposal to loan cannabis tax funds earmarked for the Board of State of Community Corrections BSCC to the General Fund. In addition to the Department of Finance and the LA we have with us BSCC Executive Director Katie Howard will be joining us. Welcome.

And answer any questions regarding BSCC public safety grant program. As a reminder, cannabis tax revenues are administered by nine different state departments out of BSCC, which may not be able to dive into all of the implementation because of the different areas. And then after, we will have questions. Welcome.

Andrew Hoang, Department of Finance. I'll be writing an overview of issue number four. Proposition 64 specifies the allocation of resources in the Cannabis Tax Fund, which are continuously appropriated. Expenditures are prioritized for regulatory and administrative workload necessary to implement, administer, and enforce the Cannabis Act, followed by research and activities related to the legalization of cannabis and the past effects of its criminalization.

Once these priorities have been met, the remaining funds are directed to what is known as Allocation 3 programs, which include youth education, prevention, early intervention and treatment, environmental protection, and public safety related activities. AB 195 requires that these allocation three programs are funded at a baseline of approximately 670,000,000 to the extent available, and included 150,000,000. General Fund appropriation of backfill revenues, which has been fully allocated in 23-24. The Governor's Budget estimates 568.9 million will be available for Allocation 3 in 24-25.

Allocation 3 is estimated to receive funding in 24-25. In three areas, 60% of allocation three funding is dispersed for the education, prevention and treatment of youth, substance use disorders and school retention. That is 341.3 million. 20% of Allocation 3 funding is dispersed for the cleanup, remediation, and enforcement of environmental impacts created by illegal cannabis cultivation. Governor's Budget estimates 113.8 million and the remaining 20% of Allocation 3 funding is dispersed for public safety related activities, and that is also 113.8 million.

The Governor's Budget proposes a budgetary loan of $100 million from the Board of State and Community Corrections Cannabis Tax Subaccount to the General Fund in 24-25 to adjust the projected budget shortfall. BSCC uses cannabis tax funding to provide grants grant funds to local governments that assist with law enforcement, fire protection, and other local programming to address public health and safety associated with the implementation of cannabis statutes and regulations.

The board has made funding available on a frequent and reoccurring basis, but the eligible applicant pool is limited and the amount of funding is greater than the number of eligible and interested applicants. The Governor's Budget estimates 63.8 million of cannabis tax revenue will be disbursed to BSCC in 24-25 when including that disbursement with BSCC's unspent funds from previous years. BSCC is estimated to have available funds of 260,000,000.

This loan amount comes from currently unobligated resources in the subaccount and is not anticipated to impact the board's program activities. The repayment plan is proposed to be 50 million in 26-27 and the remaining 50 million in 27-28. Thank you. And we're available to answer any questions.

Welcome.

Thank you, Madam Chair, I'm Katie Howard, the Executive Director at the BSCC. Good afternoon, Madam Chair, and Members, I want to give you a little bit more information about the grant program that the BSCC administers. Thank you for your comment a few minutes ago. We are one of many state agencies that administer these funds.

And the grants, per the language in Proposition 64, direct the BSCC to make grants to local governments to assist with law enforcement, fire protection, or other local programs addressing public health and safety associated with the implementation of, basically the legal marijuana. And as my colleague from the Department of Finance has said, there are some features in the eligibility for these particular local public health and safety grants that fairly strictly limit the cities and counties that can apply.

So in order to apply for the funding that we administer, the local jurisdiction has to allow either some form of cultivation, whether indoor or outdoor, or both, and retail sale. So with those two things in combination, that's just not a huge number of cities and counties across the state. I want to give you a really quick overview of the three cohorts of grants that have gone out into the field. The first, RFP, was released in 2020. At that point, we made $24.7 million available.

We only received 10 proposals and funded all of those at about $10 million. So for the initial round of funding, new experience, not clear on what all the needs would be coming from the locals. The recommendation from our Executive Steering Committee was to have a $1 million funding limit. As we saw, the funds in that account were accumulating over time, and we thought it would be a good idea to increase the maximum that could be asked for, and we did that.

