Senate Budget and Fiscal Review Subcommittee No. 5 on Corrections, Public Safety, Judiciary, Labor and Transportation

Well, hello everyone. The Senate Budget Subcommitee Number five on Corrections, Public Safety, Judiciary, labor and Transportation will now come to order. Good morning. We are holding our Committee hearing here in the Capitol. I ask that all Members of the Subcommitee be present in room 112 so we can establish a quorum and begin our hearing today.

We are hearing from various labor and Public Employment departments covering a variety of issues ranging from office building relocations to IT modernization projects and state operational efficiencies. Colleagues, before we begin, did anyone have any questions or comments? All right, seeing none. Let's I don't believe we have a quorum yet, so we'll wait.

Okay, just remind me when some folks come in. So let's start with our first issue relating to the State Department's operational efficiencies. For that, we will start with Natalie Griswold and Ryan Weinberg, staff Finance Budget analysts with the Department of Finance as well. Mr. President.

Good morning, Chair and Members. Natalie Griswold, Department of Finance the 2024 Budget act estimated 2.2 billion General Fund savings in 202425 and 2.7 billion General Fund savings in 202526 and ongoing resulting from reductions to state operations of up to 7.95%.

Additionally, the 2024 Budget act also estimated 1.5 billion in savings, of which 7,762.5 million is General Fund and savings in 202425 and ongoing associated with vacant positions and the elimination of approximately 10,000 vacant positions beginning in 2025. 26.

Control Sections 4.05 and 412 of the 2024 Budget act authorize the Department of Finance to identify and implement savings associated with these control sections via Executive Order in fiscal year 202425 and require the Administration to propose all ongoing reductions to expenditure or position authority through the annual budget process by working with departments through the first half of the fiscal year.

The Administration identified that a significant portion of the estimated positions in state operations included in the 2024 Budget act were associated with expenditures that are critical to public safety, fire safety, 24 hour staffing requirements and delivery of other mission critical public benefits. So the 202526 Governor's Budget included revised savings estimates associated with both of these control sections.

After addressing some of these issues. Specifically, the Governor's Budget identified 1.5 billion of which 820 million is General funding in 202425 savings and 2 billion or 1.2 billion General Fund in 202526 and ongoing savings in reductions to operations of up to 7.95%.

Additionally, the Governor's Budget also identified savings of 617.6 million or 234.4 million General Fund in 202425 and ongoing associated with vacant positions and proposes the elimination of approximately 6,500 vacant positions beginning in 202526 and ongoing.

Finance is currently working with departments to identify the item and program for all these reported savings associated with these two control sections which were published at the entity level in the Governor's Budget, and we will share detailed information along with the classifications of all positions proposed for elimination in 202526 in a letter to the Joint Legislative Budget Committee before the Release of the 202526 may revise available for any questions.

Good morning, Madam Chair and Members. Ryan Weinberg with the Department of Finance. Mr. Wall's presentation included both items, but I'm also available to address any questions from the Committee. Thank you.

With that we have, yes. So Nick Schroeder, did you have any comments or questions that you think we should be looking at?

Yeah. Good morning. Nick Schroeder with the LAO Efficiencies allow government to provide the same level of services but at a lower level of cost. And because of that, finding efficiencies in government is always a worthy endeavor. It's especially a worthy endeavor when there's a potential for a budget problem going forward.

And so that we're very supportive of that. We've been supportive of this concept. We think that the level of savings that the Administration has identified is probably more reasonable than the amount that was assumed in the 2425 budget. As Department of Finance indicated, they provided the dollar amounts as a kind of a percentage terms.

The 2425 budget assumed about a 10% reduction in the state operations General Fund expenditures, and what is in the 2526 budget is about a 2.5% reduction. So it's a significant erosion in savings relative to what was assumed in the 2425 budget, but we think that it's probably a more reasonable and attainable amount.

That being said, the information that has been provided to date has really been lacking.

And in January, the Administration provided a list of the reductions that they were identifying to achieve these efficiency savings along with the number of positions, but they did not identify the classification specifically with the positions that were identified for elimination or some of the other reporting requirements.

So because of that, when we did our analysis in February, we recommended that the Legislature use the Subcommitee process to ask the Administration for more information at the Department level to understand the effects of these reductions on departmental operations.

And it's our understanding that subcommittees have been doing that broadly but to varying levels of success in terms of getting information from the Administration.

While some subcommittees have been able to receive detailed information, including the types of positions and classifications that would be eliminated, other departments have received simply the response that the more information is to come that may revision in the spring.

And so we're still going to be following this issue and our recommendations might change as more information comes out later.

Thank you. Any Members with Questions, comments? Sure. Mr. Seyarto.

I think this subject matter falls under we'd rather guess low than guess high. And then come in short and hopefully from here on out this will be a lesson in not overestimating our revenues because then we wind up having this issue of not having or having budget cuts in the middle of the year.

And so I hope that we are going to be more conservative in our approach to how much money we think we're going to make off of if efficiencies, especially like this, because it seems that some departments were more efficient than other departments.

And when you're talking about efficiencies in public safety, I've never seen an efficiency in public safety actually come to fruition. In fact, just the opposite. And that happened again this year. So anyway, that's all I have to say. Thank you.

Any other Members? All right. I had just a couple questions. Building on the Laos report, when can we expect more details on the potential programmatic impacts from the state operations reductions and the vacancy sweeps?

Yes. So we have committed to providing like more detailed information, including the positions we're being proposed for elimination, as well as a specific item of appropriation and program being reduced in both current year and budget year before the May revisions that the Legislature has time to evaluate those.

So before May revised. Yes, answer. Thank you. And based on the information given to us, it seems that state operation reductions were applied differently across departments. Can the Department provide any context on why some of the departments receive more substantial reductions than others?

Ryan Weinberg, Department of Finance the reduction is identified by Department for both the state operations reductions and the vacant positions and savings reductions were based on conversations with each Department and agency were applicable to identify efficiencies in the current budget and based on the what could be done and implemented without impacting public safety, public health and other current levels of service currently being offered.

So each of these departments underwent a different level of efficiencies based on what was identified and what is an achievable level of Savings as the LAO referenced. And so the specifics for each individual Department would need to be spoken to by that Department.

But there was no one size fits all approach because each of these departments operate differently and have different needs in order to continue providing the levels of service they currently provide.

Okay, thank you. Seeing no other questions or comments that will conclude this particular issue number one. Thank you. It's my understanding you requested that we take up issue five. Yes, if possible. Thank you.

Okay, Members, there's been a request that issue 5 be taken up next, given the same representatives as they have another engagement is what I was told. But before we do that, if we could establish a quorum.

Yes, sure. Miss Durazo.

Yeah. Just with regards to. To the impacts and the cuts. One example that I. If you could answer. There have been severe backlogs in the Labor Commissioner's office and of course, that impacts the processing of claims and services. Are you going to propose increases in staffing to address the backlogs?

So for those types of questions, we would defer to the specific departments to discuss how these reductions might affect their operations.

Okay, but will that be taken into account?

We have worked with departments to identify the savings that we believe will have minimal impacts to operational levels. But when it comes to additional proposals relating to workload, things like that, those go through the budget offices of those individual departments. And so again, we would.

We would need those departments to speak to more specifics on any potential proposals coming in the May revision or at a later date.

Okay, thank you. Thank you.

Sure. Thank you very much for the covering of issue number one. Before we go to issue number five, we'd like to establish a quorum. Consultant, would you please call the roll calling?

Senators Richardson. Richardson present. Durazo. Durazo. present. Seyarto. Sayardo present. Wahab.

Wahab present.

Here.

The consultant notes a quorum has been established. Move on now to issue number five. Issue number five is the increased workload related to Chapter seven, statutes 2023. We'll start with the Agricultural Labor Relations Board with Rasha Salama. Salama. Did I say it right? All right. Ms. Salama is the Chief Administrative Services Division.

And we also have Julia Montgomery, who's General counsel, who's present here with us today. And then, of course, Finance. Who is going to start?

I will start. Julia Montgomery with the Agricultural Labor Relations Board General counsel and. Good morning, Madam Chair. Members. I am here to discuss our budget request for additional resources to meet increased workload demands resulting From Assembly Bill 113 First, I'll just give a really brief background of our organization.

So the Agricultural Labor Relations Board administers and enforces the Agricultural Labor Relationships act, or ALRA, which is modeled after the National Labor Relationship Labor Relations act, which extends collective bargaining and labor rights to workers.

Because the National act, or NLRA, excludes agricultural workers from coverage, California passed the ALRA in 1975 to extend these same rights to farm workers and provide protections from retaliation for advocating for better working conditions at their work sites.

The ALRB administers this law, including investigating unfair labor practices, adjudicating labor disputes, conducting union elections and petitions, and obtaining remedies for agricultural workers for violations of this law. And the ALRB is the only state entity exclusively dedicated to serving and protecting the rights of farm workers.

The ALRB has a proposal for seven new positions and roughly $1.9 million from the labor and Workforce Development Fund to address the implementation workload generated by Assembly Bill 113, which was passed in 2023.

And this law, AB130, that was AB113, revises the labor union election process and adds new appellate bonding and civil penalty provisions to the the Agricultural Labor Relations Act. This legislation removes barriers for farm workers to make it easier for them to elect a union and represent them by signing cards for majority support.

Additionally, the Bill adds new authority for the ALRB to assess civil penalties for unfair labor practice violations and an appellate bond which provides more teeth to the act.

And the Bill adopts a majority support petition process which allows certain labor unions to become certified as the exception exclusive collective bargaining representative of an employer's agricultural workers upon demonstrating proof of support from a majority of the employees. And AB113 does include a sunset date for this provision on January 12028.

It also revises the appellate bond provisions and requires employers to post a bond as a condition to seek appellate review of a board order in an unfair labor practice case involving monetary relief, or a board order in a mandatory mediation proceeding where the board has ordered a contract in effect between a union and employer.

So AB113 requires the ALRB to investigate unfair labor practices and election objections and determine the majority support petitions within five calendar days, which is an incredibly short timeline.

Hold hearings on majority support petition challenges no later than 14 calendar days from the date of the majority support petition filing calculate appeal bond amounts which an employer must post before appealing a case, and this has to be done very quickly and also calculate and enforce civil penalties, which is an entirely new provision in our law.

And so to implement this Bill and the mandated Timeframes in the. In the legislation. The ALRB is requesting a total of seven new positions and to reclassify three existing attorney three positions to meet these new requirements in the law.

And this includes six positions in the General Counsel's office, which is my office and unit which investigates and prosecutes unfair labor practice violations. And my team also oversees the elections and those investigations.

And that will include attorneys and field examiners who are the ones doing the investigations, and also in our board office who review the decisions, the hearing decisions, and handle the appeals. They're requesting one new position and a reclassification of three attorney positions.

And these attorneys work directly with the five appointed board Members to review case filings, conduct legal research, and prepare memoranda to guide the board's deliberation on case matters. So that's the request for which I'm here today. I'm happy to answer any questions.

Thank you very much. Did you want to add anything to it available to answer questions? Okay. Ms. Griswold, did you have any comments? Nothing to add at this time. All right. And how about our LAO.

Good morning, Madam Chair Members. Chas Alamo with the Ledge Analyst office. We have no concerns with this proposal.

Okay, great. Any Members have any questions or concerns or comments or. Yes, Ms. Durazo. Yes. Thank you.

