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

Subcommitee 4 of the Senate Budget and Fiscal Review Committee will come to order. This is the second meeting of our Subcommitee for the 2526 legislative session, and we're holding our Committee hearing here in room 113 of the state capitol.

And any Members not present who are within the sound of my voice, if you could please join us so we can establish quorum. As we begin, we will provide opportunities for public hearing in two formats. First, at the conclusion of each Department budget, so not on each.

But not on each item, but at the conclusion of each Department. And then one additional opportunity for overall public comment at the end of the hearing. So let's move then directly to our first item for discussion, which is item five, the CalABLE program. So I'd like to invite Finance and LAO to join us up at the table and also the presentation by the Department.

Welcome. Good morning. Hi. My name is Thomas Martin. I'm the Executive Director of CalABLE. Appreciate the opportunity to be here today before getting through the BCP. If I can give a quick overview of the CalABLE program and how it works, I think that would be helpful background information. So first, a little bit about me.

So I'm autistic, and so are both of my kids. And CalABLE is really important to how I'm trying to make my kids as independent and financially secure as they can be when they're adults because there's some major benefits to the CalABLE program for them.

So in order to qualify for CalABLE account, you have to have a disability that starts before the age of 26, although that's going to be increasing to the age of 46 next year, which is the purpose of the BCP. So if you have. If you have.

If you have a disability that starts before the age of 26, you can open an account and save money in your own name. Someone can help you save money in your name as well. And there's two main benefits that come from having a CalABLE account.

So the first is that any earnings in the account are tax free, which is just a great way to help be able to, you know, save for the future. The other main benefit is that that it's not subject to the standard asset limits for ssi.

So SSI, Supplemental Security Income, that comes from the Social Security Administration, it's the. It's the main source of income or the only source of income for hundreds of thousands of Californians. And. But. But it comes with a significant limitation, which is that you can't. You. You can't receive SSI if you have more than $2,000 to your name.

So, you know, imagine if your next paycheck didn't come in because you have $2,000 in the bank. You can see how that would be a huge financial limitation and really impact your ability to make any good, sound financial decisions. But that's what makes calable so important. So calable is exempt from that $2,000 limit. So.

So you can save up to $100,000 in a calable account and still get SSI benefits coming in. So, you know, for me with my kids, again, I'm using it to save for their futures. One of my kids, maybe both, will probably be on SSI when they're adults.

And having a calable account is the only viable way that they'd be able to do something like have an apartment or live on their own, have any nest egg for any major expenses, anything like that. So that's why it's so important for the disability community. That's why we've been growing the program so much.

But we're hoping to grow it even more and there's a great opportunity next year. So federal law change to allow disabilities to allow people with disabilities that start before the age of 46 again instead of 26 today. That takes effect January 1st.

So the proposal today would be to have an additional AGPA position to help us connect with the public, in particular those people who as adults became disabled.

So that means people with either later onset conditions like multiple sclerosis, or in vehicular accidents or industrial accidents, or disabled veterans, folks like that, who have disabilities that start at a later age, who are also not in our typical disability pipeline.

You know, who we work with are mainly, mainly people who have disabilities in childhood, right at birth. You know, people like me and my kids. If you have a lifelong disability, one that starts at birth, birth, generally you get services through development services or other programs that cater to those lifelong disabilities. And those are a lot of who we work with right now.

So adding on this big, huge group of people with disabilities as an adult who aren't in the typical pipeline that we work with would mean that it'd be extremely hard for us to be able to connect with them and work with the types of organizations that support them or represent them or connect with them individually, because many of them don't receive services through, for example, a state program.

So that's the proposal today. We're talking about a real significant change in how we connect with people and what organizations we partner with. And so the AGPA would be heading up our efforts to be able to connect with those organizations and the people they're supporting. So with that, I appreciate your consideration for the BCP and I'm happy to answer any questions you have.

Does the Department of Finance or LAO have any comments or issues to raise?

Francisco Mata Department of Finance no additional comments.

Alexander Bentz LAO no comments.

No, just a statement. I support the program and have but given the shape of the budget, I have a hard time approving the augmentation.

Can you give us a sense of what the population, the demographics, the size of the population that you expect incrementally as a result of AB339 next year?

Sure. Yes. So it's about roughly a 50% increase in the number of people who we think are eligible. There isn't necessarily one source you can get all the data, but that's based on projections from the National Disability Institute. So roughly a 50% increase in who would be eligible for a CalABLE account versus who is eligible today. So it's somewhere around 700,000 or so additional people that could have an account.

Okay. Is this the addition of the AGPA? Is this the feedback that was provided to the author and the Appropriations Committees when AB 339 was proceeding through the Legislature? The just magnitude of a request that.

Would have been a little bit before my time. So I couldn't say exactly what feedback was provided then. However, this has been the, that's been the projection for the last few years. The again, roughly 50%, roughly 700,000 additional.

I appreciate that, but I'm talking about the additional funding that is would be roughly $200,000 reported to the appropriations committees and in the enrolled Bill report to the Governor is the estimate of how much this was going to additional cost this was going to incur for the state.

Okay, sorry, apologize. I misunderstood. I I'm not sure I'd have to. I'd have to go back and look at what was provided at the time. This is however, this, this is really a change in federal law.

So the, the prior prior state legislation was just to to mirror the the expansion eligibility of the federal law just to be, just to be in line with it. So, so the the expansion of eligibility, this this changed in federal law. I believe it was 20. I believe and so it's, it's just now taking effect next year.

But the federal law, the federal law require or allow us to do this change in eligibility.

The federal law, federal law allow. I guess you look at it as allows states to expand. However, I'm not aware of any states that aren't expanding it.

Then finally. So CalABLE is operating with General Fund loans and this is a request for ongoing. Ongoing permanent General Fund separate from that loan structure that we currently have. Am I correct?

So yes. So CalABLE has, CalABLE received kind of startup loans to be able to get the program going. However right now there is a. We do have General Fund appropriations for. For operating the program. So CalABLE is currently paying back the loans based on schedule part of the BCP last year. So with the targeted repayment of the loans being in 2032.

So obviously I'm brand new so I wasn't here when this was done. So are we. So the startup was on a loan basis with the expectation that the loan would be repaid and we have subsequently and then this year proposing permanent General Fund outside of that loan structure.

So was the original concept that this would be enterprise or self supporting and we're moving away from that to a General Fund approach?

No. So the positions. So that CalABLE positions have been General Fund funded. There's when the program. So right now the program's still ramping up and generate revenue. When the. When the program reaches level self sustaining then there would be at least a consideration of shifting away from General Fund support towards having the program self operate.

So I'm not aware of any provision that mandates it necessarily but that's the intent. The intent would be to shift towards a self sustaining model as the program continues to expand, adds more accounts and then generates more revenue.

Finance, do you have any additional comments on this?

Yeah, I just want to clarify. Just want to clarify this Department of Finance, Francisco Mata I just wanted to clarify that the Department is currently General Fund has a General Fund appropriation and essentially they had a. They were funded through special funds but they are no longer funded through special funds. Such one Clarif. Make that clarification.

So it's, it's. It's our. Our plan is for the for CalABLE to be permanently General Fund funded.

So apologies. Yeah. So we are hoping that they will generate enough sufficient revenue in the future to then become self sufficient. But at this moment in time they are General Fund appropriation.

Do we have some mechanism for a letter to the future about this? I'm trying to imagine if CalABLE will became self sufficient in six years from now and then finance were to propose that we remove the General Fund positions that it seems almost assured that it would be characterized as a massive statewide controversy that we're cutting CalABLE. Do we have a plan for how that transition might happen? Or is it just that? So that's a story that we're telling ourselves.

What will happen when we get to this point and is there any way for us at this point to trigger that so it does not become a question of a permanent General Fund support when the original intention before the expansion even was to be self sufficient?

Yeah. So that would be evaluated. At or. Before 2032 when the loans are due. And so we would have those conversations at that moment in time.