So the second round of funding went out and we received 29 proposals. I should add that there was a change made in statute to somewhat lessen the strictness of the requirement on cultivation. I'm assuming you're somewhat familiar with that. And so the second round of funding made about $52 million available, and we put out about 21 million. And so this is sort of the trend. For the third round of funding, we had $150,000,000 available that RFP was released in October of 2022.

We did fund 37 proposals totaling almost 94 million. But as you can see, there tends to be not enough demand out there in the field right now for the resources that are available. So I think it's for this reason that the Administration views this loan as appropriate, because we're not impacting the current needs out in the state for this particular grant funding.

So once you get these grants out to the local jurisdictions, what do these grants actually do? What are they applying for the funds for?

Yes.

So in our request for proposals, there are four program purpose areas that the grants can be used for. There's youth intervention, education and prevention programs. I want to look at my thing. So I say all these correctly. Just a second. Here we go. Great.

I only have the first one. Youth development, youth intervention and prevention, public safety, fire. And so we wanted to take the broad language that was in the Proposition and really give the counties flexibility in what they can apply for.

I do have the 37 grant summaries here from the last round that we funded, and on a quick look through those, there still are a number, I would say, more than any other program purpose area, the locals are applying for programs related to youth education, intervention and prevention, but also issues related to code enforcement, hazardous materials, licensing, licensing checks, those sorts of things, illegal grows. Those are some of the other subject matters that are being addressed in these grants.

So under the youth intervention, is it cities that are applying, counties or school districts?

It can be cities or counties. Are the local applicants in our Prop 64 per the initiative?

Because that seems like a little bit of. It seems like school districts would have the most impact over students. Was that just not written into the Proposition?

Again, that's not my particular area of expertise. I do think there are other funding streams under Prop 47 that are specifically education focused.

So you have the reverse problem of what a lot of the agencies are coming to us to talk about, which is you have funds, you just don't have the jurisdictions that are applying for them. And you mentioned the retail and cultivation, and that's because many cities across the State of California haven't legalized.

That's exactly right.

Do you see any trends or do you even track it? And anybody can answer this, that cities are starting to change their methodology as far as starting to bring the local cannabis to their councils and moving forward with legalizing it or the retail part of it, it's already legal, but in their interest, do you track any of that?

We don't have that information. Others may here anybody.

If you're looking over the last couple.

Of years, we can provide the information. As to how many cities and counties have come on sort of online that would be helpful.

So do you know that information? Okay. If anybody does, when they come up, just let us know, because it does look like you'll still have this remaining problem if you're generating funds. And the way the Proposition was written, these funds have to go into these three categories, and if you're not getting others.

And so as the Governor's team would, I think, be scouring records to look for funds that aren't used, it's a good problem you have them, it's a bad problem that they're not being used. So the good old phrase in government is you use them or you lose them. But we understand the predicament, which is not having enough applicants. Any other questions?

Thank you for the presentation. Two questions come to mind, and I think maybe tearing off of our chair's comments on this with BSCC's public safety services program, I'm wondering is that where activities would occur that would help local governments, local law enforcement, go after illegal operators?

Some are doing that, yes. It can be used for those purposes.

So it's frustrating just to kind of look from this vantage point that we have such a high reserve there, and we hear one of the biggest issues that is out there is the prevalence of illegal operations. That is running counter to what we're trying to see under a post Prop. 64 world.

Right.

And so what are some of the tools that we have if we're just doing nothing but accumulating a high reserve balance to really compel this, get out there and really go towards its intended effect and try to help to stymie the illegal market, and really that would only serve to maybe enhance the goals of Prop 64?

Well, I think it's a really good question, and we want to redouble our efforts to make sure that there's information out in the field about the availability of these grant funds. And when we put the next RFP together, we're anticipating putting the next one out in the spring of next year. We can look again at how to emphasize the work that can be done in relation to the illegal market under this grant, too.

Okay, thank you. I think that should be a priority, that since we have really dedicated funds for a purpose that be made under that category, and I'm wondering, can you or Department of Finance comment generally for some of these allocations that are there for youth education, prevention or environmental restoration? Given the tight overall budget pictures that we have, are any of these potentially trading off maybe with some other General Fund supported programs? In other words, we have to use them for certain functions.