Thank you for your work. Appreciate that. And my only concern, which is unusual in this situation, we are with the budget. But do you. Is this enough to meet the increased workload? You know, this is a new law and it has a sunset.

And so it's not something that we could afford to just let go on and on and on without giving the adequate resources to it.

So my concern is that this is enough to meet the demand so that we stay true to what was intended by everyone in the short period of time, that is for sure, that we would be able to meet those needs and requirements.

Yes, thank you. I appreciate that question. We believe and hope that it is enough to meet the demands, but of course, I can't completely predict the future and what's going to happen. But just based on what we've seen so far, we did project these numbers based on what has happened so far.

So we do believe that it should be enough, at least we hope.

And my additional concern is that this is being done in an environment where there's a lot of fear of deportations. Such an overwhelming number and percentage of farmworkers are undocumented and mixed status families.

I'm concerned about how the interaction of the rights of them that they have as Farm workers as workers under the ALRB at the same time that these attacks are taking place in the community.

So it seems like there's a bigger responsibility now that you all have to make sure that they are not so afraid that they won't exercise their ALRB rights.

Yes, that is absolutely true. It's an additional challenge that we are grappling with currently and then we will be for some time. Thank you.

Yes, Mr. Seyarto.

Having been here, when we heard this Bill the first time in 2022, I believe it was, we had concerns about the price tag for it. And this is the part that nobody tells the legislators when we're about to pass a Bill and then they find problems.

And then in 2023 we brought it back again in the form of a trailer Bill and now we're seeing the price tag for this. Our state is spending more money than we take in and it's these kind of programs that are killing us. It is not your guys fault.

You're just trying to do the work that the Legislator is putting out. But I want it to serve as a good example to anybody who is out there wondering why the state has no money or says they have no money. It's because we're spending it on bills like this. This is a card check.

This is a card check Bill. All it was for was to enable the unions to be able to go access the workers. And that could have been done a gazillion different ways. Not $1.8 million just to start.

And so this is alarming to me because we're telling people that need smaller amounts of money that they're not getting their money this year. And there are programs that help disabled people, there are programs that help school kids, all these things. And they're getting left out because we're funding stuff like this.

So that's my concern with this and just wanted to put that on the record.

Thank you, Senator Durazo. Yeah. I must respond. The families, the families, the working people, those farm workers who work so hard every day don't have things like health insurance, don't have things like a roof over their head, don't have a lot of basic things. And they're trying to do that without coming to government.

They're trying to do that by making employers responsible for the things that they should have that we as taxpayers shouldn't have to provide for them. They're trying to do it through the dignity of having their own work evaluated and judged and provided for in a collective bargaining agreement. So this isn't the opposite of what you're saying.

This is exactly what those people want. Those workers want the ability to put a roof over their head, put food on the table without having to rely on us as taxpayers. So I think this is the best use of our funding. Best use of taxpayers dollars. Thank you.

Seeing no other questions or comments that would conclude issue number five. Thank you for your participation and we look forward to working with you. You, thank you very much. Thank you. Now we'll return back to issue number two, which is the new Labor Agency building Relocation section.

We'll start with the labor and Workforce Development Agency with Isaac Garcia Long and Operations Officer Jay Sturges, who's the Deputy Secretary with Fiscal Policy. Who would like to go first?

Good morning Madam Chair and Members. My name is Isaac Garcia Long. I'm the Operations Officer with the labor and Workforce Development Agency. Thank you for the opportunity to present to you today regarding the bcp.

This is the third and hopefully final request related to the Labor Agency and the Department's move into the new labor and Work the Labor Agency building or NLAP. The BCP is funded 100% by special funds. There is no General Fund impact.

This BCP requests funding for relocation and decommissioning activities, increased lease costs and ongoing support for a workspace management system. One time moving and decommission cost of 2.6 million. The BCP will support approximately 3,000 staff moving into the new system space. EDD is managing this function for EDD, LWDA, ETP and the California Workforce Development Board.

As it pertains to the building lease cost, there's a net increase of 7.8 million in 2526. For a partial year, there is 14.5 for 262715.6 million for 272816.8 for 2829 and 17.9 for 2930 and ongoing. Each Department will be paying its share separately.

We are phasing in move dates starting in December of 2025 and hopefully end of February 2026. The cost for the workforce management system is 605,000. While multiple departments will be sharing building common spaces, there is a need for the workspace space and conference room reservation system.

EDD is managing the contract for the entire building and each Department will pay a prorated chair based on their footprint. Thank you Madam Chair and Members of the Committee for your Time. I appreciate the opportunity to speak with you and I welcome any questions you may have.

Thank you. Mr. Sturgis, did you have anything you'd like to add?

Nothing to add. Just here for questioning.

Okay, thank you. Any comments from our LAO office? And Mr. Chas.

Alamo, Madam Chair. Wow.

That's pretty cool. Alamo. Really? Wow. All right. That's cool. Any comments?

With that? No, we have no concerns with this proposal. Thank you.

All right, just make sure you see me later and tell me where that name came from with your family. That's nice. Very nice. Anyone from Department of Finance?

Grace Henry, Department of Finance. Nothing more to add, but happy to answer any questions.

Okay, thank you. Members, any questions or comments?

All right, I have one question. Given the governor's Executive order to departments to update their hybrid telework policies to a default of at least four days a week in person, how is this relocation and staff workplace needs affected by that order?

Currently, we are working with the Department of General Services to look what that looks like for the departments. Each Department will be able to give you a little bit more information about what they're doing in terms of fitting in the space. As far as the labor agency themselves, we are adequately situated in that space.

When we move to anticipate having people come back to work.

Correct.

Thank you very much. That concludes issue number two. We will now go on to issue number three. Thank you for your participation. All right, issue number three is EDD Next modernization.

We will start with the Employment Development Department, EDD with Ajit Jirin, Chief Information Officer, and Caleb Horell, who is our Chief Fiscal in charge of Chief Fiscal Programs. Who would like to go first?

I think I'm giving a short opening. Nancy Farias.

Okay. Spell your name, ma'am.

It's F as in Frank, A R, I, A S as in Sam.

Okay. All right, thank you.

Okay, great. Good morning, Madam Chair, Members of the Committee, My name is Nancy Farias. I am the Director of the Employment Development Department, affectionately known as EDD. Thank you for inviting me here today to discuss some of the improvements that we're making at the Department.

I just want to first start by saying that EDD is a stabilizing force for Californians in time of need. Staff at EDD work to provide billions of dollars to those who are eligible for unemployment or disability insurance or paid family leave. They also provide payroll tax assistance and help those looking for jobs or for job related training.

All this culminates with EDD collecting about 40% of the state's General Fund revenue. So I would like to express my sincere gratitude to each of them for their work and dedication to improving the lives of their fellow Californians, true civil servants.

I also just want to take a minute to thank each and every volunteer in Southern California who is contributing to the rebuilding of their communities. Due to the tragic wildfire, we had a list of people volunteering, so we're very proud of that at EDD.

Thanks to your support, we're improving customer service for the first time in decades by modernizing EDD from top to bottom. This means new telephone systems from Amazon Web services, direct deposit, multilingual phone lines and applications, faster payments, self service, and much more. You don't always hear about some of these improvements.

In the news, but they're happening every day and they make a big difference in the lives of so many people. For example, we simplified the Unemployment Insurance application and expanded multilingual services, including applications and call center services, to include California's top eight most spoken languages. Customers now finish applications faster than before and with fewer errors.

And internally, our employment history reviews are much faster. We have heard from our customers that the revised online application is excellent taken in isolation. Simplifying an application doesn't sound terribly exciting and you won't hear about it, as I mentioned in the news.

But yet, small changes multiply, multiply quickly across millions of customers and adds up to major boosts in efficiency and better customer experience, which is what we're looking for. As we further streamline, these gains are going to continue to grow.

If customers can get the status of their claim on their own without the need to call edd, that's better for everyone. The less we hear from our customers. The less you hear from our customers, the better off we are.

So we launched text message updates on claim status and added a claim status feature to UI Unemployment Insurance Online. Next, we're adding that tracker to disability insurance and paid family leave in addition to the new Amazon phone system that I previously mentioned. And of course we're not done.

You know, after getting back on track on Unemployment Insurance throughout the pandemic, we're next turning to paid family leave and disability insurance and I'm going to just briefly highlight some of the major improvements and then we can detail what's in the BCP and what's coming next.

We recently moved all of our disability insurance call centers to Amazon web services. With more self service options and a more customer friendly experience, customers can get their claim status without having to speak with an agent. Today, nearly 7,000 callers a day choose self service options to check their claim status.

As part of our modernization, we're also simplifying identity verification for our customers without sacrificing security. We're also modernizing the technology that powers our benefit system behind the scenes. This is going to help us process claims more quickly and continue improving customer service.

We're calling all of these improvements as most of you know, EDD Next and it's truly a top to bottom modernization and culture improvement at the Department. Yes, of course it includes technology, but it's also about modernizing our processes, policies and procedures.

For example, we moved away from telephone eligibility services to an online questionnaire and that meant 60,000 customers could get a final decision on eligibility for UI without waiting for A phone interview. That's huge. On average, eligibility issues are now resolved in less than six days.

Improvements like this all started by listening to our customers, our employees, the Legislature, the Auditor, the advocates, the Lao vendors and other states. We closely track what other states are doing. In short, if someone has a good idea, we want to hear about it and we want to implement it.

The BCP describes a few major projects that will improve the experience of working with edd. And I'm just going to name a few. The shared customer portal is a single portal for unemployment, disability insurance, paid family leave and overpayments known as MyEDD. It's been very popular with our customers.

It's been implemented for probably about a year or so now. Our modern contact center will give our customers even more options to to get help how they want it. Online phone, live chat, chatbot, text messaging. That's our goal there. The application enhancements will simplify our forms and make the application process faster and easier.

The work to date in our unemployment program already makes it about 15% faster for customers to complete the application. And the application enhancements is that is ongoing forever. We ask our customers, what would you like to see in the application? And we implement those things.

Lastly, our Voice of the Customer program helps us listen to our customers, answer their questions and drive improvements. Investments like this have not been made at EDD in decades. And we are very grateful to the Governor and the legislatures for both of your support and partnership which is allowing us to do this very important work.

I will not say that this has been easy. Every state and corporation in the country struggles to modernize old ways of doing things. And fortunately, we're not doing this alone. We've tapped some of the best technology companies in the world, as I mentioned, Amazon Salesforce to help us.

So together with your support, EDD will continue to modernize its benefit systems and improve customer service. I'm so grateful for this opportunity to meet with you today and look forward to our work together. And I can answer any questions. I have the smart people with me to answer difficult questions.

Thank you, Mr. Jirin.

Yes, Madam Chair. I'm going to pass it on to my colleague, Caleb. He's going to talk quickly, talk about the BCP numbers, and then I'll answer all the questions about ADD NEXT initiative.

Okay, thank you, Madam Chair. Members of the Committee, Caleb Horrell, Chief Financial Officer for the Employment Development Department, appreciate the opportunity to talk about this proposal today.

As our Director Nancy touched on and ajit mentioned the EDD next proposal in the 25-26 Governor's Budget requests 124.2 million funded equally by the General Fund and the Unemployment Compensation Disability Fund. This will continue to Fund the fourth year of the EDD NEXT Customer Service improvement effort. This fourth year request includes funding for specific work streams.