Okay. Any other questions? Then we're going to, we're going to move on to the state controllers. Thank you very much. Appreciate it. Thank you. Senator Niello so if the representative of the state control would please join us and begin with an overview and a status report.

And then if you would please also include a brief report on how federal funding augments and impacts and some of the issues that are happening in D.C. might impact your programs. Welcome.

Thank you and good morning. My name is Jennifer Urban. I'm the Chief of Budgets and Accounting with the State Controller's Office. We thank you for the opportunity to discuss the 25-26 request before you a little bit about the SCO.

As chief fiscal officer of the world's fifth largest economy, the SCO holds primary responsibility for the state's financial accounting, reporting, disbursement and auditing of financial resources. The state's credit rating, access to capital and ability for our various government jurisdictions to issue bonds is reliant on the work that we do.

The SCO impacts every community, family, individual and business across the state. For example, the SCO produces and issues California's annual Comprehensive Financial Report, Budgetary Legal Basis Annual Report and the monthly General Fund Cash Report. We safeguard and return approximately $1.5 million daily to rightful owners of lost and forgotten unclaimed property.

We issue 64 million payments annually for state obligations totaling $679 billion. We process 658,000 monthly payroll payments with a total of $27.4 billion and audit 61.1 million claims against the state prior to payment annually. Currently, the daily operations of SCO is resourced with roughly 1,600 positions and $329 million.

The SEO is engaged in three statewide initiatives to better serve the people of California and that are in various critical stages. The California State Payroll System Project, the Accounting book of record, fi$cal implementation and the annual Comprehensive Financial Report are all essential to the financial information and well being of the state.

Transforming the way we do business and to serve our customers in a more efficient and effective way. Additionally, SCO is engaged in an enterprise wide departmental strategic plan to focus on intentionally investing in our people, processes, technology and infrastructure.

The strategic plan is a roadmap to integrating our purpose into the SCO culture and every facet of our operations. Finally, the Controller is actively working on redefining our Division of Audits focus in a manner consistent with the constitutional and statutory duties. This includes a plan to closely monitor the $288.1 billion in expenditures in the 24-25 state budget.

Currently, the Division of Audits is severely underfunded related to the extensive audit oversight responsibilities and without sufficient dedicated team Members to meet legislative and stakeholder expectations.

With that, the item before you is requesting $9.1 million for the continuation of consulting services to support the SCO Book of Record functionality migration to FI$Cal FI$Cal is of significance, scope, complexity and sensitivity and has been identified as one of the largest financial business transformations the state has undertaken.

It has transformed the way the state Departments conduct financial operations and has a substantial impact on the annual comprehensive financial report processes. SCO is the last of four business partners to transition its book of record for accounting and Financial reporting to FI$Cal.

FI$Cal is SCO's legacy system continue to run in tandem until the book of record functionalities are migrated to Fi$Cal. While SCO divisions are utilizing Fi$Cal, it is in limited fashion and its legacy system is still the accounting and financial reporting book of record.

There is work to be done to prepare SCO for this large change internally and to modernize its operations and to provide constituents with the necessary data and expected customer experiences required of a modern workplace.

Funding approved for fiscal year 24-25 supports a business integrator that will perform an integral role in successfully enabling the large scale transformation by performing critical activities, challenging decision making, to focus on long term value and providing third party perspectives to drive accountability.

The business integrator will work alongside the Fi$Cal system integrator and state leadership throughout the transformation by focusing on activities promoting stakeholder adoption and realizing business benefits and we are happy to answer any questions you may have.

Finance or LAO.

Dominic, Department of Finance. We have no additional concerns.

Brian Metzker, LAO no comments on this.

I think I heard you say that you're going to run the two systems in parallel for a while.

Good morning. I'm Laura Taylor Krbecek, Acting partner with our Fi$Cal division. We're not well, we are currently running the systems in parallel. We are in what's called an integrated solution. There's one point of entry, either our legacy system or fi$cal. And we're interfacing the information back and forth until we get to the point in July 2026 when we will transition our accounting book of record from our legacy system to fi$cal.

And that's the bulk of work that we're currently working on is trying to get to the point where we can have fi$cal be the accounting and financial reporting book of record.

Okay. Just because many, many, many years ago this sort of stuff was my business and running in parallel was always a risk because people are creatures of habit, they don't like change. And running in parallel, everybody still relies on the legacy system. And once you turn the switch, it ends up being a cliff conversion.

And so many times it's just better to jump off that cliff in the beginning. So just a point of experience of many years ago that, that I'd point out.

Thank you, Senator Neillo. And I also want to thank I spent a fair amount of time myself on this with the Controller. I appreciate taking the time to dive deeper on this. One question I have is Fi$Cal itself is now almost two decades old.

How close are we to you coming forward with a proposal to replace Fi$Cal with a new system?

Defer to the Department of Fiscal. But of course, technology changes. Right. And that is anticipated for the future.

Okay. And then after this, after the book of record migration, what's the next, what are the next, is there a next set of Fi$cal tasks for the SCO?

Yes. So July 2026 is when we're transforming, transitioning most of our functionality, but we do have some enhancements that are post Book of records. So post July 2026, and we'll be working on those between July and possibly December or the following June.

We also will continue to work on our annual comprehensive financial report and our ability to pursue that from fi$cal. And there is a plan to do that, which is post it, it's occurring now, but it, it goes post July 2026 as well.

Any other questions? Senator Smallwood Cuevas We are in issue six of the fi$cal system within the state or with the state Controller's office. So if there are no further questions, then we'll move on to the next item. Thank you very much for the presentation and the questions. Now we'll turn to the state treasurer.

Will the representatives from the Treasurer's office please come up and begin with a overview of core functions and then we'll proceed to agenda item seven. But as the, as the brief overview if you could give us any reports about changes or proposals or threats at the federal level that might have impact implications for your programs.

And also separately, how you've carried out the 2024 budget orders to identify efficiencies and eliminate vacant positions, even when they don't apply to you. What, what's if. If those that don't, what equivalent actions have you been taking to achieve equivalent reductions? So welcome.

Okay, so I'll start us off this morning. Good morning, Chair and Members of the Committee. My name is Karma Manni. I'm the Chief of Fiscal Services in the Administration division of the State Treasurer's Office. The State Treasurer's Office provides banking services to minimize costs and maximize investment returns.

It manages state funds and securities, ensuring proper oversight of all state Fund and trust held money. The State Treasurer's Office invests EIDL funds, oversees bond issuance and redemption, and manages interest payments. It also collaborates with the State Comptroller's office and other state agencies to process warrants and checks, ensuring California's financial stability and efficiency.

I think what I'll do is I'll move on to the bcp. First I'll introduce our BCP and then go on to the reductions. So for this BCP in front of you today, the State Treasurer's Office is requesting one time General Fund augmentation of $735,000 to cover relocation costs for its transition back to its headquarters, the Jesse Unruh Building at 915 Capitol Mall. Provisional language is also requested to accommodate any additional costs if necessary.

The STO will manage the relocation of approximately 516 staff Members along with equipment and office furniture. This funding was not included or part of the DGS Jesse Unruh building renovation project costs. This renovation is on schedule with STO expected to return to their building in fall of 2025.

The $735,000 request is essential to ensure a smooth relocation process. And then in terms of the control sections. So the STO did participate in the reduction exercises that were in the fall, the fall drill by Finance and for the efficiency, the 4.05, there was a reduction in our budget of $427,000.

And then moving on to the vacant positions, there was five positions that were eliminated or will be eliminated and the amount of that reduction was $464,000.

We have before. So item seven, are there questions from Members? Oh, sorry Finance and LAO. And then we'll come to Senator Smallwood-Cuevas.

Greg Bruss, Department of Finance. No additional comments at the Moment.

Thank you. Alexander Bents Ali we just note that the Department does anticipate some additional costs related to this relocation. In particular additional lease costs that are not a part of this proposal. And so you should expect some additional budget requests in the future related to those. Thank you.