Are we seeing a proportional offset in other General Fund funded programs of the like, or are these really additive programs above sort of base state programs?

Sure. Andrew Hoang, Department of Finance one program that comes to mind is the Department of Social Services, which provides childcare funding to cover slots and cannabis tax funds have been used to offset some of the. It's one funding source to a multiple funding source for that purpose.

Right.

And actually, the Department is looking to utilize their Prop 64 balance in this next budget year for that purpose. As we are in a budget shortfall.

Chunkers in high need, not one area I'd want to see offset. I'd want to see it actually grow over time. But this is kind of helpful as we're looking at things in totality.Thank you.

Assembly Member Patterson.

Thank you. I'm like in between mics here. Yeah, I just wanted to kind of comment on where Assembly Member Ward was going. Is that in El Dorado County we lost a deputy sheriff to an illegal grow.

And when we see a lot of money being formed into a fund and then borrowed into the General Fund, when I was on BNP, by the way, last year, and I asked to be off because all we talked about was weed, but that was the main issue, is how we keep the legal market afloat was the number one issue.

I mean, you know this way better than I do, but I just philosophically have an issue with giving this money to the General Fund or on loan or however we're going to do, but also building a reserve in general. I don't know what the mechanism is to actually spend that money, but I feel like we shouldn't be building a reserve. We should either spend it on keeping communities safe or be lower taxes and not collect it in the first place.

If I may respond, Madam Chair, I think you make an important point, and I want to carry these ideas back for the next RFP that we put out and if there's more that we can do, of course, subject to these limits that we're talking about here, that the locals have to comply with that cultivation and retail sale component.

But yes, I think to go after particularly the public safety issues that have come up in this hearing, we should look more closely at that and getting the word out. Thanks.

Thank you. I would jump on that as well. I definitely think that the outreach process to let local jurisdictions know not only about the grant programs, but some of the flexibility within it. Because if you are seeing youth intervention, you might not then think, oh, there could be some possibility to do some enforcement or public safety support with that. We know from.

I represent North Orange County and did have an opportunity to go out on a cannabis enforcement, and it was a huge operation that was not just North Orange County, it was many entities, everything from a local code enforcement to Planning Department to Police Department. It was a big operation. And I really do think that these grant funds could be very valuable. But if they don't know about them, if they feel like, oh, it's only youth intervention, they may not choose to do that.

So making sure that there's really a campaign on getting these funds out and the flexibility that could maybe even giving examples of projects under that could be very helpful. But based on your analysis, have other state departments occured large reserves similar to BSCC? Because I know you mentioned nine different entities, so, yeah.

Andrew Hoang, Department of Finance. We have seen other Allocation 3 departments accumulate rather large balances and kind of what we're seeing in general, I guess. So challenges with the department is that department's fund balances grew during the implementation of the cannabis tax programs, which took time for the department to staff up and begin soliciting their grants and program activities, and additionally just the administrative process of how the departments receive funds and when there is some uncertainty with Cannabis Tax Fund Revenues.

So allocation through departments must right size their programs, positions and grant funding to align with tax funding on an annual basis. Departments must also sustain a carryover balance to account for operational continuity in the case that revenues do decrease, which is what we've seen in the prior years.

All right, any other questions before we move on? Thank you. Appreciate it. Thanks. All right, we will be moving to issue five budget change proposal Department of Cannabis Control we have one budget change proposal for the Department related to its legal affairs and laboratory services divisions. I'd like to welcome representatives for DCC for this panel, and you can introduce yourselves. Nice to see you again.

Yes, nice to see you as well. Thank you. Madam Chair and Members of the Committee, my name is Angela Hill and I serve as Deputy Director of Government Affairs for the Department of Cannabis Control. The Department has one budget proposal before you today for discussion, which requests ongoing resources to support the increased workload in our laboratory services and legal affairs divisions and continued limited term funding for our legal services.