Nancy touched on a few of them. I will reiterate a couple. Those are the Transformation Office. This funding ensures the project stays on schedule, on budget. It's funding for multiple services including things like project management, quality assurance, quality control, IV and V CDT services, things like that.

The Shared Customer Portal as Nancy mentioned, this funding will allow us to support maintenance and operations for the already implemented shared customer portal and that will continue providing licenses and M and O activities for those already delivered. Enhancements the Document Management System.

The funding will allow us to complete the replacement of our legacy document management solution with a more modern solution that will provide imaging, data capture and content management that isn't available today. I'm sure you all may be aware, but EDD does process over 15 million paper forms annually and deposits over $1 billion worth of paper checks annually.

The Integrated Contact Center. This funding will allow the Department to complete the implementation of our new Amazon Web Services Connect Contact center solution for the UI and tax programs and support maintenance and operations for the already delivered features in our disability insurance and paid family leave programs. And then lastly, the fraud prevention and data analytics work Stream.

The funding will allow us to complete the implementation of our enhanced ID proofing solution and continue market research and procurement for additional fraud prevention and detection tools. Appreciate the consideration for this request. Myself and my colleague Ajit Gurn, the CIO for Eddie, along with our Director Nancy Ferris, are here to answer any further questions you may have.

Thank you, Mr. Jirin.

Thank you, Madam Chair. As Caleb mentioned, EDD Next is really here to overhaul the way we do business. We are listening to our customers. We are providing the services that they need. And with that said, I will be happy to answer any questions that you have for ed next initiative.

Okay, thank you Mr. Chas Alamo.

Thank you Madam Chair.

From the LAO our office's role with respect to technology projects is to really help the Legislature form the appropriate set of oversight tools given each technology project's complexity, so that the Subcommitee and the Legislature as a whole can closely track, be up to date with, and step in where they see fit to redirect a technology project.

So that's sort of the context of my comments to follow. We first want to acknowledge that EDD is making a great deal of progress with EDD Next. We are entering the fourth year of the project forms redesign has been updated.

The customer portal, as Director Farias mentioned, has been updated, and fraud prevention and detection efforts have really scaled up. The project as it's been described, composes pure IT pieces and also process and procedure changes. Many of the process and procedure changes have been completed or close to completion.

What's really left is the backbone of the IT upgrade, the ICMS, IDM project that's set to begin either late this year or next year.

And so because of the complexity of this sort of backbone project is now nearing sort of the start phase, we really urge the Legislature to increase its oversight because this is the critical phase for EDD Next over the next couple of years.

Over the last few years, there has been budget bill language providing the Legislature some oversight tools, but our office is recommending that we ramp up those tools given the complexity of the phase that we're entering. And specifically we recommend four changes to the BBL to provide some additional oversight.

And contextually, I want to make clear that the recommended oversight tools that we're suggesting this year are consistent with the oversight tools that the Legislature has put in place for other large, risky, complex IT projects. So we're sort of leveling up to those major projects.

The tools we recommend changing this year are to remove the extended encumbrance that the department and the project have had. So basically requiring the department to spend its budgetary authority within the budget year and not beyond.

The second set is to build in a mandatory checkpoint in the next few months once the Technology Department has finally approved the vendor contract for the ICMS IDM project. Right now, the Legislature doesn't know who the vendor will be, nor the exact contours of that vendor agreement.

And we think it's important before approving, sort of in approving this proposal that the Legislature has another opportunity to see the approval from CDT. Learn more about who the vendor is and some more specific costs when that comes up. It's likely to be later this summer, but before the end of this year.

Third, we recommend the Legislature require a bimonthly update of the whole portfolio in a report form and not just specific work streams, but the whole holistic top level view that would be from CDT and in conjunction with the department staff overseeing the project.

And finally for you and your staff, we recommend a quarterly legislative staff briefing briefing from the department so that staff members, including from this budget Subcommitee and other relevant committees, can join and learn more on sort of up to the minute details about EDD Next, as it enters this most critical Phase.

Thank you. Thank you for your recommendations. Department of Finance, any comments?

Yes, thank you. As my colleague from the LAO noted, there are a handful of existing oversight tools in budget bill language and to provide more context of what those are.

I just want to highlight that the existing provisional language provides those extended encumbrance and expenditure deadlines with the goal of reducing risk to project timelines as it has moved through its initial phases. Balancing that flexibility. Provisional language has also required annual reporting on EDD's project expenditures, both historical and projected.

This has provided not only a mid year view of EDD's interim progress, but also a view of anticipated project developments and provided, and has provided a bridge between annual project funding requests.

The LAO has noted that the project has gone through some changes over time, but in General, this project has achieved its annual milestones and the administration's priority is to make sure that the project is able to continue hitting its goals. Goals as it moves forward.

If the Legislature would like to increase those oversight tools that it has available, the Administration would want to work with the Legislature to identify the most effective means of doing so, while ensuring that the project progress and timelines can continue as has been laid out. Thank you.

Thank you. Were you Ms. Henry?

Yes. Okay. Grace Henry, Department of Finance.

Nice to meet you, Ms. Grace Henry. Okay. Any Members with questions or comments? Senator Wahab.

Thank you. So I just wanted to understand the life cycle of EDD Next. How long has it been since we've been pumping money into this and waiting to see massive change?

So it's an iterative approach. We're doing projects. We've done projects since the pandemic, which is not necessarily part of EDD Next. But this is, this will be the fourth year of EDD Next.

Okay. And then I just want to understand the numbers that we're talking about. We're spending millions upon millions of dollars on this program. And that is concerning a little bit. 22 billion. Thank you. So the question is how many? Let the Senator ask the questions before final words.

Thank you.

Can I understand a little bit more about how many people we are serving?

What was, you know, year one, year two, year three, year four goals, and then why are we extending it further and also still pumping more money into a system that, you know, if you ask people, you know, what are they doing at to get their EDD? Supposed to be very simple, right? And I may be completely wrong.

You guys did analysis with your end user. Can you guys just explain what you guys have been doing?

So I guess the way that I would Explain it is that we started during the pandemic when there was issues in UI during the pandemic and we were doing smaller projects throughout that to make sure that UI was up to speed with what our customers expected. Right.

So we did this modernization in UI and we are now continuing that to make sure that things are automated. I mean, UI was not automated prior to the pandemic, which is why we had had lots of issues. So what we did was we automated. That's a very simple example is we automated the UI application.

And so it's not so much about serving more people because it is an eligibility based program much like DI and PFL. Although, you know, there are laws that make more people eligible for things and we're happy. And that is one of the reasons why we're doing the modernization.

In the event that there is a recession or there is a bill that, that increases who is eligible for UI or DI and what the benefits are.

So, so I understand all that, okay. I understand the bills and you know, potential, you know, expansion of who we serve and so forth. But I just want to understand why is it taking so long to implement a tech system? What are the legacy systems you guys are removing? How many have you successfully removed?

What are you looking to do now?

Yes, thank you, Senator. Let me answer that question. So as Nancy mentioned, it's a multi year project. In this one you have multiple projects. For example contact centers, we have UI, DI and paid family leave call centers. We receive millions of calls on those call centers.

And the technology we are using today for paid family leave and disability was implemented 15 years ago. And that is a number one reason when our customers call us, we are unable to offer them self service features. For example, where is my last payment? What is the status of my claim?

So that is one mini project that started two years ago. We are making progress on that. We already moved disability into.

So let's just start on that.

Yes.

So my concern is if we have a call center for these specific different benefits, if you will. Right. We have three different call centers to address these three different requests.

So the three call centers that I'm talking about, those are managed by different set of staff because their domain, one call center handles Unemployment Insurance, another one handles paid family leave.

So if you guys mentioned that you guys did a form consolidation right in your talking points. So if for me just being in the space, I would have a call center that is one massive call center. Everyone calls one number regardless of their need. Right.

You ask the question, the person working at the Call center answer, you know, ask the question, hey, where are you calling? And boom, boom, boom. We're clicking along on the page. So the fact that we have that, and I just want to say, what are we spending our money on? Right.

If it's just to replace, you know, product A with product B, number two is the fact that these, and I, I want to be very clear, these tech investments that we're making, the fact that we don't know who the vendor is moving forward is concerning to me.

And the fact that all of these tech contracts, one usually subscription base, usually user based, usually a cost per outside individual, that is the model that is being, you know, hammered onto the government. Right. And this should be very, very simple.

And, and I understand the iterative process, but the iterative process is more in process, not in tools. Right. And it is, you know, yes, we're going to improve a form over and over and make it more efficient. Take the feedback from the end user and say, okay, how would we like to do this?

So I know others want to talk about this, but I just want to say that this is like the second year that I've heard this. Right. And it's not just this Department. And I want to just be very specific across the board when we're talking about technology and government. I think that we can do a better job.

Right. I don't think that we are looking at it from a holistic approach. I personally don't think that. Right. Especially if multiple different departments can, can utilize the same things, including cost management and being able to identify, you know, whether, you know, how are we identifying the money? Do we have the bucket of money?

Are we doing payroll properly? Are we doing all the internal things, let alone the outside payments to the benefits to the, I'm gonna call them customers. Right.

So I, I say this because I, I keep hearing the same thing and it's like, you know, the response is always about project management and like, you know, we've did these deliverables. But the reality is that it shouldn't take four years to implement this. It really shouldn't. Right. And I've said it in our last week's meeting too.

There's the as is and the to be. I'm sure you guys did this analysis, right? But eventually it's, it's completion. And so spending billions of dollars to me on the same thing relatively is problematic, especially considering that we, we don't always hear the most positive out of the DMV and edd. And we've had conversations about that.

In the past and I know it takes a little bit of time, but the fact that we don't know and this has even highlighted the staff report highlights that we still also don't necessarily have the best oversight moving forward. Right. So that's concerning to me.

So how do we have some more checks and balances and insight in real time if we are putting these structures up?

Thank you Senator. Let me answer your questions. First question was about call centers. Like I said, DI, PFL are going to the same Amazon Connect Call Center.

We have a Unemployment Insurance call center which we are also planning to modernize as part of that and take it to the same platform so that we can combine and reduce the next cost. Second question, you talked about not knowing the vendor for the integrated claim management system.

We don't know the vendor yet because that is in the active procurement. We are evaluating the bids as we speak today and the announcement who wins that award will be done later this year. As Chase mentioned, that is inactive procurement. That's why you don't know the name of the vendor.

Lastly, you talked about this should be easy and why does it take long time. I can tell you from my experience these systems were built 60 years ago. Mainframe which is still used in EDD today was developed in 1960s. That is what is running our unemployment showdowns today. Paid family leave was implemented in 2004.

No enhancements have been done since then. Minor enhancements. And that is why customers are complaining. That's why we are unable to make the payments on time. Disability insurance was implemented in 2012 and since then we have made marginalized improvements to those systems.

The reason I say that the technology is old and the fact that we are unable to make incremental investments in these systems causes us to spend millions later down the road. Because what we have done so far is kick the can down the road. And that is the that is what the problem is with DMV.

That's what the problem with Employment Development Department because we are not making investments every year. Private industry, what they do is every year they allocate 10, 15, 20% of their budget towards R and D towards incremental modernization. We do it when there is a fire. So I and regarding oversight, we welcome additional oversight.

