Assembly Budget Subcommittee No. 7 on Accountability and Oversight

Just over a month ago, California passed its 2024 to 2025 state budget for the current fiscal year. Faced with a significant budget deficit, the Governor and the Legislature negotiated various solutions to adopt a final balanced state budget. Ensuring the protections of essential programs for Californians most in need of assistance was a priority of ours.

One of the budget solutions involves a nearly 8% reduction in state operation budgets from the General Fund. Additionally, this measure also includes sweeping funds from numerous vacant positions. These steps are designed to streamline operations and ensure that essential services remain unaffected despite the budget cuts that were made.

The budget specifies that these are reductions cannot affect existing state employee labor agreements or collective bargaining rights. These two budget measures collectively total about 10% of state operation costs from the General Fund and about $3 billion of the 2024 to 2025 budget savings.

To achieve these reductions without compromising the delivery of services, the state must enhance its operational efficiency. Today's hearing will focus on just that.

The Governor has proposed a budget trailer Bill making changes in how the State Department of General Services manages state public work projects and oversees state contracts for services to bring about greater efficiencies in these operations. I look forward to the discussion today.

Now I'd like to open up the floor to our fellow colleagues if they have any opening comments.

Got it. Oh, there we go now. Thank you. Welcome, everyone, and thank you for the opportunity to sit in today. I look forward to the conversation and look forward to many more opportunities to engage, and I really appreciate the invitation to be here today. Thank you.

Absolutely. Assembly Member Rubio, thank you. And your tenacity in the Legislature when it comes to government efficiency has always been spot on. So thank you for participating today. Now I'd like to welcome and introduce our witnesses to today's hearing.

Presenting the administration's government efficiency proposal is Daniel Brandon with the Department of Finance, and here to provide comment to answer any technical questions, Luke Kushmaro from the Legislative Analyst Office, and Miss Brandon, good morning. Welcome.

Could you please describe the Committee to the Committee, the provisions of the proposal and how it achieves budget savings in state government operations as anticipated in the budget negotiations?

Great. Yes, again, good morning. Chair Valencia. Members Danielle Brandon with the Department of Finance in the proposed trailer bill. Before you this morning, if adopted, will allow the Department of General Services to more efficiently fulfill its duties related to public works projects.

Job order contracting and contracting oversight I wanted to note that this version before you today is a pared down version. It's eliminating some previous sections from our June 1 trailer Bill posted online. It no longer includes provisions related to increasing leasing, delegation or expansion of progressive design build or study. For the Office of State Publishing.

It does include four provisions still there. It provides broader authority to delegate public works projects and for this section, most state departments lack authority to contract for public works projects, necessitating DGS to undertake projects on their behalf.

Depending upon staffing levels and the number of projects funded by both the Legislature and departments as part of their support budgets, some projects must be placed on a backlog. Under current statute, DGS ability to delegate projects is both project specific as well as limited in amount.

This proposal would expand DGS's authority to delegate projects to departments capable of executing those projects successfully while still requiring DGS supervision and inspection. The language requires the Department of Finance approval for project delegations where total project costs exceed $3 million and only for projects delivered directly by a state agency.

This will allow for a speedier delivery of projects while allowing DGS to focus on those public works that are more difficult to address. The next section is job order contracting for DGS. The default method for public works in statute is design bid build.

However, design bid build is the most time consuming delivery method, increasing cost in the long term due to cost escalation or inflation. Design bid build also requires more design services than what is strictly necessary for some projects, further driving up costs.

Authorizing DGS to utilize job order contracting will allow DGS to rapidly address small, important, but non emergency projects that are necessary to keep buildings functional and to address rapid changes in office needs, reducing deferred maintenance and emergency work, thereby reducing costs.

Job order contracting is an established construction delivery method that is already in use by other state agencies and public entities. It is a competitive bid, fixed priced, indefinite quantity contract for the performance of minor construction. This effectively pre bids projects, saving time without losing the cost advantage of competitive building.

This also effectively combines what would otherwise be multiple project specific bids into a single multi year solicitation.

DGS has worked with labor stakeholders on the version of the job order contracting presented to you here today, which is different from what we provided in June, and it's to ensure the job order and contracting does not conflict with existing labor protections. The next section is limiting GGS review of Low dollar expert witness contracts.

Existing law requires departments to submit very Low dollar value consulting contracts to DGS for review and approval, many of which are for expert witnesses for litigation. These contracts are already exempt from advertising and bidding. Eliminating the requirement for DGS review of these Low dollar value, Low risk contracts will streamline the contract review process.

This primarily impacts departments who retain successive expert witnesses for litigations such as Caltrans and the Department of Justice.

GGS will still review consulting contracts, but not at the same level as all service contracts, all other service contracts, which is $50,000 or less, unless the Department has been approved for a higher exempture pursuant to the changes we are requesting in this next section, which is encourage departments to seek the $150,000 contract exemptions.

Existing law allows DGS to provide contract review exemptions to departments. To receive an exemption, departments must conduct audits every two years and DGS Office of audit services must perform quality assurance reviews of these audits. DGS intends to encourage other departments to seek this exemption in order to accommodate the potential increased workload to OAS.