The proposal has a total estimated cost of 8.2 million in fiscal year 2024-25, 8.1 million in fiscal year 2025-26, and 1.3 million ongoing beginning in fiscal year 2027-28. I'd like to first discuss the critical need for the five requested positions within the Laboratory Services Division. The Laboratory Services Division is responsible for the regulatory oversight and compliance of California's licensed cannabis testing laboratories.

The five requested positions will better equip the Department to build the capacity of our state lab to test for all types of products and identify contaminants across the supply chain, scaling our investigative capabilities to support more comprehensive product and lab oversight. In addition to the resources necessary to support core functions of the laboratory division, the Department is also requesting resources for its Legal Affairs Division. The Legal Affairs Division is responsible for providing critical legal services for the department's 12 divisions and Executive Office.

The two requested positions for the legal affairs Division will enhance the department's capacity for enforcement cases, allow for proper supervision of attorneys, and dedicate a support staff to manage administrative duties that are currently being absorbed by attorneys. Absent the approval for these seven requested positions within the laboratory and legal divisions, the Department will fall short in meeting its mandated obligations in a timely and effective manner, which in turn can impact our ability to protect consumer health and safety.

The Department also requests a continuation of our limited term legal services funding through fiscal year 2026-2027. This funding includes 2.7 million for litigation expenses with the Office of the Attorney General and 4.1 million for anticipated office of Administrative Hearing costs. This funding directly supports the department's ability to take critical compliance and licensing actions, which are essential to our core mission of protecting consumers and upholding the integrity of the licensed market.

Due to our increasing number of enforcement and licensing actions, DOJ referrals, and involvement in ongoing civil litigation, our requested legal services may underestimate our actual costs for DOJ engagement and administrative hearings. To be adequately prepared for this scenario, we've included provisional language so we may request an expenditure increase from the Legislature within this three year period in the event that litigation and hearing costs outpace our projections. Thank you for your attention today, and I'm happy to answer any questions.

Thank you. Any questions from our Members? Before I go on, I wanted to go back to the laboratory services for testing, if you can kind of elaborate on that. Laboratory services for testing the quality and safety of legal cannabis products.

Yeah, happy to. So the state has various requirements for testing products. Ultimately, licensed testing laboratories do test products that go to market, and then we have an oversight role and function for those products. So we do have a state testing lab here in California, in Richmond, and then we also have a contracted lab in San Diego, UC San Diego, to support us.

So ultimately, we don't have the adequate staff in those locations to ensure that we are able to do some of our core functions, including developing standardized testing methods. These testing methods are very intensive and there are international standards that have to be satisfied in order for us to have those types of testing methods certified and allowable for us to use, so we can properly oversee our licensed laboratories.

So funding for the laboratory division will support positions so we can ensure quality control and do very important things, such as make sure we're getting all of our certifications for testing.

And then on that we're talking about legal cannabis. But one of the things that I noted going out on this enforcement in Fullerton, where I actually live, was because we were going out to enforcement for illegal cannabis, the huge amount of product that was there. And some of the products, of course, that we know are not legal, but look like products that younger youth would be very interested.

So, for example, and this is for my colleagues up here, they actually had packages that looked like Cheetos, but they were infused with cannabis. They had Capri Sun drinks that looked like Capri Sun, but was infused with cannabis, many, many other products. And so once the enforcement happens, is there a part of the legal cannabis sides that goes out and tests those mean, I know they have to get rid of the products. Where does that fit into this?

And anybody can answer that, has information on that? Yeah.

Andrew Hoang, Department of Finance. I think that just provides some important context to why these positions are really needed within the laboratory division. As you noted that the Department may be tasked with providing samples on various products which we may have not seen before. And that's where the department's proposal will have these research scientists be specialized in subject matter experts on the various different microbiological and chemical science based tests.

Because right now, what the Department is experiencing is that without these positions, that processing these samples may be timely and then could result in delayed enforcement activity. So, yeah, that's kind of where it comes together with what's being requested today.

And then in relationship for the additional legal expenses of anybody from the LAO would like to speak on that.

Thank you, Madam Chair., Jared Sippel with the LAO. So, just generally, for this proposal, we're recommending approving the resources requested for the laboratory, services, and legal affairs divisions, as well as the proposed provisional language for litigation and administrative hearing cost. However, we are recommending reducing the department's proposal for AG and administrative hearing costs. Specifically, we're recommending reducing the AG costs from $2.7 million to 1.2 million and the administrative hearing costs from 4.1 million to 23,000.