We are working very closely with LAO, very closely with Department of Finance. My colleagues with California Department of Technology would love to any additional oversight to make sure Legislature and everybody else feel comfortable with the way we are spending money.

And this is my final point. I just want to highlight that what we're talking about is largely money in, money out.

That is the function of the department as to making sure that that takes place pretty much any of the departments that we've been talking about and making sure people get paid, paid on time, accuracy, things like that. What we're talking about here specifically is the tech piece that allows us to do that. And it's a tool, right?

And so the tool being able to implement this and also like I've said in the past, it has to be done in a parallel structure to make sure that there is no deficiencies in the business being operated, which is the money in, money out situation.

I will just highlight this and I would like to request this of through the chair is some deeper conversation in California's investment in internal technology throughout all the departments. Because this is getting to the point where I think it's ridiculous that year over year over year we're talking about spending billions of dollars for a simple task.

You know, the private sector also provides a number of other services that we will never provide. And so that is my frustration if there is not enough oversight of how are we implementing technology. Thank you.

Thank you, Senator Seyarto.

Thank you. So I'm going to take EDD off the hot seat, especially these folks. They weren't there when the pandemic rolled in. It exposed something just like a lot of things got exposed. It exposed that the processes that we had at EDD were just, as the gentleman said, 50 to 60 years old. It's like having dos computers.

That's not going to get it done. The Legislature, both houses, took action to create a five year program, basically, and allocated the $1.2 billion to try to fix the problems that we discovered that were there. The building that you're in, it's a 1950s or 60s building.

So all of the pathways for wiring and all of that have to go through areas that have asbestos and things like that. So you have to do all of that to be able to get things through there. So there's. This is a complex problem. The Legislature recognized it.

There were changes made at the EDD and we've given them a pathway to fix this service problem that they've had each of our offices. I think Senator Durazzo would say we were getting 500 calls a month to try to backdoor EDD so we could fix problems. And that's not happening anymore.

So obviously we don't have the volume that we had back then. But I appreciate that you are making that progress. And if we're stalled out in two years, you'll be moving to a new building. Correct. It has brand new technology built into it. If we're installed out in two years, I'd have this concerns.

But right now you're on track to do exactly what we told you to do or we asked you to do. And so I'm glad to see the progress that's been made. The one question I wanted to ask you was about fraud. What kind of measures are we taking or built into a system now that can combat fraud?

Because that was like $32 billion which could have paid off the ED debt. But anyway, $32 billion, that, that's what people hear and that's what they're concerned about when they, when they see this is, hey, that could be helping people. Instead it got frauded.

So and then fraud prevention and detection is the number one priority for our department right now. We have multiple checks and balances starting from the moment a claimant knocks on EDD doors to get benefits.

The moment they click on a website, we look at where this claimant is coming from, which part of the planet this claimant is coming from. So Geo Sensing is enabled immediately looking at the IP addresses, what phone is he using? Is the phone stolen? And to the point, identity verification of the claimant is done.

Even after the verification is done, is the claimant incarcerated? Is there any other fraud flags with the claimant who's trying to file the benefits with us? So we have multiple checks and balances. Massive investment has been done in this domain and we continue to make investment as part of EDD Next.

One of the work stream is about ID proofing, how we can make our ID proofing better, more simple for our claimants to do business with us. So I can assure you that EDD has learned this lessons from pandemic and we continue to make massive investment in improving our security posture.

Do you have any way of tracking what our fraud. Has it been substantially reduced, eliminated? I know it's hard to eliminate, but.

We track it on daily, monthly basis, biannually. We create a Legislature report that talks about the fraud detection and prevention mechanisms that we have in place.

I'll refer to that. Thank you.

Thank you.

Any other questions? Senator Durazo.

It's not the biggest question. That you're facing like fraud and all these other major ones, but this is more along the lines of what I am doing. I have a Bill that has to do with including chosen family and the paid family leave. So I'm just wondering how do I get, from you, how much that that would cost?

So we can, we will provide that when I, I assume when it is up in Appropriations. I think we did a similar analysis last year. Is that right? This is, this is the same Bill. This is for a chosen family. I see. Okay.

So I don't think that we have completed that yet, but we're happy to provide that when we do.

Yeah, thank you. I have a few questions. First of all, this is my first year back, so could you please provide to the Committee an overview of what happened during COVID the fraud that occurred, the money that was lost, and so on. And then what steps have you taken to eliminate that?

Building on Mr. Seyarto's question, we do have several, you know, freshmen who've joined and it probably would be of interest of those Members knowing generally what happened and knowing now what we're doing to avoid that. So if you wouldn't mind providing to the Committee a report about that, that would be very helpful. A couple other questions. You mentioned call centers.

Are there individuals in these call centers? People, Real people who live in California who are answering the calls?

State employees.

Okay. Living in California. Yes. Real people. Okay. All right, Director Nancy, you said, and I wrote it down, the less we hear from our customers, the better.

No, I understand generally where you're trying to get with modernization, but I got to tell you, and I'm going to use a pretty strong word, I hate when I'm trying to get access to some service. Hit one for this, three for this. And trying to actually get to a real person is impossible. And I hate it.

I mean, that's a strong song. Where I realize Senator Waha being in this field, you know, it's what people do, but for like a real person. And then I live with an 87 year old mother who, when I have to call the bank or do different things and it is a frickin nightmare. I used a good word.

So could you tell me all of this modernization is wonderful. I get why we need to do it. I get why. To answer the basic questions, is my claim in process? You know, I can get an automated answer. I'm okay with that.

But when all of that fails and a person wants to talk to Someone, could you tell me what process you have with all of this modernization that there's still a real person that someone can talk to?

Yeah, that's a great question. I guess I would like to clarify that. It's good when we don't hear complaints from customers is what I meant, because we do have a customer user experience team that only does outreach to customers to get feedback. So. So we are certainly getting feedback from customers that is not in question.

People who use your system and who, again, I have an 87 year old mother. People have disabilities. There's other issues. So you're probably getting responses from people who like this stuff. But there's a lot of other people who have challenges with this particular process. So. So what do you do to the person who can't get it right? Can they push a number and actually talk to somebody? Yes. Okay. Yes.

The answer is yes.

Okay. All right.

We have a call center that's staffed in DI, PFL and UI, fully staffed by state employees, California State employees that speak to people.

Wonderful. And then you mentioned eligibility can be resolved in 6 days case. Again, I realize modernization is wonderful, but I've also worked with constituents who've gotten denials on various programs that they should not, that we've had to get engaged and really push for deeper evaluations of why something might have been denied.

So even though I'm glad to hear that you've reduced resolving eligibility claims in 68 days, we also want to know that there's a good, clear process that we're not rushing so much to the point that we're missing and maybe denying when really we should not.

So I would agree with what you just said. I'd say the answer is yes. I mean, most of our claims that we get in UI are what we call clean claims. And they. There is no issue at all.

The eligibility issue that I was speaking of is if you were denied, what happened during the pandemic and what happens, you know, normally for an eligibility based program, I would say is that when you're denied. It took EDD a long time to figure out the eligibility part of it during the pandemic.

But since we have updated that and put everything online, it now takes six days is the average. So some, I assume are less and some maybe a little bit more, but. And that's. It was months, you know, before. So I would say that progress is any progress is good progress.

But again, when you have people who are processing, I'm just saying from a customer perspective, which is who we represent, it's Just very important that when you're pushing your staff, hey, get this resolved, get it done, get it done, get it done. Don't forget, these are real people with real issues, real money.

That is the difference of them being able to pay a home Bill, you know, their prescription drugs, whatever it is. And it's. It's actually most important we do it right versus whether we do it in six days versus 10 days. That's all that I'm stressing.

That is how, if I want to take credit and blame at the same time, that is how I have led this project with the customer first. Customer service is.

Was utmost on our minds when we started EDD next and actually getting feedback from the customer, which includes our staff, because the staff are the ones that are doing the work. So our customers are also the staff. And that is how I think this project has been from the beginning. That's how I've led the project.

That's how I continue, how I will continue to lead the project with customer in mind.

Okay.

All right. We look forward to the answers to the questions and we'll follow up with the recommendations. Yes. Senator Durazo.

Yeah. I just want to thank you, Director, for all that you've done. You came in in a very, very difficult time. It was extremely difficult. And I appreciate you hanging in there.

I mean, most people would run away from problems like you were having and, you know, you had to grapple with being pushed to, you know, hurry up with the claims. This was during the pandemic, get those checks out.

And yet, you know, not doing shortcuts that could lead to not having sufficient information which could possibly lead to fraud. So I appreciate that you hanging in there, pushing these forward. And when you hear the questions and you continue to be challenged, you, you know, you don't run away from the. From the issue.

So I really appreciate you.

Appreciate that.

Thank you.

Thank you very much. Seeing no other questions or comments, that concludes issue number three. Thank you for your participation. And we'll now move on to issue number four, which is Unemployment Insurance and federal debt repayment overview. Looks like we're going to start here with a gentleman who's already here, Mr. Caleb Horel. If you could begin your presentation.

Yes. Thank you, Madam Chair, Members of the Committee again, Caleb Horel, chief financial officer for EDD. The agenda does a great job of laying out this issue. As the agenda does note, the Governor's Budget proposes a $634 million payment on the state's outstanding UI debt. This payment would be coming from the state General Fund.

And I'm happy to answer any further questions you may have on this item.

Thank you very much. Mr. Alamo, do you have comments?

Yes, please. Thank you, Madam Chair. A couple brief comments about the specific budget proposal before you, and then I'd like an opportunity to turn to a bigger research project our office has put out recently on Unemployment Insurance. So first with the proposal, as Mr.

Horrell mentioned, the Governor's Budget includes $634 million for this year's interest payment on the state's outstanding federal UI loan. We think of this number as a bit of a placeholder because by May we expect an updated or revised figure for the interest payment. The interest payment is made in September.

It's based on financial factors from last year that the Administration didn't know when they were putting together the Governor's Budget. So we'll see an update with where interest rates have gone since last year. We think the May revision number will likely be more or less $100 million greater than the number in the Governor's Budget.

So I'm just flagging that for when we come back to this in a few weeks. Stepping back from this specific proposal, in December our office published a deeper review of the state's Unemployment Insurance Program. And if with permission, I'd like to go through it for a few minutes for this Subcommitee.

At the very high level in our review, we believe that the state's UI financing system is broken. Unemployment Insurance is intended to be a self finance system where contributions from employers come in each year and they more or less are sufficient to pay out Unemployment Insurance benefits that go out.

Yes, there can be some mismatch during a period like a recession when more benefits are going out than contributions coming in from employers. But those would get evened out during the good years. But that's not currently what's taking place with the state's UI program.

We are routinely collecting fewer contributions from employers than benefits that are going out to unemployed workers. And, and this is occurring year after year even when the state's in a period of relatively economic sort of a period of expansion.

We believe that for the next several years, the state is likely to collect $2 billion each year less than it pays out in Unemployment Insurance benefits. This has a couple very immediate effects.

First and foremost, the outstanding federal loan for which the interest payment that we're discussing is for which will increase because each year when the state doesn't collect sufficient contributions, we have to continue borrowing additional monies from the Federal Government to keep paying Unemployment Insurance benefits. So the outstanding loan today is $21.6 billion.

We have made no progress on repaying the outstanding principal since the pandemic began. It's been between 20 billion and 22 billion for the last four years.