So just on that, on that point, if you don't mind Senator Smallwood Cuevas. So the language that the Department is requesting and that the and that finance is proposing doesn't means we shouldn't anticipate those requests. Right.

We will just be notified that they've been done, that there's no, there's they're not bounded in any way and there's not we shouldn't expect anything coming back to us for a request only for notification. Am I misreading the language?

Yes, and so I can address that question. So at the time when we submitted this request, this was a fall bcp and we didn't have the DGS numbers, the square footage, the pricing of our new building, it's going to be changing considerably. Just the space itself.

So the provisional language is strictly for anything that is unanticipated in terms of equipment, IT equipment or move, box moves, things like that. It's there just as a safety net. We do expect to submit a we're working on right now spring finance letter four costs, possibly for the least costs in the future. So it would be separate from this request entirely.

Okay. So both we should expect both. So there may both unbalanced finance letters later, plus a request for a specific request for the lease costs.

So I think the issue was timing. The issue was really timing. We just didn't have the square footage and in those details that we needed in order to submit that because again this was these were due in September and you know, fall is the best timing to submit requests, but unfortunately we just didn't have the information. So that's why the provisional language is separate from that, though.

Gotcha. All right. Senator Smallwood Cuevas

Thank you, Mr. Chair. And you know, this move has been a long time coming and I'm glad that there was more there's more information and details. Can you say then more specifically when the move is going to happen? When you say the fall is, what's the actual target date in time for this to take place?

And this is this year 2025. Yes. So our staff have been working very closely with the Department of General Services and the project and they are saying that they'd like us in before Thanksgiving. And so that's the goal.

And as far as I, you know, we Check with them often because I always say, you know, we need to make sure we have our money available, you know, if something's going to switch or if things are going to be lagged. And it seems like they're very much on time right now. So. Yeah.

Senator Niello. Thank you, Mr. Chair. I want to follow up on the. His line of questioning. I'm unclear as to what this particular item is approving. Clearly, there's initially the $735,000, but it kind of reads like. And in listening to your discussion, we are also in addition approving additional expenses, as you might experience. So this is not a dollar specific ask, I gather, am I correct?

So if I may, we had asked or requested this provisional language in the first request when we moved to the Bonderson Building, and that request was $1.2 million. We requested provisional language because the, the STO's budget doesn't have the flexibility.

And we were, you know, we don't move often, so we weren't sure if there would be something that we weren't anticipating. Now we work very closely with DGS to get information on box moves and equipment changes or moves. So we stuck to that $1.2 million and did not use that provisional language.

And it's only really a safety net for us if there is something that we don't anticipate, something strange or out of the ordinary. You know, in a perfect world, we wouldn't need that and we could just use whatever it is in that budget.

But it does have, you know, we would work with finance if we were using the provisional language, if that were the case. But, you know, we're hoping we could just stick to the 735.

Are you able to give a rough approximation to which additional expenses might apply?

I really, I, thinking back, it would be, you know, maybe an increase in boxed moves because we have a consult, we have movers that actually come in and physically move all of our boxes. It would be something that maybe that wasn't covered or not anticipated.

I think as we get closer to the move, we would know, you know, if that would be an issue for us. Off the top of my head, I can't think of anything. Maybe more increase in needing more movers or something out of the ordinary in that case.

So you're hoping the same thing will happen this time that happened last time, that it will be limited to the 735,000?

Yes, yes.

Hope is a good thing.

Well, I mean, we, you know, we're.

No, we, we have a very efficient staff in business services in our Administration division and the whole STO Department, honestly, and the boards at the authorities and commissions under the treasurer, we all kind of pitched in and tried to move and we're, you know, we don't have a whole lot, we didn't have a whole lot of costs other than these little box moves and things. So we're, we're, we're, we're tight on our budget. We are.

I'm mindful that the treasurer is a fellow CPA.

Yes.

And the CPAs know all the tricks.

Oh, no.

All right, well, appreciate it. It sounds like we're going to hold this one open because we're going to need to see the request related to the lease costs between now and the may revise. So we'll look forward to seeing that. I'm still uncomfortable with the unbounded language. I'm not sure I could support it with that in there.

But we certainly need to know that the lease cost is a much bigger piece of it. So look forward to seeing that as you, as you prepare that letter. Thank you. Thank you. Okay, next up we have issue eight, which is the governor's proposal related to the Information Technology Department's operating expenses and equipment budgets.

Good morning, Chair and Members of the Committee, I'm Nayeem Mohammed, Chief Information Officer for the State Treasurer's Office. I'm here representing the Information Information Technology Division.

My division provides all IT services right from desktop laptop support to server storage, cybersecurity networking, all the way to developing and supporting the core Treasury's core applications as well as the boards, commissions and the other it is that we support. We have submitted three budget change proposals.

Personal services, expenditure, true up operating expenses and equipment that is OE and E2up and support for application development. So I'll start with personal services and OE and E2UP. The straight treasurer's office. IT Division currently has 42.5 authorized positions which require an estimated 7.75 million annually to fully Fund those positions.

Additionally, IT Division requires 2.67 million for operational expenses, including software licenses, subscriptions, hardware maintenance and so on. Over the years, IT Division has faced increasing personal and operational costs due to several factors. The first and foremost is the statewide IT classification consolidation which resulted in significant compensation increases for many staff Members.

However, no additional funding was provided through the annual budget process and IT resulted in IT Division absorbing those costs. The second one is the inflation driven vendor cost increases IT Division has been absorbing, raising operational costs due to pandemic induced inflation without receiving any additional funding.

And the Final, but the most important one is the security investments following the military audit. In response to findings from the 2021 military audit, IT Division implemented critical security technologies such as Tenable, ClearPass, Cortex XDR, Secret Server and Microsoft Sentinel.

These investments increased our annual operational cost to 2.67 million, while the current OEND budget remains at 2.15 million, which resulted in about a half a million shortfall for us. To date, IT Division has covered these increased costs by relying on Department wide erant savings, a practice that is not sustainable anymore for us.

Therefore, we are requesting an ongoing appropriation and funding augmentation of about $536,000 for the personal services and $520,000 for operating expenses and equipment. In addition to these two true up requests, STO ITD is also seeking expenditure authority and corresponding reimbursement authority to support the application, development and modernization needs of boards, commissions and authorities that we support.

These BCAs require modern cloud hosted solutions, but ITD is not able to fulfill those requests without the necessary expenditure authority and reimbursement authority. This limitation obviously hinders the BCA's ability to modernize and digitize their operations.

So the requested increase in reimbursement and expenditure authority will enable our IT Division to address those evolving needs of boards, commissions and authorities.

All right, we're, we're taking these items one at a time. So we're, we're, we're, we're just, we're solely on item 8 at the moment. But well remember the presentation is on the next two as well when we get to this. Before we move on though, if we could establish a quorum and call the roll.

[Roll Call]

A quorum is present. So on item eight, LAO and finance, any comments?

Greg Bruss, Department of Finance no additional comments on eight. Number eight.

Thank you. Alexander Bents, lio We have comments. It'll be the same theme for this one and the next issue. The IT services that STO provides we recognize as critical. However, we do note that there are no new additional services in this request.

These were covered with Department wide savings in previous years and so we just suggest that the Committee seek some additional transparency on where those savings were coming from to understand what sort of services won't be, won't be covered in this year, in the future years. Thank you. Right.

Thank you. Senator Smallwood Cuevas.

Thank you. Thank you, Mr. Chair, and thank you for that Comment I wanted to ask, just curious what businesses have subscriptions with the STOS and the sti? Yeah, I'm just curious what types of businesses those are.

Yeah, those type of subscriptions that we are talking about are it subscriptions like for example Microsoft subscriptions, the Adobe Acrobat reader subscription. So all the licenses that the different STO staff and the boards commissioned authority staff use, those are the subscriptions that. We are talking about. These are software but delivered as software as a service. So instead of licenses we use the term subscription for that.