In our assessment, we found that the governor's proposal for these costs was significantly higher than past expenditures, and our amounts are more closely aligned to past expenditures, while also including some amount of buffer, acknowledging that there is potential for growth in the future. And so we do ultimately, as I mentioned, recognize that there is potential for growth in the future, and we believe that the proposed provisional language would offer the department flexibility should these additional costs materialize above and beyond these recommended amounts.

So happy to answer any questions.

Yeah.

Andrew Hong, Department of Finance. I just want to note concerns with the LAOs recommendation to align the department's legal services request based on past year actuals. The department's past year actuals may not accurately reflect the department's future legal workload. The Department has experienced an increase in DOJ referrals in the current year and anticipates referrals to grow in the current and future years, which will likely result in increased legal services costs compared to prior years.

Due to the unknown nature and complexity of legal work in the cannabis space, the department has put forth their best estimates and request a continuation of 2.7 million for litigation expenses, which was authorized through 23-24 and was previously provided to its former legacy departments. And the Department is also requesting 4.1 million for OAH expenses, which is a reduction from the previous appropriation of 8.6 million. And the requested amounts are really to provide the department a baseline of funding to address their legal service costs.

Any other questions on this? And then last, and it may have fit in any of these cannabis. We've had two panels up here, but going back to the enforcement, we have been told, or I should say I have been told as the chair, that the enforcement part, with the officers out in the field, that they feel that they do not have enough staffing. I think they said that there were 88 positions and they're down to 75 just for hiring purposes.

But even if they were at capacity at about 88 positions for across the State of California, that's not even close to what they need for the illegal market. Do we have any comments on that? Because I don't see any requests, anything in this budget analysis related to that? Any comments?

I'm happy to jump in. Angela Hill again, Department of Cannabis Control. I think ultimately we'll definitely come back when there's a place of positions all being filled. But as you noted, we currently don't have 100% filled position world in that division. But we'll definitely stay in touch and acknowledge, though, that the work that they do is really important and that there's a lot of work to be done in the enforcement space.

So do you want to just acknowledge the work of the sworn officers and non-sworn officers in the enforcement division as well?

Yes, because I'm very concerned that unless we start to close down the legal market, we're going to have these enforcements that take a lot of effort and energy and coalitions to come in and do that. And then, as we've seen in our local communities, they can be right back up within a very short amount of time. So you're enforcing, you're leaving, they're right back up.

And it's kind of that cycle that we need to break if we're really going to take these dollars under the cannabis, a serious part of our budget, because as they go up and down, it's hard to plan with the changes in revenue. So I think enforcement is really huge. And then going back to our panel before, if we have, I know with the Proposition, it was very specified as far as what percentages you could use in the three categories. But as that, I think.

Was it in 2029? When does that come back up, the Proposition? In a few years, 2028. I think asking for some flexibility would be really important, because if we don't have that flexibility, it makes it hard for local jurisdictions to really move forward. Any other comments? Last comments. All right. Thank you so much. And we will move to our last issue, completely different issue. Department of Real Estate.

Our last agenda item for the day, the Department of Real Estate. The Subcommittee will review the request for a trailer nill to increase the dapartment's fees, as well as one budget change proposal. What, increasing fees? In addition to the Department of Finance and LAO, we welcome DRE Commissioner Chika Sunquist, who is joining us in this panel. And we will go ahead and begin.

Thank you, Madam Chair and Members. Thank you for inviting us here today to speak with you about our budget change proposal that we've put forth for the California Department of Real Estate. With me today is Sonja Palladino. She is our assistant Commissioner for legislation for the Department. The Department of Real Estate is the regulatory agency that enforces the real estate law, Subdivided Lands Act and Vacation Ownership and Timeshare act.

Our mission is to safeguard and promote the public interests in real estate matters through licensure, regulation, education and enforcement, and consumer protection is our highest priority. We oversee the licensure of approximately 434,000 licensees as well as the review of more than 2500 public reports for subdivisions hoping to sell units to California consumers. The Department of Real Estate has 380 positions and five office locations throughout the state. We are solely funded by the real estate fund.