That number is set to increase by billions over the next five years, which means not only will our interest payment go up, but we will continue paying the outstanding federal loan for years to come. We think over the next 10 years, the state's likely to pay $1.0 billion in interest each year for the outstanding UI loan.

So that kind of sets the stage and brings some urgency that we feel the Legislature and the Administration should take in hand. When thinking about Unemployment Insurance, our office put forth four recommendations, four changes to change the way the state finances Unemployment Insurance to put us back on a different path, a stable path for ui.

The first recommendation is that the state should substantially increase the Unemployment Insurance taxable wage base. So as you know, the employers pay the UI tax on an employee's first $7,000 in annual wages, and that number has been unchanged since the 1980s. $7,000 is the federal minimum, and many states levy the UI tax on a much higher amount.

We recommend that the state raise the taxable wage base to $47,000 a year. And I'll get back in a minute to why that's our specific amount. We also recommend or acknowledge that simply raising the taxable wage base will solve the state's UI financing problems alone.

The state also needs to reconsider the tax rates that it that employers pay.

We suggest going away from the state's current tax rate system, which is sort of a complex matrix of tax rates that employers pay depending on their so called experience rating, that is how much they've paid in versus how much their workers have received in benefits. We recommend going away from that and adopting a simpler system.

The simpler system would consist of a standard rate, which is just the rate that's calculated that employers would pay to cover average sort of typical UI costs in a given year. And then we would also have what we call a Reserve building rate. And the Reserve building rate would be a surcharge on top of the standard rate.

That would only be in effect when the state's UI Trust Fund does not have sufficient reserves to handle an upcoming recession. The third recommendation we make for Unemployment Insurance is to move to an experience rating system that has fewer downsides.

As we put forth in the report this December, and we put forth two years ago, employers UI tax rates depend on how many of their former workers get Unemployment Insurance. And so if more workers receive Unemployment Insurance and employers UI tax rate goes up and vice versa.

And we think this creates a clear financial incentive for employers to dispute Unemployment Insurance claims. And we think this has the effect of reducing take up for Unemployment Insurance among workers who are eligible for the program. We think that incentive is causing frictions in the problem in the. In the program.

And there's an easy alternative that maintains some of the notion of experience rating the sort of fairness that employers whose workers use UI should pay more. Sure, we have an alternative that we think maintains that spirit, but short circuits that financial incentive that we think harms the program.

And finally, given the magnitude of the outstanding loan, this $21 billion that I mentioned earlier, even if the Legislature were to take dramatic steps to reform the UI program today, it would be several years before those changes would be sufficient to repay the outstanding UI loan.

And we don't believe the Legislature would want to take those steps without ensuring first that it can immediately begin building a Reserve. Because if we don't have a Reserve going into the next downturn, which could be months away or years away, we don't know if we don't have a Reserve, we will find ourselves again in this position.

So our fourth recommendation comes from that acknowledgement. And the fourth recommendation is that the state immediately repay or refinance the outstanding federal loan.

We suggest doing this in a sort of half and half fashion where the state would borrow from the pooled money investment account, its own cash account for $10 billion, use that to repay the Federal Government, and at the same time, EDD in the state would orchestrate a refinancing of revenue bonds for the employer community to repay as a surcharge on their UI taxes over the next 10 or 15 years for the other half of the federal outstanding federal loan amount.

This would have the effect of dramatically reducing the employer forthcoming employer costs to repay the loan. And that's an acknowledgment that these outstanding loans stem from the period during the pandemic where the state and its community Members took strong stand to put public safety ahead of economic activity.

This downturn during the pandemic that led to the the outstanding loan was a unique circumstance, and our office thinks it's. It's important for the Legislature to acknowledge that there's some shared sacrifice in that.

And so we see it as a responsibility both for the Legislature and the state, as well as the business community, to jointly repay the federal loan, allowing the state to get out of this financing circumstance that we're currently in and begin Building Reserves. Thank you very much.

Well, as Charlie Brown would say, that was quite a wet blanket that you delivered. I'm sorry. You know what? I'm probably a little different, maybe, than some Senators, but I feel really blessed to do this job. And so every now and then, I'll add a little enjoyment to it, because if we don't, it would get pretty tough.

Mr. Alamo, I've asked staff to share with me a copy of the report. Of course, I'll share it with the Committee, and we'll certainly review it. I listened pretty carefully to what you were saying. What I'm curious to know is in this beautiful building that we're in, there's two things as Members we always deal with.

One is policy and one is politics, and they both exist in this building equally.

And so I am not sure, in listening to what you just said, said, what would be required from a political perspective to achieve the recommendations that you stated, such as taxes and all that kind of stuff, because usually that's not something we just easily do. But my commitment is.

Is thank you for sharing that information, particularly to a Member who was not familiar with the report or your recommendations. And I believe it's important to be honest. So I will certainly review it.

I will share it with the Committee, and what I'd like to do, we'll probably have you come back, or I'll invite you to come back to meet with me and we'll have that policy versus politics discussion about what we can and we can't do, and. And then we'll go from there.

But thank you for your recommendations and your thoughts, and we'll accept it. Even though it is a wet blanket, it's one we have to use. So thank you, sir. With that, Members, have any questions or comment? Would you like to give me another blanket, Mr. Seyarto? Yes. Yes, thank you, Ms. Grace.

Thank you, Chair. I think you very much highlighted that the LAO put forward a number of proposals that are very complex and heady, some of which have been explored in the past.

So additional conversation, I think, makes sense as there are a number of different ways to structure a UI system, and the Administration looks forward to discussing those various options with the Legislature.

Thank you, Members, with any questions or comments. Ms. Durazzo?

Senator Durazzo. Yeah. Mr. Alamo and I have had conversations about this, because when it came up in the budget a couple of years ago, right after, especially after the pandemic, the thought that we were paying 67, $800 million a year in interest was just blew me away. Just shocking, and that we weren't taking significant steps.

Now, I've come to understand a little bit about how this works, and that is, unless you do these all, you really, you're just not really going to have the effect, not really going to have the impact.

I appreciate the four reforms that you've suggested because we're looking for something that's going to help both employers and the people who need the Unemployment Insurance when they need it and when not likely to avoid another downturn in the economy. Sometime in the future, we're going to hit it. And so this is only going to get worse.

And we don't know if it's going to be as bad or as not so bad as the recessions we've had in the past. So I agree with our chair that there is politics. But what about the money? $700 million? It could be used for something else.

Each of us could come up with several ideas on how we can save services for very poor people or invest in green, in our green economy and manufacturing. There's so many things we could do. And yet that's just the interest payment. We're not even coming close.

We're not even touching the principal, which is going to grow $2 billion a year. So I suspect there has to be something very serious amongst leadership to really tackle this. And I thought when we first started our conversations, it was going to, you know, something tough. One or two reforms. This is the whole enchilada here.

You know, this is everything has to be put on the table and people have to come to the table, not just caring about the one particular interest or one particular stakeholder's point of view. It's like everybody's got to come to the table and say, we got to fix this. It's.

Anyway, I just want to make that comment and maybe we can be part of that leadership that drives these reforms.

Yes. Mr. Seyarto.

Okay, thank you so much. I had a question on, you know, one of the problems with our current what's happening is that the employers are having their taxes raised more and more under the plans that you've kind of outlined there. What would happen to their actual debt? Would it go up or down?

The taxes that they have to pay, Would it increase or decrease?

Senator, we are clear in this report that our four proposals would result in a substantial tax increase for the employer community. There is no mistake about that. I will add that we also note that the employer's tax rates are going up one way or another. The automatic federal surcharge to Repay.

The principal of our outstanding loan is set to incrementally increase over the next 10 years. That's going to be a substantial payroll tax increase for the employer community.

In our view, we would prefer the Legislature in the state be in the driver's seat, refinance the outstanding loan, set up a program as we see fit, rather than be sort of, I don't want to say Beholden, but sort of at the policy of a federal repayment plan that we cannot adjust as needed.

Okay, so this, this whole UI debt situation is nothing more than a, it's, it's a financial disaster as far as having this type of debt. And it was one that should have been avoided. We had the conversations and the LAO recommended when we had our, our surplus, much of which was Covid relief funds.

And instead of paying off the debt, we sent checks to people three weeks before an election. That's what happened. And instead of paying this off, now we're going to be dealing with $1.0 billion a year in interest taxes going up on businesses that are already leaving because their taxes are too high. What a disaster.

I hope people in the future will understand finances a little bit better before we do these stupid gimmicks to try to make people think we're helping them. But in the long run, this is ridiculous.

$1.0 billion a year we could be spending on all those different programs I talked about to help the disabled, to help workers, all these things because instead of paying off the debt like the other 48 states in this country did, we sent checks out to people to make them feel good.

And I'll bet you not one person can tell you what they did with that check. So anyway, that's my frustration. Obviously it shows because this is completely, completely avoidable. And now look at it. It's just snowballing into a disaster. So that's my comments on it.

We have to figure something out in retro to be able to get rid of this debt. So I think that's something from a budget perspective we need to make a priority.

We get a $200 billion budget, we should be putting a substantial amount of the budget before we pass out any money to anything else to paying this stupid debt off so that we don't continue to keep sliding down this slippery slope because we can.

We'll wind up taxing our businesses more, but then there'll be less businesses here to tax and then we're going to have to tax the remaining ones even more. How is that going to work? It's not going to work. So anyway, I'm really concerned about this, what this UI debt has turned into.

And I hope, I hope we come up with a plan that is not going to increase taxes on our businesses any more than they've already been increased on and we can get rid of this debt.

Senator Wahab?

Thank you Just for the funds that we did give to people. It was due to the GAN limit, correct?

That is my understanding of that period's stimulus checks. I will note that many states use their Covid federal fiscal relief dollars to pay off their outstanding federal loans. Some did not.

And given where the California UI program was In March of 2020, our outstanding loan was proportionally much larger than it was for other states because we went into the pandemic with very little reserves in part because of the imbalances that I mentioned earlier.

So yes, any restrictions utilize that Fund.

The U.S. Department of labor and U.S. treasury acknowledged during that period that the federal fiscal relief funds could be used to repay outstanding federal loans for Unemployment Insurance.

Thank you. So I would have to echo my colleague's comments on that. Just primarily, you know, the couple $100 that was received only by so many different individuals was also not a dent in anybody's pocket. Let's just be very honest about that.

And then, you know, even on local city councils when we have these, these large deficits and then also a lack of prioritizing what we actually do need to pay for as well as not diversifying our income streams, it becomes problematic and it starts to compound as, as we are seeing right now, we don't typically build large enough reserves in normal times to cover these increase in claims.

And what is happening with the stock market in this last week and much more, I'm assuming that we're going to see far more people that are in need. So that is a deep concern. If we were to say that in this budget today there is a way to make a dent in this.

What is the number one suggestion you would make?

I would immediately turn to the fourth recommendation in our report to refinance the federal loan. I will say in the report we caution against doing that alone because that does solve your fiscal problem with the Federal Government. But it doesn't solve the problem that we're still running a $2 billion deficit each year.

So the next day we would have to return to the Federal Government for an outstanding loan. That's why we see it as a package. A $20 billion, one time state commitment to repay the loan on behalf of employers seems to me to be largely beyond the capacity of this year's. Budget. I'll speak to that.