Okay, so I want to pick up on the comments of LAO and maybe beginning with describe if you so here's the context of the question. A couple of these items sort of convey a budgeting approach by the Stoic that is at least raising questions for me as a, as a freshman like how is this actually working?

Because my, my conception of a true up sounds different from yours, which is I think we, we make an appropriation and based on the, based on the estimated cost or what have you and the actual cost of the thing is different and then you come back to true up that, that spending.

But what's happened here is at least I think in both of these cases that you've made spending decisions based on savings within the office to which we don't. I'd like to know more about what that, what that involves.

So you made the discretionary choice to engage in the spending and then you've come forward and say well, we weren't budgeted for that and so we need a true up.

But that's not, that's a, I don't know which truth we're upping in this one because it avoids the transparency of coming to the Legislature and asking for the appropriation for the actual item of expenditure.

So maybe if we could, if you could start with the sort of answering the question that LAO raised, which is what you know, if we consistently have savings that are being deployed to other, to other necessary important purposes, but you have savings to do that, it raises the question, you know, what, what are the what, what is the sources of those savings and are we have we over appropriated other areas of the treasurer's office that create this annual cushion that has been devoted to these other important purposes.

So about 80% of the state treasurer's office budget is in personal services. So I'll start with that and say that it's not a sustainable model to purchase or make purchases for our equipment any longer as we fill critical vacant positions. That savings will be no longer again our 80% of our budget is personal services.

So it's very difficult for us to find those savings. The other comment that I would like to make also is that we're the state banker. And so over time, it, we had issues with like drills or upgrades or reorganizations of a lot of the IT positions. And we haven't received any augmentation.

So that's specific to the personal services BCP that's in front of you. So when, you know, when we, when CalHR reorganized their IT classifications and at that time we weren't given any augmentation for those, those upgrades, I think it might have been like 5% on a couple of occasions. And so that creates grade creep for us.

And our budget is pretty small. We're a $47 million budget, so our budget is very small and we don't have a whole lot of room there. So that's one of the things for the more specific to the personal services.

And when you have higher, as you probably know, as you have, you have higher salaries, you also, the benefits go up as well. And so that's another component of the OE BCP that's in front of you in terms, excuse me, the personal services BCP in terms of the O&E BCP, it's just over time.

We're, you know, our Director, new Director came in, kind of evaluated their budget, evaluated what services that they needed and realized that we were lacking in some services and has, you know, added to that, to that. And that's why the request is before you today.

Is that the evaluation that he made and came forward and said this is, you know, we're kind of deficient in these, in these cases. And the STO hasn't grown since 2001 too. We've maintained about a 240. What is it, 400. 200. We've added four positions, sorry, since 2122. So we've been very lean and we haven't.

We normally don't have a whole lot of requests like this. This is kind of a time where we're looking at being deficient over time that has again, and the grade creep has occurred. And so we want to make sure that we're addressing those, those issues from a budget perspective. I hope that helps a little bit.

Any other comments or.

Did you have anything you wanted to end LAO, Alexander.

Thank you. No further comments. Okay.

Senator Small Cuevas, I just wanted to.

Clarify my, my earlier question with these subscriptions. How as because it looks like we're adding more and more as technology and advancements in in need arises. We're adding more. How do we remove, you know, maybe programs that folks are not using or not utilizing. Does that help us with reduction?

Do you sort of do an audit of that and how do you phase out and then bring on. Because a lot of these ClearPass tenable, these are some of these are the new security systems. What about the old subscriptions? How does that work?

So these are all the security technologies that we are talking about. All incremental investments in the areas that the military audit found as security gaps. So in each area that they identify as a security gap, we had to procure new technology to address the security gap.

So this is an incremental investment that STO IT Division made to address those gaps. And that's how we ended up with with this budget deficit within operating expenses and expenditure.

Okay.

All right then, thanks. Let's proceed. Item nine then, which we've already provided the overview. Appreciate that. Thank you, Finance, LAO. Comments from item eight, you said would also apply to item nine. That's all right.

To 7 and 8. Yeah, applies to nine as well.

Okay. All right, questions from Members of the Subcommitee on item nine. Senator Smallwood-Cuevas, just one question.

And this has to. I think you made alluded to this earlier about not augmenting along the way. And this is sort of like the aggregate of waiting, essentially. And now why, why has the Department been so underfunded in a sense of why the Governor hasn't provided augmentation over those years?

You know, I'm sorry, I don't know the answer to that. To that question. I think, you know, typically you would see a drill come out to address that. Just like with our GSI annual GSI, the drill would be. And maybe the thought was that departments could absorb those costs. I'm not sure.

I think I would defer to CALHR for that or somebody who might know a little bit more details.

And then on the past vacancies, it took some time. How long did it take to fill some of those vacancies? You mentioned the four positions. Was there a lag time for some of you? I recall that there was some time where those positions had not been filled.

For the positions that we gave up in our vacancy reduction. I would have to go back and circle back with you on that. Question. Okay. Yeah, I was just curious about the. The timeline on that. I don't have that information. Okay, appreciate that.

All right, thank you. Phineas, can I ask you. I'm brand new to this, but I used to teach BCP development at the University and wrote a bunch of them when I was in the Department as well. So I'm trying to understand is there. Is there something unusual about the.

I mean, a lot of the factors that were described, inflation, you know, new, new technology, our budget's 80% personnel. That's. That's not unique to the Treasurer's office, even at that size. But I. At least so far, it's week two, but at least so far, I haven't seen the same. The same.

These same requests from all the other similarly situated agencies. And how is finance approaching this? Just hearing it, it sounds like we have a new leader in the IT division and we've discovered this, but is this a. Is the STO a set of unique circumstances or, you know, quasi unique circumstances?

Should we be expecting this from other departments, or is this an unusual one?

Yeah, yeah. Greg Bressigan from Finance. I think with the Treasurer's office, because it's been gradual over several years, you know, of what the cost would be that there was never the impetus to actually come forward with a BCP at particular points in time if something grew 20,000 bucks or $30,000.

And I think over time, as the costs have gone up and they've had to, you know, what positions they may have had vacant that were applied towards those costs in, like, the IT area, now those have become more critical to fill those positions.

And so it squeezed what would have been the available savings to pay for these kind of creep of costs over the years for cybersecurity type software and types of things like that, I think so with the Treasurer's office, since it's pretty lean operation, they tried to do what they could over the years to not come forward with a request for this small cost here and there.

But. But after several years of software costs going up, it's become unsustainable at this point.

So I don't think it's statewide, that type of stuff, because each Department addresses their IT software in different ways or different years, different cycles of when they're upgrading things to that extent and the audits that come through, so they were addressing audit needs for some of the software that they needed to purchase, but didn't come with a BCP at that particular time.

But at this juncture, it's just a cost that wasn't readily available to a bear anymore.

All right, thank you. If there's no further questions, then we'll go on to item 10, which again, we've already heard the presentation on LAO or finance. Anything to add?

We have no comments on this.

Okay, questions from the Members of the Subcommitee 10. So in this request, the initial agreements with the BCAs, those were drafted prior to the budget request and so obligating us in regard. Can you walk through the sequencing here and how had you initially intended to cover this cost in reaching these agreements without first having the budget authorization?

Yeah, so just to clarify, we are not requesting any net new budget allocation. This is more of the expenditure and reimbursement authority. For example, if a board comes to it and says I need to develop this new application to streamline my operations.

For example, we have CalSavers, they want to develop a data management system for streamlining their compliance reporting. They would already have the allocated budget. It's just that they need it's assistance to get that program developed and implemented.

But for us to be able to develop and implement this, we need to be able to accept those funds from that board through interagency agreement and be able to expense that. So that is what is lacking at the moment.

So because of that, if we have to submit a BCP for every new opportunity or every new requirement that a board has, that will be like an 18 month cycle for us. And they have to wait 18 months to even get started with the development of their program. So that's what we are trying to address here.