Fees charged for real estate exams and licenses, subdivision public reports and various other permits are deposited into the real estate fund. DRE does not receive general fund dollars. In this budget change proposal, we are requesting an increase of $3.23 million in budgeted expenditure authority in fiscal years 24-25 and 25-26 and $2.45 million ongoing. The proposal will match the expenditure authority with current costs, allowing the department to successfully operate and continue to fulfill our mission effectively.

Due to high levels of staff retention, increased cost for contracted services, and increased rent costs, the department has identified gaps in authorized expenditures necessary to fund the cost to operate.

Some areas where we have identified funding gaps are our call center staff, which are positions with limited term funding expiring this year. Attorney General and Office of Administrative Hearings, for which we pay to prosecute egregious license law violations. Our exam proctoring contract, which provides increased access to our exams throughout the state. IT equipment. Our San Diego office rent increase, which was due to a move caused by the sale of a state building we had occupied, and gap funding for long-term staff salaries.

We are also requesting trailer bill language to implement a new fee schedule that better aligns revenues with expenditures and addresses a structural fund imbalance in the real estate fund. DRE last adjusted fees statutorily in 1997, more than 27 years ago. During this time, we have taken a prudent approach by using reserves in the real estate fund to offset the recent trend of yearly expenditures exceeding revenues prior to seeking a fee increase. Changes to the fee schedule are needed now because expenses have slowly increased over time.

The department has been prudently spending down our reserve and we are now at a point where expenditures are exceeding our revenues from fees. It's prudent to raise fees to allow for the continued effective operation of our department. This proposal will allow the Department of Real Estate to both meet current costs and raise fees so that it can equalize revenues from expenditures while maintaining a reasonable reserve.

For example, we're proposing an increase of the salesperson license and renewal fees from $245 to $350. And the license is a four year license, so this would be an increase of $26.25 per year. In addition to setting new fees, we propose continuing the historical practice of setting statutory fee maximums that allow DRE to slowly raise fees over time to keep up with inflationary costs.

In DRE's history, I believe we've shown that we are responsible stewards of maintaining reasonable fee levels. The current fee maximums were set statutorily in 1997, but DRE did not reach those maximum levels until 12 years later in 2009, and we have been operating at those fee levels for the past 15 years. We expect the proposed fee maximums in this proposal to operate in a similar fashion.

Stabilizing the real estate fund as proposed by this budget change proposal will provide long term stability and ensure that DRE has the resources to continue to effectively regulate the real estate industry and protect consumers. Thank you for your consideration of this proposal, and I'm happy to answer any questions you may have.

Any questions from Members?

Thank you. I do have some questions and then some comments as well. I am a licensee myself. I have a broker's license. I don't do real estate for a living. Obviously, I got a full-time job, but I wanted to ask a few questions. And when is your upcoming sunset review?

It's coming up this next year, so 2025.

So might you be willing to wait until that sunset review to request a fee increase?

Sure. I appreciate the question. And if we were to wait till sunset and then implement fees through that process, we project a deficit in the real estate fund of approximately $8 million, which is about 12 percent of our current operational budget.

Some of the money you're requesting through the BCP process, though, presumably wouldn't have to take place now, like the IT equipment and things like that. And that's not an insignificant amount of money.

You're right. And the IT equipment is to support our maintenance of hardware and software systems to ensure that our systems and data are secure for our licensees and for our staff. And I apologize I missed the second part of your question, or the first part.

It was probably more of a statement. Anyway, did you want to respond?

Yes, Assemblymember. Sonja Palladino with the Department of Real Estate. I would just note that the request today for increased expenditure authority is about $3.23 million, and the projected deficit would be $16 million. So even taking that into account, if the committee were not to approve the increased expenditure, we would still be $13 million in a deficit. I think the challenge with our sunset is that the fees would not go into effect until January 1, 2026.

So we're looking at almost two years from today's date from when those fees would go into effect.

How long has the DRE been running, dipping into reserves or running a deficit?