But refinancing it allows the state to take over the terms of the loan and spread those costs equally between the state and the employer community, reflective of the decisions to shut down the economy we all took back in 2020.

Okay. And so I just want to make sure that staff is listening to that, because I do think that we, we need to kind of act quickly on this. And I know it's not a save, you know, the entire situation. But also, even with the GAN limit, I will just be very honest.

Even at that time, I felt that we needed to prioritize our structural deficits, to be completely Frank with you. And I don't think that any jurisdiction tends to do that. Right. They don't necessarily prioritize, especially when it comes to Unemployment Insurance and a number of these other issues. So I just highlight that.

I wanted to echo those comments and just make a suggestion that we do act on it in this budget and prioritize kind of what we're looking at in front of us today. Thank you.

Thank you very much, Mr. Horrell. I would be remiss not to give you an opportunity to make any comments based upon the discussion that's been had, if you have any.

Nothing further to add. Your chair.

Wow. Okay. That's interesting. All righty. Well, that concludes issue number four. We will certainly follow up on these items. And we already did. Yes.

I just want to ask, Mr. Alamo, the portion of the impact of what we're facing today. How can you describe the fact that we have some of the lowest, some of the lowest benefits, UI benefits in the whole country? We're pretty far down there. And also one of the lowest tax rates for employers. Contributions.

Is there a way of describing what portion that has contributed to this crisis?

Unfortunately, Senator Drazo, it's relatively nuanced, so I'll do my best to try to paint a picture. You're absolutely right. The state has the lowest taxable wage base in the country. It is at the federal minimum by way of benefit amounts themselves.

In dollar terms, California's Unemployment Insurance weekly benefits are about average, but wages and cost of living are much higher in California. So we prefer to think of benefit levels as adjusted by wages. So you're sort of like average weekly benefit has a share of average weekly wages.

And by that measure, which we think more appropriately captures what one can. What an unemployed worker can do with their UI Benefit, the state ranks among the lowest in the country. And so taken Together, the weekly UI Benefit levels have remained unchanged since 2004, including for changes in inflation.

And one of the things we point out in the report is that the broken financing system really ties the Legislature's hands.

There is no capacity within the UI program right now to make those changes, whether it's to increase Unemployment Insurance benefits, to extend Unemployment Insurance to groups that currently don't get it, as your Bill suggested last year, Senator Durazzo, for undocumented workers, those options are all but off the table because of what they would do to the health of the UI Fund as it's currently built.

So it really does tie the Legislature's hands. That's a situation our office obviously does not want to see the state in, and it's one of the key motivations for reforming the program. So it's adaptable to changes in the economy, but also to changes that the Legislature wants to pursue.

Thank you. Seeing no further questions on issue number four. We will. We already did issue five, so we're going to move to issue number six, which is the Audit and Enforcement Unit. We'll start with the Department of Industrial Relations with George Parisoto. I know I butchered that with the Division of Workers Compensation, Administrative Director.

Good morning. Thank you for having me. My name is George Parasoto.

Parasoto. Got it.

And I'm the Administrative Director of the Division of Workers Compensation.

We are requesting additional funds to enable our audit and enforcement unit, which is within the dwc, to address increased workloads and fulfill its statutory obligation to require that insurance companies, self insured employers and third party administrators comply with their obligations under the Labor Code and the California Code of Regulations.

The audit unit conducts compliance audits of claims administrators, and I use that term to group together insurers, self insured employers. They do random audits of claims administrators every five years. It's called a performance review audit or a PAR audit. As I say from a random selection of claim files.

We assess administrative penalties for violations of claims handling practices and regulations. And also we issue orders that unpaid compensation be paid to injured workers. And we also try to ensure that benefits are delivered accurately and in a timely manner.

The unit issues an audit annual report with the audit results of claims administrators and the penalties issued and collected from these parties for the year. The audit unit now averages about 39 performance audit reviews, those PAR audits per year, and 52 audits, which includes target audits and civil penalty audits.

We have identified challenges in the audits unit's ability to meet its obligations. This includes the ability to conduct routine audits of claims administrators every five years.

The ability to investigate possible unreasonable denials of workers compensation claims, denials of reasonable and necessary medical treatment, or the late or denials of payments to injured workers, and also the ability to conduct audits in a timely fashion.

Audit failures have increased over the past years, which taxes our staff since each failed audit results in a subsequent full audit. So our incident initial audit just looks at about eight or nine issues. Our full audit probably looks at about 30. If a claims administrator fails the initial audit, we jump to a full compliance audit, an fca.

The increased complexity, litigation and failure rates of these PAR audits have increased and have carried over from year to year. And over the last five years of the audits that carry over range from 14 audits to 38 audits. Also, we've seen a rise in appeals due to the increase in audit failures.

There have been a corresponding rise in appeals and litigation from claims administrators. This leads to court hearings, trials and subsequently also taxes our audit units times and resources away from actually completing their real audits. The audit unit expects with these increased resources to be able to meet its increased workload and its statutory obligations.

These resources will allow us to fulfill our obligations under the Labor Code Sections 129 and 129.5. And so we look forward and I will be perfectly happy to answer any questions you have. Thank you.

Thank you. Mr. Alamo.

Chaz Alamo with the Analyst Office. We have no concerns with this issue or the next two items.

Thank you Ms. Henry.

Nothing more to add, but happy to answer any questions. Okay, thank you. Any Members have any questions?

All right. Seeing none, we may follow up with some additional questions prior or after may revise. But thank you for your participation.

Thank you very much.

Thank you. We will now go to item number seven, which is Cal OSHA Data Modernization. We'll start with the Department of Industrial Relations with Deborah Lee, Cal OSHA Chief, and Ben Bonte, the Chief Information Officer.

Good morning. I'm Josh Iverson, Chief Financial Officer for the Department of Industrial Relationship. The Department of Industrial Relations is seeking $18.2 million from the labor and Workforce Development Fund for 202526 to advance the division of Occupational Safety and Health's data modernization project.

This initiative aims to develop a new information technology system that meets federal and state requirements, consolidates data into a central repository, interfaces with other departmental systems, and automates manual processes across various units. The current federal system in use is labor intensive and heavily reliant on paper, which reduces the program's effectiveness.

The proposed system will enhance case management, enable electronic document storage, and allow for automated submission of CALOSHA documents and accidents and complaints through email or online reporting. We have with us Ben Fonti, Chief Information Officer, and Deborah Lee Kalosha, Chief. Thank you.

Thank you. Would you like to make any presentations or you're here available for questions? We're here available for questions.

For questions.

Okay, sounds good. Mr. Alamo stated he didn't have any comments, Ms. Henry. Okay. Mr. Rozzo, did you have any. No. Okay. I just have one question based upon what you said that you're doing. What is the need for the additional. Is this an additional 18 million or your normal.

We are funding only one year at a time. So this request is for one year, 2025/26 for the work on the project.

Okay. And I'm sure Senator Waha might have some follow up questions that you heard similar for other modernization items that came forward. She's asking that we do an evaluation of all these modernization projects. How much have we spent? How much do we have left to spend, you know, what are the end results and so on.

So I would just anticipate that there'll be some follow up questions. Okay, thank you. That concludes Item number seven. We'll now move to item number issue number eight, which is the Electronic AD Education Management System Modernization. For that we have Paige Levy and the other two gentlemen who were here before.

Good morning. I'm Josh Iverson, Chief Financial Officer for the Department of Industrial Relations. DIR is requesting $25.8 million from the labor and Workforce Development Fund for the 2025/26 fiscal year to modernize the Division of Workers Compensation Electronic Adjudication management system, or EAMES.

This system, which manages over 8 million cases and 96 million documents, is essential for handling workers compensation claims and scheduling hearings. However, its current 16 year old technology is outdated, leading to inefficiencies and increased risk of security vulnerabilities.

The modernization project aims to replace the aging system with a more adaptable and secure platform enhancing functionality for both internal staff and external users. With us today to answer any questions is Ben Bonte, Chief Information Officer and Paige Levy, Chief Judge from the Division of Workers Compensation.

Thank you. Seeing that LAO had no further comments and neither from Department of Finance. Any Members with any questions or concerns? Okay. Seeing none, I would repeat the same statement that we'll probably be looking more generally at all these modernization programs that you're working on and how things are going.

Okay, we'll now go to item number issue number nine, which is Subsequent Injuries Benefits Trust Fund Workload. And for that we have the gentleman returning, Mr. George Parasoto . I did better that time. We're open for your presentation, sir.

Thank you. The Department of Industrial Relations requests $2.7 million from the Workers Compensation Administrative Revolving Fund and 15 permanent positions in 2020/25/26 and $2.5 million from the Revolving Fund in 26/27 to address rising workloads in the Subsequent Injury Benefit Trust Fund or sibtf.

I'd like to try to explain sibtf, but I will say up front this is not a very easy thing to do. And so please bear with me. This program was established in the early 1950s. It's set forth in Labor Code Section 4751 to encourage employers to hire disabled veterans, mainly from World War II.

The program provides essentially that if there is an employee employee who is already partially disabled, if they have a pre existing disability that is labor disabling and then they suffer a subsequent injury at work that is compensable through our workers Compensation system and if the total permanent disability level of this injured worker is greater, including the pre existing disability and the subsequent disability, if it's greater than than the level of Disability that's caused solely by the subsequent injury, then the employee is entitled to additional compensation that's paid by the subsequent injury benefit trust Fund to compensate for that additional degree of permanent disability.

Rather than incurring liability for the entirety of the worker's resulting total permanent disability, the employer, so the employer or the injured worker where the injury occurred, that employer is responsible only for the disability that results from the subsequent injury.

The subsequent injury Benefit Trust Fund, which is supported by assessments from employers all up and down the state, they pay the additional compensation as necessary to compensate the worker for the total resulting permanent disability level of the injured worker. Over the past decade, we've seen that program literally explode.

The number of claims being filed, the number of payments that were being made, just substantially increased. In 2024, the RAND Corporation performed a study of the SIBTF program and confirmed what was very obvious. There has been 1000% increase in the liability of the funds over the past 10 years from about $13.6 million in 2016.

That's the total amount that was paid by the Fund that year to $232 million in 2022. Several weeks ago, we actually had a weekly payment of $18 million out of that Fund. So for one week just several weeks ago, that was more than what the Fund paid out.

In the entirety of 2016, the number of cases have increased to about 2,500 per year, and the average cost of the case goes to about $650,000. And without any done to the program, they will increase over the next several years.

Our SIBTEF unit is responsible for calendaring, preparation, medical referrals, investigations, liability analysis, essentially reviewing the claim and negotiating a settlement.

The preparation of each case requires a claims examiner to obtain the entire court file of the workers compensation claim, the underlying claim, review that file, determine the relevant medical and factual issues, arrange appropriate examinations, if they are able to, and analyze all the investigative reports, the medical reports, and determine the extent of liability.

The average claim load of our claims examiners is about 900 or so. In the industry, it's probably 300 to 400. So they've just seen their workload increase and it's very, very difficult to keep up with the work.

A high caseload is problematic for injured workers and other stakeholders in our system because these cases take a long time to resolve and without the additional resources, it would be very difficult, very difficult. It's very difficult to manage the program.

Approving this request would allow more proactive review of incoming claims, hopefully accelerate the review of claims, try to assess the backlog of claims. The Rand Corporation found in their study that there were about 15,000 pending cases in our unit. Now it's probably up to about 24,000. And we want to efficiently deliver benefits to those injured workers.