Okay, see any further questions on this? Thank you. We're going to take public comment on both the treasurer's office and the controller's office budgets now. So does anyone wish to address a Subcommitee on any of the items in either of these two offices Budgets? Actually let me add CAL Able as well. Okay.

Seeing none, then we're going to move to the Secretary of State.

Thank you.

Thank you. So if the Secretary of State's office would come forward again, we're asking to provide the overview and also brief, brief report on how federal funding impacts might affect your programs and how you've carried out the 2024 budget orders to identify efficiencies and eliminate vacant positions.

Good morning, Chair and Members of the Committee. My name is Tamara Johnson, Chief Financial Officer with the Secretary of State. On behalf of Secretary of State Dr.

Shirley Weber, I'd like to thank you for the opportunity to to present the proposals before you today and also provide a brief overview of the agency, the Secretary of State's office is comprised of about 740 people who are dedicated to making government more transparent and accessible in the areas of elections, business, political campaigning, legislative advocacy and historical records.

The agency is comprised of the following operational divisions Elections, Political Reform Business Programs, Archives, Information Technology, Fiscal affairs and Management Services.

The Secretary of State's responsibilities include serving as the State's Chief Elections Officer implementing electronic filing and Internet disclosure of campaign and lobbyist financial information maintaining business filings, commissioning notaries, public operating the Safe at Home Confidential Address program, maintaining the Domestic Partners and advanced healthcare directive registries, preserving more than 250 million records and artifacts held in the State Archives, and serving as Trustee of the California Museum.

The Secretary of State's strategic initiatives include strengthening California's voting environment, optimizing California's business foundation, providing full exposure to the State's archive collections, and providing transparent access to public resources. The Secretary of State's Office strives to promote inclusivity and accessibility to create an election system designed to allow citizens to perform their most basic civic duty with ease.

Some of the programs the agency has oversight of or administers to further that effort is the new Citizens Program, the Military and Overseas Voters Program, the Student Voter Registration Program, and the California Student Vote Process Project, which is the first of its kind in partnership in the nation, where all major institutions of higher education in California have solidified commitments to partner with the Secretary of State's Office and encourage student civic engagement efforts to promote a democracy that is more inclusive of student voices.

Furthermore, the Secretary of State administers the California Statewide Voter Registration System, better known as VoteCow, which serves as the single system for storing and managing the the official list of registered voters in the state. Additionally, the Office the Secretary of State's Business Services are the first stop for California businesses to register and begin their journey.

Bizfile California is Secretary of State's online portal to help businesses file, search and order business records quickly and conveniently from a single location. Bizfile California also provides resources related to starting a business, trademarks, uniform commercial co financing statements and other tax liens and immigration consultants.

Recently the Secretary of State rolled out the Apostille Pop up Shops which brings in person apostille services to customers throughout California. So rather than them having to come to Los Angeles or Sacramento, we come to them with the pop up shops.

And I would like to add that also as far as the supporting Southern California fire survivors, we did tabling at two disaster recovery centers supporting businesses, Notaries, Apostilles, Domestic Partnerships and all of the other programs that I listed earlier in the presentation.

Finally, the Secretary of State's ongoing objective is to foster trust in our democracy by facilitating the transparent and accurate disclosure of information and resources.

The California Automated Lobbyists and Campaign Contribution and EXPEDITION Expenditure Search system, known as CalAccess, is the public's window into California's campaign disclosure and lobbying financial activity, providing financial information supplied by state candidates, donors, lobbyists, lobbyists, employers and others.

The CALACCESS Replacement System Project, also known as the CARS Project, will improve a new implement a new data driven system replacing the existing forms driven system. That concludes my overview of the agency as it relates to the efficiencies. The Secretary of State participated in the reductions outlined in the Governor's Budget.

We identified efficiency savings and while there will be some reductions to our operational resources, the plan is to minimize any impact of the public services that we provide. We are looking at reevaluating our current subscriptions and licenses by reducing redundancy and consolidating where we can, reductions to annual contracts, for example for students, student assistance and training.

And we're also looking at reducing our travel both in state and out of state. As it relates to the federal funding callback, the SOS Federal funding operates just a little bit differently.

We draw down all the federal funds when awarded and and we update our spending plans and report that to the Federal Government of how we will expend those funds and the plan again reflects those expenditures.

We've assessed our funding that is available to us today and we do not anticipate there will be any impact to our federally funded programs. The two programs that we do have are the buckets of money that we have for federal funds are the Help America Vote act funds which we have to implement the mandates according to Hava.

And then we also have the election security grants that we anticipate they will be fully expended and again, we don't anticipate any impacts to those funds.

All right, thank you very much. Appreciate you giving the full list of the responses to the opening questions that I had raised as well. So just on the overview, are there any comments from Finance or from LAO? Are any questions from Members of the Subcommitee?

We're not dealing with the specific request here. That was just an overview.?

Correct. That was just the overview.

Now Senator Smallwood, I appreciate the overview. And particularly how the federal funding process works within the SOS. My question is given some of the violence around voting, some of the in other states we're seeing some of the ways in which some of our election workers are harassed and threatened.

Do we see any sort of implications as those incidences seem to be ratcheting up in places across the country? How has that affected our budget? How California is protecting its workers? Are we having to increase protection, particularly as we look at some of the deeper divisions that are emerging now around particular issues?

Are there precautions that the SOS is taking to ensure that our election process, which is not so far away and our election workers will be safe? I'm just curious, how does that factor into your budget, your request, and how you forecast needs?

Yes, ma'am. Thank you for the question. I'd like to invite our chief of elections to the table, Jana Lean, and she'll be able to provide some information on how we are administering or providing those securities for the various elections. And then I can weigh in on the budget side of that. Thank you.

Good morning. I'm Jana Lean. I'm Chief of the elections division for the Secretary of State's office.

So we have worked really closely with cisa, so the Homeland Security, and also with our Cal OES partners and CHP to develop different trainings for counties on how to de escalate in order to make sure that if there's any kind of harassment or any kind of violence at a polling location, it is addressed appropriately.

So we have trained county elections officials and their poll workers. We developed a whole poll worker program to make sure that we have what they need available to them. We've done physical assessments of county offices.

We also have an ability to go out and assist with any kind of polling place, accessibility to make sure that they are safe, that they're set up correctly, and that we have the ability to get a hold of the county elections officials quickly. And then all our office also, we conduct a statewide voter hotline.

If there's any issues at polling locations, the counties have direct contacts for our office. If there's anything that we need to do to assist with any kind of law enforcement augmentation, of course they would go locally to their local law enforcement.

We do have, we've had very good relationship with the Federal Governments and, and those entities, and we'll continue to serve voters of California as needed.

Thank you.

And on the budget side of that, the Help America Vote act, the spending plan, which we have a BCP before the Committee today provides for, that's one of the, one of the items that is supported with that federal funding.

We provide the training to elections officials and then we also support election assistance for individuals with disabilities, election auditing, and also improving the security of Administration of the elections. And we also have, as one of our buckets of federal funding is the election security grant funding, which also is more on the system side of things.

But we do have funding to support and provide the trainings and resources necessary for security.

Wonderful. And along those lines, in terms of systems, and I'm glad that you're here to clarify, there were some articles about Starlight voting systems being used and in some states, concerns about that. I wonder if you could say if.

How, when you're looking at systems and how we're integrating, because we have one of the most diverse and effective voting programs, I think, in the country, you know, how are we thinking about systems? And.

And have you also heard concerns about this sort of emergence of Starlight as a vehicle for providing some communities more upgraded technologically voting systems, but in many concerns of those being very, very compromised. So I'm curious what you're hearing and how the state is again protecting through the systems, our, Our, our right to vote.

So we do have our expert here on voting systems. So if anything related to a certification of voting systems is done by our office. So I would like to ask Nikesha Robinson if she can come up. She's a technical one. I'm not the technical person.

Hi there. Good morning. I am Nikesha Robinson, Deputy Secretary of State over the Help America Vote act and the Office of Voting Systems Technology Assessment. One of our core primary duties is to test and certify all voting technology used in the State of California.