We first identified declining reserves in circuit 2001-2002. And in 2002, we took the step to initiate a fee study to evaluate what the cost per unit for our fee. And that was kind of the beginning of the process for us to determine whether fees should be increased and by how much.

Okay.

Apologies, it was 2022. Sorry, I just said 2002.

Okay, great.

Numbers are flying around in.

Yeah, no problem. We had this same issue because he said 2019 earlier, and I was like, 1920. I said 1920 seems like a long time ago. Okay, so when was the year, just for clarity, that you identified?

So we saw declining revenues in 2021-2022. And we did start the fee study in 2022. This was a topic when we were presenting BCPs in 2022 that this Committee did inquire about as well. And during that time, we had some conversations about the fee study. At that juncture, we had an RFP out for a third-party contractor to help us with a third-party fee study.

Okay. 2022. And your last sunset review was 2021, but it started in, apparently 1920.

SB 800 was from 2021, renewed our sunset. And we do write our sunset report the year prior.

Okay. But during that time, there was not an indication, at least, that there was going to be financial issue.

I do not believe so, but let me check with our budget folks, and I'm happy to circle back.

Okay. So, and then in terms of this particular increase, the thing with the sunset process, having been a member of the B and P Committee, usually that's an opportunity for a public hearing on what the needs are and what exactly various departments are doing to serve their regulated individuals or entities. And so this kind of takes it out of that process a little bit. Because of that, I think it's really important to work with the stakeholders in this process.

Was there any kind of acknowledgment prior to the governor's budget release that this was going to be a request coming through?

We are very proud of our relationship with our stakeholders. We frequently meet with them. I know our past commissioner and our current commissioner have a monthly meeting with one of our largest stakeholder groups, a monthly phone call. When we did a contract for the fee study, I know that was a topic that was mentioned at those monthly meetings.

We did also have the opportunity to present at large stakeholder conferences on the fee study, as well as the results of the fee study, which we did last September, noting that the revenues were less than expenditures according to the fee study results.

All right, so just a couple more comments, if you don't mind. I think I have a lot of philosophical concerns about the cost of regulating in California, it's not only applicable to you versus other states. Some equal agencies, like here in California, for example, much smaller industries might have the same. I'll just use an example, actually, since it comes through this committee anyways, the gambling industry. It costs more money or as much money to regulate here in California as it does in the State of Nevada.

It has never made any sense to me, and I understand how fee studies work in terms of, we did them on the city level as of these are the resources we need. And then you say upfront how much money you need. And it's really not a qualitative analysis. And so I think with this magnitude, I'm listening to the need for more revenue for you.

But I think the sunset review is so important because it allows the qualitative analysis by the Legislature in determining on whether the fee is even necessary. It's unfortunate, I think, that we kind of got to the point where this is the first I've heard of it, although it's only my second year in the Legislature. But as a Member of the BNP Committee, as we're going through, know this is something we could have talked, know things like that.

But I think that's the whole point of the sunset review committee. And so I would just submit that this should be done through that process. Other agencies do that. The Medical Board of California just did that last year. And so I recommend doing that. And then I also had a tirade just generally about fee increases, but I'll save you the time on that right now. But thank you for hearing me out, and hopefully, we can see this through the sunset review process.

And I'm open to solutions on how to sort of bridge the gap. Some of that would include maybe not doing it expenditures this year. But I'm open to those conversations. But I wouldn't support such a huge fee increase outside of the normal process.

Charlene Manning, Department of Finance. I would just note that since the last sunset review, the department has been filling its positions. Folks have been staying on at the department. Additional costs have increased since that sunset review. And although the timing doesn't quite work out with the next sunset review process, they're headed for a negative fund balance. And so that's why you have the proposal in front of you at this time.

Thank you. I'll just sort of tear off that with my own comments as well. I generally like our sense that review process exists for the reasons that it is, and I would prefer that something be analyzed through that as well. Recognizing that we might be under a time crunch, and perhaps as discussions go forward, we're to take the form of maybe a one time fee or a temporary increase until such a time we can have a more thorough review.