This proposal would increase the current two year audit requirement to every 33 years. OAS would issue six year exemptions instead of four year exemptions and perform the I'm sorry, and perform the quality assurance reviews every three years as well, instead of two.

This would align with the three year cycle for other audit workload and would enable OAS to continue to conduct these reviews within their existing resources. This would reduce contract review workload for DGS's legal Office of Legal Services and would also enable DGS to focus available contract review resources on higher dollar, higher risk contracts.

By making this administrative change, DGS will be able to better encourage departments to seek this allowable exemption without overwhelming DGS's Office of Legal Service with audit workload, which would require additional resources. That is the end of my overview of the trailer bill.

I'm joined with representatives from the Department of General Services today to address any questions you have. Thank you.

Wonderful. Thank you Miss Brandon. And a mouthful to say the least when it comes to government efficiency and improving our systems. Sometimes the topics aren't as sexy as maybe other topics that float around here in the Legislature, but they surely do get me going in the morning.

So really appreciate this and I think this is going to be a good piece of policy that we implement. Mister Brain excuse me, Mister Kushmoto, do you have anything to add to this?

Thank you. Luke Koushmaro with the Legislative Analyst Office. We have a few comments regarding the trailer Bill, as well as some more General comments regarding how it relates to the unallocated reduction to state operations that was included in the budget.

Regarding the trailer Bill Language, based on our initial review, we do not have concerns with the proposed language. However, we note that the proposal includes a significant and ongoing expansion to job order contracting authority.

The Legislature could consider including a reporting requirement or sunset provisions to be able to assess the implications of how the expanded authority is used before making it permanent. In similar cases in the past, when contract authority has been expanded, such perfect actions were taken.

We also note that the Administration has indicated that the proposed changes to the delegation of public work projects would not be used for capital outlay projects, which would continue to need to be approved through the budget process. Process.

More broadly, regarding the unallocated reduction to state operations, the Budget act passed in June includes an unallocated ongoing General Fund reduction of over $2 billion. We believe that there is merit to the states seeking to identify operational efficiencies in state government both to achieve savings and with the overall goal of using taxpayer dollars more effectively.

The changes, including this proposal, could help address some of these efficiencies. We do not have estimates on the amount of savings that could result from these, but we do think they could play a small role in helping to achieve the state's savings target.

As we have discussed in prior hearings back in May, we think there is risk that the level of savings assumed in the budget from the unallocated reductions will not materialize in 2425 which could lead to larger budget challenges in the future.

We do note that there are reporting requirements that were included in the budget which will increase the Legislature's ability to provide oversight of the administration's efforts to achieve these goals. Thank you. I'm happy to answer any questions.

Wonderful. Thank you, Mister Koushmaro. Really appreciate that information. Now I'd like to turn it over to our Committee Members if they have any questions for the panel. Senator Kolk Silver.

Yes. Good morning and thank you for your comments.

And as the budget sub chair of sub five, I know that you made remarks in our Committee and some of the individuals here, and this hearing is exactly what we are trying to establish established going forward, knowing the really tough budget cycle that we hit this year and are anticipated perhaps in the future.

So when I'm looking at the goal, which is these efficiencies would help generate over 2.7 billion in savings. Can you expand on that as far as a little bit more context? There a timeline? Sure.

Thank you for the question. Member Quirksilva, just want to point out that the efficiencies presented here in this trailer Bill are provided as a tool to help the state reach that total savings goal of 2.7. It is not the only tool or not the only way for departments to reach that.

And as far as reaching that, we have begun the process of we are making progress towards implementing control section 4.05. We have issued budget letter which is guidance to departments to start planning for the anticipated reduction.

And we've also been working on providing additional guidance which should be issued in the near future in the coming weeks for departments on exactly what their targets are and some tools on how to reach those.

I will note that we will be providing more information to the Legislature, to the JLBC Joint Legislative Budget Committee on what that guidance looks like on or before October 1, per the provisions of that control section.

And then, of course, plan to meet the timeline of January 10 to demonstrate to the Legislature how we were able to achieve those savings. Thank you.

Wonderful. Thank you. And really appreciate you elaborating on the timeline component. Oftentimes here in the Legislature we pass legislation or policies, yet they're not implemented and they just go on the books and nothing really gets done. So this is something that I'm confident that the Committee will track and ensure that we hit that benchmark. Thank you.

Anybody else? Mister Mathis.

Thank you. Since we're talking projects, what's the and you're talking projects are being pushed off, what's the total cost on the projects that are being pushed off?

Thank you for that question, Member Mathis. I'm actually going to have to call on my colleagues at DGS. I'm not sure if they have that information really available, but I'm going to call Jason Kenney.

I'll try to pivot. Yeah. So in terms of the total universe of projects that are potentially subject to a backlog, it really varies year to year. In this particular case with budget reductions that Danielle mentioned, what we know especially. Well, I'm sorry, back up a second.