And what that process looks like at a high level is functionally testing the system. So making sure that they do what they're supposed to do. We also conduct what we call Red Team penetration testing of those systems. So basically exercising ethical hacking, if you will, more so to the point about the voting systems themselves.

So those systems are not connected to the Internet. In fact, excuse me, those systems do not have like onboard wireless, Bluetooth or modems or things of that nature that make it possible to conduct remote hacks. So those systems are essentially offline. We also conduct accessibility testing of those systems. We look at the source code of those systems.

So if it's a million lines, we're looking at every single line to make sure there are no backdoors or easter eggs to exploit those systems. So I feel very confident that the systems used to tabulate our votes in the State of California are very safe and secure.

To your point about the Starlink or Starlight systems, so those are connectivity systems, were they used in California? Yes, but those were used to facilitate, like at our Vote centers where we have electronic poll books for voters to check in and get their correct ballot styles. The electronic poll books do have to talk to one another.

And again, those are just essentially taking our traditional paper rosters, but putting them into electronic form. So that's where that technology was used.

More producing the ballot itself, not actually the voting process. Correct. Got it. Thank you for the clarification.

Thank you.

All right, thank you, Senator. Then we'll move to item 11, which is the the proposal related to the notary automation program replacement projects.

Thank you. Just a brief overview of the of the project. The system. The current system is approximately 30 years old. It was developed utilizing an application that in present day is running in obsolete and unsupported technology. The application itself is in a programming language that has been deprecated.

This combination presents high risk and security issues to the Department and challenges the ability to find qualified information technology staff or vendors to support the application. Current technology has evolved significantly since the system was created. Thus, integration of the legacy system with current and future technology and possibly third party systems is impractical and nearly impossible.

Only migration of existing data to a new system is the viable solution. This request will provide one time funding of 13.5 million from the Business Fees Fund for the continuation of the Notary Automation Program Replacement Project or also known as NAP 2.0.

This includes continued funding for eight positions, previously approved funding for temporary staff to backfill program positions redirected to the project, continued planning resources, and also seven new IT positions.

The seven new IT positions would address security, quality assurance and testing needs for the project and system to ensure all business and functional requirements are met and comply with the state with state policies and standards. With me today is at Lacrosse and we're happy to answer any questions the Committee may have.

All right. First Finance then LAO.

Jesse Ron, Department of Finance. No further comment.

Nick Schroeder with the LAO. We have no comments.

It's so confusing when you all switch sides like that. I'm not being hazed. I think I'm being hazed. Question for Members of the Subcommitee center, Niello.

The funds used are coming from Obsession Fund which is financed by the industry. Right. Do you anticipate having to raise those fees?

I think I will ask for. For the chief of the. The Assistant Chief of the Business Programs Division to come to the cable and answer that question for you.

Good morning. I'm Shannon Delgado, Assistant Chief of the Business Programs Division of the California Secretary of State's office. So thank you for your question. So we do not anticipate needing to raise the fees for sake of this project. However, notaries, the fees that notaries can charge in the State of California have remained stagnant for many, many years.

And so we feel that due to inflation, it is time for those fees to be increased so that notaries who are trying to conduct work, to perform their own functions, to feed their families, they are now due to raise those fees to be able to support that need.

And what is the industry's position with regard to this project?

Zero, that's a great question. So thank you for that. We have a lot of proponents for this project, so we often meet or every month we meet with some of our biggest stakeholders. They are all proponents and very supportive of this project and definitely feel like it's a true need, especially for the folks that they serve.

Additionally, we meet once a year with some of our largest notary education vendors and they too are very much a big proponent of this. It will help them and their businesses, their companies also will help the clients that they serve, the customers that they serve.

And a side question, has there been any borrowing from this Fund by the General Fund in past budget deliberations? And if so, is there any balance outstanding and is there any anticipation that that might happen in the difficult budget times that we're about to approach this year and following three or four years?

Thank you for the question. In recent years there has been no borrowing from the Business Fees Fund and to date there is no outstanding loans to the Administration for any loans.

Yeah.

And we don't, I mean, I don't want to speak for the Department of Finance, but if a drill comes out, we would respond to the drill with whatever is asked for at that time and then we'll do an assessment to determine if it's reasonable to provide a loan from the Fund.

Would Finance have a comment with regard to the latter question?

Yeah. Jesse Romine, Department of Finance the way the Business Fees Fund is set up statutorily that any resources in excess of $1 million are transferred over to the General Fund to the extent that statute were to change. Or we would need to establish using special funds in General for loans to promote General Fund solvency.

That's something that we would need to think from a global perspective from all funds. And it may require statutory changes on the business Fees Fund.

Did I hear you say that if this special Fund balance exceeds $1.0 million, that excess is automatically transferred to the General Fund? Correct.

So how is there $13 million in the Fund now?

Then I'll defer to the Secretary of State on the revenues and expenditure side.

My apologies. Chair, would you mind repeating the question?

Zero, I was just. I'm sorry and I apologize. Senator Niello. I was just curious if, if the, if the, if revenues in excess of $1 million were automatically transferred to the General Fund, then how could the Fund have $13.6 million in it? Obviously it has to have more than that because that's just for this purpose.

How would the balance. How could the balance be 13 million if there's this 1 $1.0 million transfer trigger?

So the Reserve in the Fund is 1 million annually. And again, as finance has described, anything in excess of what the Legislature approves for expenditure is then swept to the General Fund. And that's at the end of each fiscal year.

For example, if the revenues are $50 million and we have been approved to expend 25 million anything in. In excess of the 1 million that we're allowed in the Reserve, then 24 would go to support or benefit the General Fund.

And that's not a loan.

It's not a loan. No, sir.

This is a real revelation to me. So we're collecting fees from notaries to support systems to support them, and their fees are going to support the General Fund. What am I missing here? This is not a fee, it's a tax. If that's the case.

Jesse, Department of Finance. I was just speaking to how the Fund has been set up in the past with having the Fund balance and just, just quick clarification. We're not considering loans at this point for the special Fund.

You don't have to consider loans if you're going to take everything over a million bucks. I'm kind of incredulous about this revelation. Does the LAO have any comment on this?

In the past. So the business fees Fund is provided not just by the notary fees, but from all of the fees that the businesses pay into it. So all of the fees that the businesses pay go into this. And if there's above the 1 million, it is swept. But it's still user fees. Right.

In the past we've raised the issue that it is something that could be. Looked at as to whether the fees. Are appropriate or not to the expenditures and also whether that structure of the 1 million is reasonable or not. It is a relatively unique structure.

Yeah, I'm amazed. I think we need to look into this a little bit more to have an automatic trigger that user fees are subject to General Fund appropriation automatically. You know, if it looks like a tax and quacks like a tax and walks Like a tax. It's kind of attacks. I'm troubled by this.

I don't know if any of you have the data with you, but what's the history of the transfers? I mean, is this. Are we having a purely theoretical conversation, or is it every year $500 million gets transferred to the General. What are we talking about in terms of our empirical experience?

Yes, sir. Thanks for the question. On average, we could just go back five years. The transfer has averaged between as Low as 8 to 10 million to approximately 20 million each fiscal year at the amounts that's transferred to the General Fund.

All right, further. Further questions on this one. This issue will be coming back in an item that we've gotten in just a minute as well, but. All right, then, if not, we'll move on to item 12, which is the Cal Access Replacement System Project.

Thank you. Cal Access Replacement Project. The objective of the CARS project is to replace the outdated Cal Access for electronic reporting of campaign finance and lobbying activities mandated by the Political Reform Act. The request before you is for one time, funding of approximately 15 million General Fund to support the continuation of the project.

Specifically, the request would provide funding to support the second year of project execution. The BCP request aligns with the project budget that was approved at the final stage of the Department Department of Technology's project approval life cycle project process. This BCP does not include any funding beyond what is already in the approved project budget. Continued.