Might be a better way to sort of more cleanly stay towards a process that we've always enjoyed. That's important. But at the same time, I'm wondering why we have a range that is proposed here as opposed to having to crunch the math and recognizing that costs go up and these are necessary functions that we want to make sure are supported through the department, why not make sure that we are charging a minimum necessary to be able to sustain those departmental functions?

Sure, I appreciate the question, and you're right to your point. There is in our fee schedule, we have a proposed base fee and then a statutory fee cap. And the statutory fee cap follows historic DRE statutory practice, and this proposal would continue that practice, and it allows for long-term stability of the department to increase fees incrementally based on needs and costs. The statutory maximum that we've set is proposed at 50 percent of the base fee.

But if the Legislature were to approve our proposal, then the proposal would be to raise fees to the base fee.

Is this drafted or this, would this be proposed in the trailer language to only entitle or authorize the minimum fee then? Unless the information showed that an increase is necessary to sustain operations.

Certainly at this point, yes, we're simply requesting the minimum base fee at this moment.

That's made more clear in budget language and again, like to see how this goes forward over the next couple of months. But let's make sure that we're looking at proposed increases fairly and with good rationale.

Yes. If I may add to that, if we were to increase fees, and as we have in the past, we would do that through the regulation process. And that process allows us to engage with stakeholders and obtain their feedback, ensure that costs are reasonable, that we're only minimally and incrementally increasing fees to a reasonable fee that meets our requirements of ensuring reasonable fees for the constitution, and then also ensuring that the fee is tied to our costs.

So we have enjoyed that regulatory process of engaging with stakeholders and then only increasing costs to what we need them to be.

Great. Thank you for your work.

Any other questions? Any other comments from any of our guests here? All right, I think then that is it. Thank you so much. We are happy to entertain public comment for 1 minute or less.

Madam Chair and Members, I'm Mike Belote for the California Mortgage Association, speaking to the DRE issue that you just discussed. I represent an association of mortgage brokers, a rather niche element of the DRE licensed population. They are not engaged in general sales like the realtors, so ably represented by CAR. But for context, we are an important element of the real estate community with real impacts on consumers, and we support this increase.

You're talking, for context since 2009, it amounts to an increase of $37.50 a year. We think it's modest. We think it's justified. We have been consulted regularly. In my view, after 44 years of representing all sorts of licensed professionals, in my view, the Department of Real Estate does perhaps the best job in California government of keeping its eye on the consumer protection mission of the department, but also offering customer service to the licensee group. They should be applauded, they should be funded, and we support the increase.

Thank you.

Good afternoon, Madam Chair. Anna Buck. Sorry, can you hear me? Good afternoon, Anna Buck. On behalf of the California Association of Realtors, which represents over, well, actually a little less now than thanks to our economy, a little less than 200,000 realtors in California. We do have concerns about the breadth and the extent of the proposal in front of you today. Mainly, I believe, because of the very short notice we had specifically about those needs.

We are aware, of course, of the Dwindling Reserve and the need for a fee increase. But no specific fee increase numbers were discussed with us until after the budget proposal was released to the public. And no documentation about the fee study that was conducted has ever been shared with us directly. That being said, we are now engaging in discussions with the department, and we look forward to continuing those discussions as the process unfolds. Thank you.

Madam Chair and members, Norlyn Asprec with Axiom Advisors, representing the California Building Industry Association. We appreciate the work of the Department of Real Estate and support its requested budget change proposal and its petition to adjust its consumer fee schedule. Due to increasing costs and market conditions, the existing Department of Real Estate's revenue is threatened, and it threatens their ability to provide future quality services. And because of this, CBIA is pleased to support item 2320. Thank you.

Good afternoon. My name is Michelle Velez, and I'm the state president for the California Association of Mortgage Professionals. We represent mortgage lender originators and mortgage brokers as well as some realtors. As stakeholders, we are in support of the increases proposed by the Department of Real Estate. We feel that this will help stabilize the real estate fund and as well as ensure that the Department of Real Estate has the resources to continue to effectively regulate the real estate industry and most importantly, protect consumers. Thank you.

Thank you. Seeing no one else coming to the microphone, this will end our committee today. Thank you so much.