Thank you.

All right. Mr. Alamo, did you have any comments?

Yes, Madam Chair. Thank you. Chaz Alamo with the Legislative Analyst Office. We have no concerns whatsoever with this specific BCP. It's a workload request. It's well justified. It's clear that there's a workload concern at the Department.

But we do want to take a moment to echo some of Director Parasoto's comments and raise this as a serious matter of legislative oversight. The subsequent injury benefit trust Fund has grown exponentially in the last several years. I want to put some context on those numbers that Mr. Perizzotto mentioned.

One key important piece of information is that employers pay for these benefit costs. They pay for them outside of their workers compensation insurance, but they still pay for them nonetheless. So this is an employer cost. Employers pay for these benefits via an assessment that dir levies on all employers statewide.

The most recent assessment that is used to replenish the Fund is to be $850 million for this current year. That is larger than the federal surcharge on employers to repay our outstanding Unemployment Insurance loan. So for context, these are substantial employer costs that they're. They're looking to with the program.

I also want to mention the recent RAND study that we've reviewed closely identified an outstanding liability of about $8 billion related to subsequent injury claims. And subsequent injury claims are unique in that they because they are by and large for a lifetime benefit, a weekly cash compensation for the remainder of the injured worker's life.

Fiscally, from an accounting perspective, they operate more like an annuity. So each year's costs tend to build on the prior year rather than being able to go up and down rather quickly.

And I point this out because if the same trends continue over the next several years based on the analysis that RAND did, it's not out of the question to see to imagine outstanding liabilities being 10 or 15 or 20 $1.0 billion in the next coming year, which is roughly order of magnitude the same size of the state's Unemployment Insurance loan.

So those are context pieces. I also want to step in a bit to a few reasons why these subsequent injury claims are performing differently than normal workers compensation claims. And that's in part because the rules about the program are different.

But importantly, the pre existing disabilities that are claimed for subsequent injury claims need not be labor disabling under current state law and legal rulings. They also don't have to have been documented in the past when they first occurred. They can be documented later.

Unlike workers compensation program where a medical review has to be performed by a physician that's agreed, agreed upon by all sides, sort of a neutral third party physician, that same standard does not apply to the medical review for subsequent injury claims.

There have been some reports, including in the RAND study, that suggested that there might be some Doctor shopping going on with certain claims. And then finally, the pre existing conditions that make up the majority of subsequent injury benefit claims are common. Chronic, chronic illnesses. They're largely age related. They're very common in the General public.

You might see a claim with hypertension, obesity, diabetes, sleep apnea, maybe a few other chronic conditions. And those conditions, when joined with the injury that the worker experienced, form a disability rating in many cases of 100%, which is a total disability rating.

Those are from a fiscal perspective, very costly to the Fund because they come with a large lifetime benefit. We want the Legislature to begin learning more about this program because as Mr. Perizotto explained, it is complicated. Solutions or changes are also complex, but we believe there's a potential to return to the original intent of the program.

But we also want to acknowledge that it has changed in the last 50 years and it's being utilized differently by claimants. Now. Some of those claimants may be generally unhealthy workers who get hurt at work and are just not going to go back to work. That's a reality.

And if that's the case, this program is providing a workers compensation benefit for those workers now. But that is definitely outside the scope of what the subsequent injury benefit trust Fund was originally designed to do.

So there are some difficult questions the Legislature is going to have to grapple with as it thinks about what the state's role is and what employer's role is in, in this sort of niche, but quickly growing group of claims within the workers compensation system. Thank you.

Nothing more to add this time, but happy to answer questions.

Thank you, Ms. Henry.

Okay. Any questions, Senator Durazo?

I think you did a good job of explaining and considering how complicated it is. And I appreciate Mr. Alamo's description. It sounds like it's a. It was intended and for some time for veterans and, and also to incentivize employers to hire veterans who had been injured, which is an amazing thing to do.

It's the right thing to do. But then it's become bigger. Right. You don't Have. It doesn't have to be an injury that you incurred as a veteran or in combat. So, no, we're not dealing with this.

We're dealing with just the workload, which is really strange because beneath it all is this issue of insolvency and just having insufficient. Sounds like. So this is General Fund. No, this is employer. zero, sorry. That's right. You said that. Sorry. So it's employer. That's a pretty hefty amount of money that employers are putting it. Anyway, I'm just.

If there's. I guess I'm thinking out loud of what the program started out being, even if it wasn't explicit in the law. And what it's become is a whole different thing. I don't know if you could add anything to that.

No, I think that's entirely accurate. For decades and decades, I'd say the program sort of remained under the radar. I think it was probably about 1015 years ago. You know, the assessment for employers was about $54 million a year, similar as to what our Uninsured Employers Benefit Trust Fund is.

That trust Fund pays benefits to injured workers who unfortunately work for employers who failed to get workers compensation insurance. So those two funds kind of tracked each other in terms of assessments. But then we saw the rise.

And so I think last year, the Uninsured Employers Trust Fund assessment was about $50 million, the same as it had always been. And as Mr. Alamo indicated, you know, we were talking. We're possibly talking 800 million.

Some people say that assessment this year might be over $1.0 billion, you know, which affects employers up and down the state. Now, small employers might see something of a small bump up in their assessment, but larger employers are somewhat trouble. Are somewhat troublesome by this.

I think, for example, public agencies, you know, whether it's the University of California system or large counties, County of Los Angeles, they've told me that they see substantial increase in their assessment.

And of course, now in these difficult times with wildfires, with the Federal Government possibly withholding funds, hiring freezes, you know, that's a significant hit for those, for those agencies. So it's, you know, the program has changed, and I think there are, you know, and laws have changed.

And when you think back to that initial program that was initiated, you know, at that time, there wasn't an American with Disabilities act, there wasn't SSI insurance, there wasn't the Fair Employment and Housing Act, you know, laws that actually, you know, aggressively tell people that they can't discriminate against, you know, the disabled workers so it's been lost, it's been reformed, it's been changed, and this is what we're seeing.

I have one question and one comment. My question is, have you had an opportunity? Has there been any analysis done of what's causing the increase?

Is it just that people are being, you know, if it's in response to wildfires or whatever things are happening, or do you anticipate fraud to be related, or what is the overall sentiment given this substantial increase?

That's very good. Very good question. First, I'll just say fraud. You know, we. We operate probably the, you know, the third or fifth largest workers compensation system in the world. We have fraud in all aspects of our program, and we're combating that.

And I'm sure some exist, some in this program, but we were trying to address that as best we can. There's been some changes over the years in laws affecting apportionment. In 2003, Senate Bill 899 actually just changed the way apportionment was considered.

So before, if an employee had underlying disabilities and then had a work injury, if that work injury affected those underlying disabilities, the employer was liable to pay for the entire amount. So it was apportionment to cause. But with 899 and 2004, that changed to apportionment to disability.

So an employer is only liable for that disability that's caused by the work injury. Everything else was not considered. Now, maybe it would have been a good time to change the SIBTF laws. At that time, it probably. Probably should have been. Should have been taken into consideration, but it wasn't. And so over the years, people are starting.

We're starting to see more and more cases come up. And then, of course, there are incidents. There are doctors who are writing reports who are willing to say that somebody's underlying hypertension is labor disabling. As Mr.

Alamo indicated, you don't need any medical records prior to the work injury to have a Doctor say that someone's preexisting condition was labor disabling. And so we see more and more doctors who are writing reports and saying that. And once they say that, then that disability can be.

That preexisting condition can be paid for under the SIBTF program. So that the apportionment law has changed. We have more doctors writing reports. And as Mr. Allen would mention, any Doctor can write this report. These are not doctors that have to be within the workers compensation system. You know, for a regular claim.

We have qualified medical evaluators that are certified by the division, you know, that try to resolve disputes regarding medical issues. You know, in a worker's compensation claim and sibtf, it's a whole. It's a whole different world. So there's that.

Then, of course, if you want to talk about game playing, you know, we see in some workers compensation claims, cases are settled at less than what they would normally have settled for, just so the injured worker can get into the SIBTF program. Because it's much easier in SIBTF to get more compensation by adding all of these claims.

And then when I talk about adding claims, there was a court decision by the workers compensation several years ago called the Todd case. That term probably gets thrown around in that when you add disabilities, you literally add them.

Now, in a worker's compensation claim, if I injure my elbow and I injure my knee and, well, both of them can affect my ability to lift, you know, that 20% from the elbow and that 20% from the knee would be combined to come up with a lesser number. You know, because you don't want to essentially duplicate disability.

The court decision said, with sibtf, you don't do that. You get. You just add them up. So my 20% here, my 20% there, that's 40%. You know, if I have hypertension, I can add 15%. If there. If I have gastroesophageal reflux disease, you know, we could add that on. And so it's very easy to get to 100%.

And once you get to 100%, then that's where we see large increases in compensation. In workers compensation, we have our permanent disability rating schedule, and the difference between 99% and 100% is quite large. I think a 99% case probably averages about 200,100% case, about 600,000. That's just because of the way the compensation changes.

So change in apportionment, the Todd decision, you know, we've seen attorneys being more aggressive in finding these cases and litigating them because they're quite lucrative. You know, attorneys get 15%, generally 15% of the awards. Doctors get a tremendous amount of money for the reports they write and other associated vendors.

Whether you're copying the medical records page, you know, people make a lot of money on this. So it's kind of sort of been in the making for a while, and now we're just sort of seeing the explosion of claims.

Well, my comment is, and I haven't talked much about this personally, but a few years ago, I experienced a very bad slip and fall accident. And so if I were to have a subsequent injury, I would actually fall within this category.

I injured my thigh, third, fourth, fifth vertebrae, took out six inches of my bicep, and I have a plate in my arm. So, you know, it's real to a lot of people that, you know, you might have had one injury and now if you have another injury, how is that compensation made?

And if a subsequent injury causes even further damage to the original injury? So actually, the way you explain it was quite thorough and effective. I appreciate it and we'll look forward to working on this in the budget process. Thank you for your time.

With that, we're going to go to issue number 10, our final issue, and then we'll have public comment. I would ask if we could be as brief as we can in our presentations, questions and answers, as we still will need public, public comment. And we have a flight obligations before us as well.

So with that, issue number 10 is the Cal HR internal Content Management system Intranet before us.

Good afternoon, Madam Chair and Members.

And we have Monica Erickson. Yes. And Enrique Parker. Okay.

Yes. Good afternoon, Monica Erickson, Chief Deputy Director of CalHR. I'd like to provide a brief overview. Of CALHR and our current budget. CALHR's current budget is 132 million and 454 positions and 139 million proposed in fiscal year 25/26. CALHR oversees a wide range of matters. Related to employee salaries and benefits, job.

Classifications, civil rights, training, exams, recruitment and retention. The proposal before you requests 1.5 million. General Fund in fiscal year 2526 and. 500,000 General Fund in 25/26 to replace Cali Char's internal content management system. CALI CHAR is moving from. I'm sorry. To SharePoint Online from SharePoint 2016, which is no longer being supported by Microsoft. Effective July 142026.

SharePoint Online is more sustainable and will allow CALHR to deliver reliable, secure and functional CALHR intranet sites to CALHR employees to support the public state agencies and employees. I have my expert here, Enrique Parker. If you have any other further questions. Questions regarding this proposal, thank you.