It also would support continued funding for 33 prior approved positions and backfill staff to support ongoing program activities and also contracted services included, including the prime vendor CDT project oversight services and technology costs.

I'd also like to note that the project is currently operating within the current scope, schedule and budget, which is 22.1 million for fiscal year 2420. And CARS is anticipating rolling out the new solution to users in November of 2026 post the General elections.

I have John Heinlein here with me today to answer any questions that the Committee may have. Thank you.

Finance and LAO.

Jesse Romine, Department of Finance. No further comment at this time.

Members of the of the Subcommitee. Any questions? You can't. We can't just integrate this with Fi$Cal and call it a day. And it was a good effort. Okay, so you were expecting full operational launch in November of next year?

Yeah. Hello, my name is John Heinlein. I'm the Assistant CARS Project Director. Yeah. The rollout date to users is mid November 2026. Okay.

All right. If there are no further questions. Thank you. We'll move on to item 13, which is the California Voters Choice Act Task Force.

Yes, sir. Thank you. California took a major step toward modernizing its election system in 2016 with the enactment of the Voters Choice act via SB 450.

This law was designed to make voting more accessible, flexible and convenient by allowing counties to adopt a model in which voters could return their ballots by mail, drop them off at secure ballot boxes, or cast their vote in person at any vote center in their county.

Since its implementation, the number of counties using this model has grown from just five in 2018 to the current 29 counties, representing over 17 million California registered voters, or 80% of California's electorate. The existing three positions related to SB 450 are already operating at full capacity.

The workload associated with managing the expansion has grown exponentially, requiring ongoing county assistance, increased data collection, and more frequent compliance reviews. SB 1450 introduces an entirely new layer of responsibilities that were never contemplated in the original staffing allocation.

These responsibilities include one, establishing a new Voters Choice Act Task Force, requiring dedicated staff to select Members, coordinate discussions, and facilitate meetings. Two, expanded legislative reporting requirements, which demand comprehensive data analysis and formal reports to be submitted within six months of each statewide election.

Three, the development and maintenance of a dedicated Voters Choice Act Task Force website, and lastly, ongoing coordination between counties, policymakers and election officials to ensure consistent implementation across the state. To differentiate really quickly between the existing positions and requested positions.

The existing SB450 staff, which was allocated when the VCA only covered five counties, focused on county level implementation, compliance and technical oversight. The new staff that we're requesting with this BCP is responding to a vastly expanded program. Now, as I mentioned before, now covering 29 counties, would focus on statewide policy and legislative responsibilities.

The workload has outgrown the original staffing model, and without the additional resources, we would be challenged with meeting the mandates of SB 1450. With that, I'm happy to answer any questions you may have.

All right, thank you.

Finance Jesse Romine, Department of Finance. No further comment.

LAO. All right, Members of the Subcommitee. Well, sort of pick up our earlier conversation. I think I understand a lot better the business fees Fund, but why is this an appropriate expenditure under that Fund?

I think I'll call back Shannon Delgado to the table, and while she's making her way just high level. The fees that are charged that the businesses pay or the notaries pay are to basically support any Administration or any systems that they're paying the fee for.

So that's why we see it as appropriate because the notaries pay the fee for the service and for the system to use the system. And so then in turn we are providing, updating or upgrading the system to provide the updated technology.

Hello, Betsy Bogart, Chief of the Business Programs Division of the California Secretary of State's Office that collects the revenue for the business fees Fund and the Secretary of State. The way it is structured, we have. Internal services that support everything.

And so part of business fees Fund covers those supported fees, such as hiring our resources, human resources team and IT teams and things that support the different programs.

I guess what I'm trying to understand, like if for the fees paid by notaries or others that pay into the business fees Fund, what's the nexus between that and sort of legislatively driven and the Secretary of State's own objectives sort of policy implementation in the field of elections and.

My apologies, Chair, I misunderstood the question specific to this BCP model.

Zero yes, only this bcp. Yes, sir.

So this would fall under our agency's cost allocation. As Betsy mentioned, we have in the cost allocation there is an admin function where that particular program provides a service or support to the entire agency.

And so this particular proposal where the positions will be housed and also the duties that they are performing ultimately benefits the agency as a whole. So it's under the cost allocation model for the agency which is supported 40% on average, 40% General Fund and 60% business cities Fund.

I see. So the. So the split here is not for this purpose. The split is that the agency allocates all of its all of its costs or the vast majority of its costs on this split between General Fund and business fees across all the entire Secretary of State's office. And this just happens to be the.

Example admin Support function. Yes, sir, that is correct.

Are there any other questions or comments about this item? All right, thank you. Next up is the Department of Justice Legal Services Augmentation.

Just a little background on the issue. The Attorney General has charge as attorney of all legal matters in which the state is interested.

With certain exceptions, the Legislature has expressed an intent to utilize the Attorney General as counsel for the representation of state agencies and employees in judicial and other proceedings for overall efficiency and economy and state government.

The Department of Justice employs a cost recovery model of charging the Secretary of State for assistance provided for caseload work on behalf of the SOS. Upon inception of the DOJ billing process around 2012-13, an appropriation of 333,000 was provided to the Secretary of State.

Since then, the SOS has received incremental increases in 2018 and 2019 with the most recent increase received in 2020, which brought the appropriation to approximately 852,000 where it remains today.

In 22-23, the Legislature approved ongoing provisional language in the Budget act that provides a mechanism for an augmentation to cover DOJ legal services costs in excess of the appropriation. The request before you would provide an augmentation to allow the SOS to cover costs for annual billings.

I would like to note that to the extent that funding may be insufficient in 25-26, the provisional language would remain in the budget. Even in addition to this BCP before you, the provisional language would remain in the budget to allow for a mechanism to augment our current year appropriation.

With that, I'm happy to answer any questions you may have.

Finance LAO Members of the Subcommitee.

Thank you. I was just curious how many cases the SOS has been involved in since 2016.

I'd have to take that question back for Sorry, Janelle Callahan, I'm an attorney with the Legal Affairs Office of the Secretary of State. Thank you for that. I'd have to take that question back to get data as far back as 2016.

But as far as current cases that are active, not closed, which does not encompass things like administrative hearings that we would handle in house, we have 24 active cases. Just as an example of what some of those might entail.

Most of those are related to elections issues where we're a defendant as a result of our capacity as Chief Elections Officer for the State of California.

For a few examples, we have several cases right now which are consolidated that relate to two bills that were passed last year to regulate artificial intelligence for deep fakes relating to election videos, which is thought to have a Could be an issue where people don't know what information to believe what when it comes to election related materials.

So we're charged with defending that particular piece of legislation. We also have a current lawsuit right now that's set for trial in 2026 where we have Members of a disability community that are seeking an Internet based voting mechanism which we believe poses significant security risks if we expose ballots over the Internet.

So those are just a few examples, but I'm happy to provide additional data regarding the cases back as far as 2016.

Thank you. And thank you for that work.

I had questions earlier, but I just want to say you provided a very extensive response already. Actually I'll share it with other Members of the Subcommitee as well, but just want to highlight it because it was extremely the background that we were provided on this item in response to some questions was extremely complicated. Comprehensive. Comprehensive. Readable.

Direct, responsive and not defensive. And very much appreciated. So I have no questions at this time.

Senator Niello, one quick question. What happens if your needs do not reach the 500,000?

Because it's a General Fund? Whatever. Whatever funding is not expended, it reverts to the General Fund.

Thank you.

Council.

All right, thank you. Thank you for that. There's nothing further on that item, then we will... Yeah. One final item, which is item 15 on the Voter Information Guide resources.

The Secretary of State is responsible for the printing and mailing of the State Voter Information Guide to registered voter households prior to each state election, statewide election. Additionally, the SOS is required to print voter registration cards and supply these cards to county election officials.

The SOS is also responsible for the printing and associated mailing costs for voter registration cards and voter notification cards that are sent to registered voters by their county elections official. Each of these projects are funded under the Secretary of State's Special Items of Expense Appropriation.