Many of the projects that come through our shop are done through support funds. So departments existing budgets, funding deferred maintenance, repairs and things like that. There are billions of dollars in deferred maintenance projects that departments don't have funds to ultimately undertake.

Us being a fee for service agency does kind of tack on some of the cost to those projects, and so being able to help meet those budget reductions potentially hold some of our own vacancies, delegate the work back to departments, should spur on those projects in terms of an existing backlog.

At any point in time, we probably have in the neighborhood of 20 to 50 projects, those will vary from 500 to 5 million, roughly. And so, again, it really varies year to year. Those are very ballpark numbers, but it's a sense of scale, I think, in terms of what we typically have to hold.

And I should also note at 5% escalation year over year for construction projects, the longer those wait, the more expensive they become in the long run.

If you could just have your guys meet with my team, I'd like to offline, kind of dive deeper into that.

Sure.

Thank you.

Thank you. Assembly Member Mathis. Any colleague would like to ask a question. I have a few. So the initial proposal, which was more expansive, had several provisions that are no longer included in what we are seeing today. Why were these provisions withdrawn from the original proposal? Just for some context.

And do you have any sense if the Administration will pursue these in the future?

So, again, Danielle Brand with the Department of Finance, some of these provisions were removed because they were a bit controversial, and we needed to continue to talk with some of the groups and for their directions on this. However, the pieces that we've put before you today, we believe are pretty straightforward. Yeah. So that's.

Sorry, that's all I have.

Thank you for that. And something that is specific to my district, but I'm also aware that it impacts other Assembly and Senate districts across the state, is Caltrans, and they're facing some challenges in securing timely maintenance contracts for tasks such as freeway cleanups, grass cutting, and tree trimming.

Is there a contracting method similar to job order contracting that would help streamline this process?

I am not aware of any. I will ask my colleague if he is aware of any, but we could possibly check back with our colleagues who handle Caltrans assignment.

Yeah, I'm not aware of any. Caltrans does have access to job order contracting, but they're independent of us in terms of their ability to construct projects. Sure. Awesome.

Thank you for that. And just lastly, you've already touched on it to an extent, but the proposal presented today is pretty straightforward. However, there still seems to be an I. These appear to be excellent efficiencies in operations. Will these types of government efficiencies produce enough savings to meet the negotiated budget savings goals?

I just wanted to thank you for that, Danielle. Brandon, just to reiterate, these efficiencies are just one of the tools being provided and suggested to departments to meet those goals. This trailer Bill in and by itself, is not intended to meet that full over $2 billion goal with as many.

Tools in our tool chest or on our belt. Let's make sure that we put them to good use and meet the goals. If there are no other questions now, I'd like to open up the hearing to public comment.

Thank you Mister Chair Members. Steve Baker with Aaron Reed and associates for the Professional Engineers in California government. With respect to the trailer bill, we'd like to thank the Committee and the Administration for not pursuing the June trailer bill and waiting till we can resolve the issues.

We were able to resolve our issues with the previous bill and we certainly were able to do that with this bill and are neutral on that.

With respect to the across the board cuts that you've been talking about, we'd like to thank the Legislature for including language that makes that subject to collective bargaining so that our Members can continue their work. We do have some concerns with the complete across the board nature of that. You talked about Caltrans.

There are many agencies in state government that are specially funded. It doesn't make sense to make cuts in specially funded agencies where those aren't going to help your budget situation. You have many agencies where you want people to do more work, not less.

And so we would hope that the Department of Finance can be more surgical in how they allocate those cuts as they go forward. Thank you.

Thank you.

Thank you Mister Chairman and Members. Matt Kremens here on behalf of the California Nevada Conference of Operating Engineers. We wanted to be here today to offer our sincere gratitude for the inclusion of state worker protections in the government efficiencies trailer bill. These protections will ensure that job order contracting.

It will clarify that they are not intended to be used to replace or displace work that is currently performed by state workers. So thank you very much for that. And with that we would urge your support. Thank you.

Appreciate you. Thank you.

Thank you Mister Chair. Keith Dunn here on behalf of the State Building Construction Trades Council, also in support. We appreciate the work of the Committee to remove any of the concerns to get where the operators are and protecting the workers that exist in specially state funded programs.

So we would ask for your support and appreciate the hard work that went into this.

Thank you for the comments.

Omega Brewer Gonzalez on behalf of SEIU Local 1,000. 1st, we want to commend the Administration and the Department of Finance as well as leadership in this Committee and the Legislature on the bill in its current form and want to especially highlight what's not in this form, in particular the elimination of the office of state printing.

This would have been a huge impact to the vital services that our workers provide for the state and as well to just that bargaining unit as well. And so we really appreciate knowing that we were heard in this and we do not have a position.

Thank you. Thank you for that. I want to thank our witnesses and Committee Members for participating today. We will weigh the comments today and determine if there are any modifications necessary. Not likely, but just in case, you never know.

While we may have passed the current state budget in late June, our budget work still has some work to do. This budget Subcommitee will continue to review the administration's actions to ensure that we collectively achieve the targeted budget reductions for all Californians. Today's hearing is adjourned. Thank you. Good morning.