Any questions or comments?

Nick Schroeder, lao. No comments.

Thank you. Department of Finance. Department of Finance. Nothing further to that. Okay, thank you. Any Members with any questions or comments? All right. Seeing none, I would just say that your item would also fall within the bucket that Senator Wahab had mentioned earlier about us.

Looking at these overall substantial investments that are being made for our technology systems, of course they have to be done and upgraded we understand that, but you'll probably get some subsequent requests for information.

Well, happy to be provided whatever information you need, Madam Chair.

Thank you. All right, with that, that closes item Number issue number 10. We will now go to public comment and closing. The public may comment on any of the issues that have been on the agenda today to ensure that everyone has a chance to be heard. Please do limit your comments to one minute. Thank you.

And we will now begin any public comment. Come here to the microphone.

Good morning. My name is George. I represent Valley Voices, a community based organization in Kings County. And I just wanted to support. I wanted to express my support for the California Worker Outreach Project, which has enabled our organization to reach over 15,000 workers in the past year and provide them with critical information about their workplace rights.

With the spread of the Avian flu, Valley Voices has worked closely with dairy workers to provide vaccines, PPE and educational material covering everything from identifying symptoms to staying safe at work and understanding their rights. We host workshops in collaboration with state agencies on workplace issues, including wage theft, health and safety, among others.

So we're here to ask for funding to extend the program for two additional years to avoid any funding interruptions. Thank you for your time.

Hi. Good afternoon, Chair. My name is Rachel Deutch. I'm with the California Coalition for Worker Power. As Jose just mentioned, we are here to comment on the California Workplace Outreach Program, which is not included in the Governor's Budget. But we are asking the Legislature to consider extending funding for this program by two additional years.

CWOP, as it's known, is a hugely. Successful partnership between 89 different community based trusted messenger organizations and our state labor agencies.

New research from the University of California at Berkeley shows that this program is highly effective in reaching workers at risk of wage theft and unsafe conditions, informing them of their rights, and inspiring them to actually take action to make sure that all of the rights granted by this Legislature are followed.

We really hope to continue the conversation about continuing this program and ensuring that it's fully funded. Thank you so much. Thank you.

Hello. Good afternoon. My name is Andrea Gonzalez. I'm with the Clean Car Wash Worker Center. I am a resident of the City of Compton and our worker center is located in Los Angeles. Our worker center focuses on empowering car wash workers to make lasting changes in the car wash industry.

Car wash workers suffer from repeated health and safety violations and retaliation on the job. The California Workplace Outreach Project allows us to provide leadership development opportunities for these workers through participation and outreach and improving work workplace conditions by filing formal complaints, fighting complaints is just the beginning, though.

You know, I think true change requires trust, transparency, and collaboration. And I think just listening to every all of the departments that were mentioning about workload, I think our work focuses on filing the complaint and ensuring that the worker understands their rights and holds the employer accountable so it doesn't continue to happen.

So we're here to ask for additional funding. Although it's not a part of the proposed agenda for the Governor, we're asking the Legislator to include it and to extend the funding for two more years. Thank you.

Thank you. If you would leave your contact information with the sergeant, please. You're a constituent of mine, so definitely want to follow up. Thank you.

Yes. Greetings, Madam Chair and Committee Members that are still here. My name is Cynthia Thornburg Ruffin. I'm with the Earthlodge Center for Transformation located in Long Beach. Long beach is in the house. Chair, briefly.

The Earth Lodge is an urban sanctuary that specializes in healing justice work with marginalized communities with a specific focus on communities of color and the LGBTQ communities. Now, as trusted messengers in the Long Beach community, all of our team Members come right out of the communities in which we serve.

We are able to educate our participants using the Health Promoter or promontora model and through an each one teach one peer education model, which saves the larger agency money as this information permeates the community through us and through those that we teach our program well at work.

Work Shouldn't Hurt raises awareness of worker rights and protections in the workplace as well as providing mental health resources aimed at mitigating workplace trauma, exploitation and discrimination. And we've been doing great work with it for the last couple of years. So we would love to see cwop, as it is known, become funded for an additional two years.

We'd actually love to see it become a fixture in government. And thank you so much for your time and allowing us as public comment. Appreciate you. Thank you. Thank you.

Greetings, Madam Chair and Members. I'm representing 10 organizations, otherwise they'll be here to come in individually. So can I ask for your patience to speak for two minutes?

We'll do our best. Let's see.

Okay, I'll move swiftly. All right. The Southern California Black Worker Hub, or excuse me, my name is Darren Lewis. I am a program manager with the Southern California Black Worker Hub.

The Southern California Black Worker Hub for Regional Organizing is an alliance Insurance black, Low wage and unwage workers have access to quality careers and are empowered to uphold and improve workplace standards across Southern California.

Challenges that Californians are increasingly facing are especially Acute for black workers things like soaring housing costs, increasing homelessness and challenges in labor due to racism, discrimination, poverty and overlapping crises.

The California Worker Outreach Project is instrumental in delivering high quality content to black workers from trusted messenger organizations like the SoCal Black Worker Hub and Black Worker Centers throughout Los Angeles, San Diego and Inland Empire.

Recognizing the systemic barriers workers face, we collaborated closely with the Department of of Industrial Relations to design education to not only inform workers of their rights, but also provide actionable roadmaps for keeping workers safe.

By partnering with state agencies, we were able to create a comprehensive curriculum aligned with state regulations to empower workers to navigate and challenge unjust labor practices effectively. A cornerstone of these programs was the integrations of safe space for healing as we experienced historical and ongoing traumas effect associated with Anti Blackness at work.

Nearly 3,000 workers across the SoCal region were deeply impacted by their CWOP experiences, such as Thorough Stevens, who only after learning about his rights were empowered to address discrimination at a state University he worked at, which resulted in his improved mental and physical health.

When black workers lack access to their worker rights, they're faced with greater job instabilities, higher unemployment and hinders economic advancement. While California has struggled to provide safe workplaces for all workers, there's an opportunity to make it right by making Seawall permanent. This permanency will be the commitment and investment in helping keep Californians safe at work.

The SoCal Black Worker Hub is proud to support SB 578. Thank you.

What were the other groups that you were here to represent?

The Black Worker Centers? We have a Los Angeles Black Workers Center Center, Diego Black Worker center and Inland Empire Black Worker Center. Okay, thank you. I'm also one of your constituents as well.

All right, thank you.

Good afternoon, Madam Chair. Dylan Hoffman. On behalf of the Center for Employment. Opportunities, I want to quickly highlight a budget request that our coalition is asking. For related to workforce reentry programs. CEO is a strong supporter of CWDB's work to administer reentry employment grants through the Higher initiative.

Hire provides grants for community organizations like ours that provide wraparound services, job training. Upskilling and workforce development to the justice impacted population returning home from incarceration. The Governor's Budget didn't include any funding. For reentry and with the passage of Prop 36, the state simply can't afford to withhold additional funding to a program.

That both reduces recidivism and increases long term employment amongst the formerly incarcerated individuals. We strongly urge the Senate to include. $30 million in funding for CWDB to. Continue providing grants under the higher initiative so that organizations like ours can continue. Providing this vital work. Appreciate your time. Thank you.

Thank you.

Good afternoon, Madam Chair and Committee Members. My name is Flower Alvarez Lopez. I am one of the co directors of Universidad Popular and we're based out of North County, San Diego.

We are proudly one of the C partners, and we work directly with hard to reach, hard account, hard to engage community Members, some of the most vulnerable community Members in our region. We serve as trusted messengers because we belong to these communities and we understand their unique challenges.

I'm here today to uplift our work and this model and to request our continued community care model with permanent funding. Thank you so much.

Thank you.

Good afternoon, Madam Chair and Members of the Committee. My name is Jose and I work with the Ring of Democracy, a local nonprofit here in Sacramento. I'm speaking today in support of the California Workplace Outreach Project, also known as cwelp. Although CWOP is not on today's agenda, it's relevant to the labor budget.

CWOP has allowed our organization to reach over 6,000 workers just last year and provide critical information about their workplace rights. Specifically, we've equipped young workers with information so they can better understand their rights as they enter the workforce.

From uninterrupted lunch breaks to protections for high school workers, we have helped them stand up for themselves and prevent workplace rights violations. We're asking that the Legislature include two years of additional funding so that we can avoid funding funding interruptions that have prevented us from maintaining a consistent presence in the community. Thank you.

Thank you. Well, you all really organized well. Yes.

Hi, good afternoon. My name is Gloria Areta. I'm an organizer with the Filipino Worker Center. CWOP helps me to reach workers in my area, including Carson, Long Beach, and Anaheim. If I don't reach to these workers, then no one will.

They stay isolated, work working for 24 hours, seven days a week, and they don't know about their rights. So we encourage the Legislator to have two years funding because this will help the workers. Thank you so much and good afternoon.

Good afternoon, Madam Chair Members. I'm Nina W. Harwell with Arp California. We represent 3.2 million Members here in California, and we speak on behalf of older Californians and their families. What I would like to speak to today is the request to Fund the paid family leave expansion for family of choice or chosen family.

And I know there are many constituencies that would benefit from this, including multi generational families, the LGBTQ community. But in terms of older Californians and their families, the issue is, is that as of 2023, there are more families without children than have children, especially among the 50 plus. As we prepare for an aging population, that's another exigency.

We have to think about how we support individuals that don't have immediate family or family that's defined within the code as qualifying for paid family leave. So AARP is a big supporter of paid family leave. We have supported this Bill as a priority for us for the last three years. I think it is.

It will be one of ZAB518 and now SB590, which I know I'm not speaking to. I'm talking about the budget ask. But we do urge the Committee to look upon this request favorably and pass it out.

It is so essential to update our laws to reflect the fact that the nuclear family is no longer the existing overwhelming model of family structures. Thank you. And these comments will be reflected in our letter coming to you soon. Thank you.

Well, you have the best thing going for you, that you have a great author that's working with you.

A great.

An author.

Of course. I know. I was looking right at her. Yes. We're actually. We're a co sponsor of the Bill as well. Thank you.

Yes, but you got to have an author and you got to have a good one. Yes, ma'am.

Good afternoon. Chair and Member Sandra Barrero on behalf of SEIU California, commenting on issues 14 and 15. We support funding PERBs, attorney classification realignment and the IT position. Additionally, we're asking for additional funding for PERB to conduct community outreach and training.

We think that if more public employers, the managers and the directors received more training, we could reduce the number of unfair practice charges by possibly even 50%. And we definitely want to free up capacity at PERB because we think there'll be increased demand given the instability at the federal level and how federal public employees have been treated.

Thank you.

Thank you. Well, alrighty then. Having heard from all the Members of the public, Members, are there any additional questions or comments before us? Seeing none. Thank you. To all the individuals who participated in the public testimony today. We want to thank our staff that worked so hard to take good care of us, and the sergeants as well.

If you were not able to testify today, please submit your comments or suggestions in writing to the Budget and Fiscal Review Committee or visit our website. Your comments and suggestions are important to us, and we want to include your testimony in the official hearing records. Thank you, everyone, for your participation.

We have concluded the agenda for today's hearing. The Senate Budget Subcommitee Number five on Corrections Public Public Safety Judiciary, labor and Transportation is now adjourned.

Thank you, Madam Chair. Thank you.