The Special Items of Expense Baseline Appropriation has consistently remained at approximately 10.6 million, with the exception of several one time increases to implement new legislative requirements. The appropriation has not been reflective of actual expenditures realized to ensure compliance with the VIG, Voter Information Guide, the voter registration cards, and list maintenance requirements, including the voter notification cards.

Since 2021, the appropriation has increasingly experienced deficiencies, which has resulted in requests for additional funds through the unanticipated cost funding request process. Factors that contribute to the increased expenditures are a significant increase in new and updated voter registrations, which triggered the mandated printing and mailing of voter notification cards to each voter and the number of Voter Information Guides printed and mailed.

Increased costs for translation and audio versions of the Voter Information Guide, increased postage and associated mass mailing costs, and the most significant factor that we would like to note here is the recent paper industry consolidations along with supply chain disruptions.

These disruptions include significant reductions in the capacity of domestic and international paper mills. As mill production decreases and the availability of materials is reduced, demand has increased and resulted in higher prices. We would also like to note that the printing and mailing of the registration cards, the notification cards, and also the Information Guide is not reliant on this BCP.

The SOS will continue to meet its statutory obligations for these projects to ensure the voters are registered to vote and are informed participants in our democracy. However, the proposal before you would provide the resources necessary to better facilitate sound fiscal processes and more adequately fund the SOS's mandated election related activities.

While this may not eliminate the need for future deficiency requests, the additional funding is anticipated to reduce the need for substantial deficiency requests as the SOS has experienced over the last several several years and would address the major funding shortfalls that have been experienced and reduced reliance on the unanticipated cost funding request mechanism. With me today is Joanna Southard, and we'll be happy to answer any questions you may have.

Finance? LAO? Members of the Subcommittee? Senator Niello.

The baseline funding has, I gather, has been adequate for how long?

Has been inadequate?

No. Adequate?

I wouldn't say that it's been adequate. What it has done is, in times past, reduced the magnitude of the deficiency requests that have been submitted. Where the challenge is, is when the, when the actual cost, the expenditures come in, it's in, it's after the annual budget cycle.

So we really don't have a good sense of what those expenditures, what those final costs would be. And so historically, the Secretary of State has been allowed... And thank you to the Legislature for approving the unanticipated cost when we actually have the expenditures that come in in the new current year and we actually have those receipts. So, Senator, I wouldn't say that it's been sufficient. There's always been additional funding necessary to support these costs.

So if this request wasn't granted, you would be subject to your previous practice?

Yes, sir, that is correct.

And what have those additional costs typically have been? This is a 50% increase. So it's been on the magnitude of that?

Yes, sir.

50%?

Yes, sir. Last year we came in with a deficiency for approximately 6 million, went through the process of being reviewed by the Legislature, and was ultimately approved. But that did allow us to pay the Department of General Services for their services of printing the guide and the notification cards.

So your costs were eventually satisfied?

Yes, sir.

Senator Smallwood-Cuevas.

Well, I appreciate the questions, but I want to say what a good problem to have as you see the work that you're doing to increase voter participation to protect the vote. Inspiring to see that the department is not only meeting the charge, but exceeding it in terms of voter participation. So I just wanted to say thank you for sharing that data with us.

Yeah, thank you. And over the longer term, given the experiences that the, that the pilot counties have been using with the one guide per household and other changes, I click on every single thing that says I don't want a paper bill or paper notification or anything like that. Does the Secretary of State have a plan or an emerging concept for how to deal with these costs, but also meeting people, meeting voters where they want and where they choose?

Thank you. Joanna Southard, assistant chief of elections for the Secretary of State's Office. So we do have an opt out opportunity for voters that they can opt out of receiving the Voter Information Guide. Certainly we've had that for a few years now, and we have approximately 600,000 voters that are participating in that, though everyone in your household has to also participate in that opt out in order for us to to avoid mailing a Voter Information Guide to your household. But that option is there. We have...

And then... Sorry, when you opt out, are you opting into some other form of a guide or do you just, or just we go to the so with the Secretary of State website on our own?

Yes. So we would be sending a notification to the voter that the Voter Information Guide is available electronically on our website. We also have audio versions and large print versions that are available, but in that email we would just let them know that it was available there.

All right. Thank you. All right. If there's no further questions on this, then let's turn to for public comment overall, both on Secretary of State and any other items in today, the purview of today's hearing. So invite any member of the public that wishes to address the subcommittee to please come forward to the stand up mic.

So I get a few few minutes, right?

You're representing all 40 million people.

Everyone. But to, you know, unfortunately I'm not, I have no comments on the wonderful presentations today. My comments... Actually, I'll start by introducing myself. My name is Rachel Mueller. I'm here representing the California Coalition for Community Investment, which is a statewide California CDFI coalition.

CDFIs are community development financial institutions that provide funding and technical support to underrepresented communities and communities who traditionally lack access to mainstream capital. They provide funding and technical assistance to help build affordable housing, to support small businesses and entrepreneurs, many of which are women and people of color.

And they also support nonprofits that are providing critical resources to our communities. Three years ago, the Legislature through the budget process passed the California Investment and Innovation Program, known as Cal IIP, under the State Treasurer's Office. The program has already seen tremendous success. It has has seen two initial rounds of funding, and because of this, we're coming back to the Legislature and this body to ask for an additional $50 million for three additional years of funding.

With Cal IIP funds, CDFIs have provided gap financing to affordable housing development projects to make it make sure they make it across the finish line. They provided loans and micro-equity investments that have helped minority and women owned businesses grow, and have helped several consumers escape high predatory loans.

A key reason that this funding is so critical and the uniqueness of a CDFI is they're able to leverage capital. So for every public dollar invested in this program, CDFIs are able to access and leverage up to $8 of additional private investment. So it's a multiplier that can unlock hundreds of millions of dollars across California's most underserved communities. So we respectfully urge your continued support for the Cal IIP program to ensure all Californians have access and a fair shot at economic success. Thank you so much for your time.

All right. Thank you. All right, so now we're going to proceed to action on the items that we have for potential vote today. And that's the only public testimony. Yep. So I'm going to ask that we hold open a few of the items on our discussion list. Item five, as we continue to resolve the question around the future General Fund commitment and how we're going to actualize the plan of the department to move towards self sufficiency. To hold up an item 6 on FI$Cal implementation.

Item 7 on the building relocation costs for the Treasurer's Office, in particular the concision appropriation language. For item 8 as well, and item 9, largely General Fund commitment and our relative priorities as we get closer, as we drive closer to May in our fiscal in the General Fund fiscal situation. So if we hold those open, if there's no objection to doing that, then can I ask Senator Niello if he's prepared to make a motion on items 1, 2, 10, 11, and 12?

Let's call the roll on those items. [Roll Call]

All right. Then as we proceed to items 3, 4, 13, 14, and 15, first want to ask if there's any debate or comments on those items? If not, then Senator Smallwood-Cuevas? All right. So Smallwood-Cuevas has moved that we approve as budget items 3, 4, 13, 14, and 15.

[Roll Call]

All right, that motion carries. So thank you to everyone who participated in the public testimony today and to the agencies. If you weren't able to testify today, of course we also welcome your comments and suggestions in writing to the Budget and Fiscal Review Committee or visit our website. And thank you to LAO, Finance, and the departments for today's discussion.

And particularly thank you to my colleagues on the subcommittee for the probing questions and thoughtful work. And to the staff of the subcommittee, and of course, my own staff in my office, Sharp, Perkins, Murphy, but to the staff of the subcommittee from both, from both caucuses. Really appreciate these are... This is only my second week, and I really appreciate the care and the amount of detail but also the larger context and policy implications that have been raised through this process. Senator Niello.

Yes, I would second all of those things that you said, but I just want to point out that Sunday they're not going to have to change that clock. And I want everybody to remember, move your clocks ahead Sunday night, and we're all going to be grumpy together Monday morning.

All right. With that, then, Senate Budget Subcommittee Number 4 is adjourned.