Assembly Budget Subcommittee No. 7 on Accountability and Oversight

Good morning, everyone. Welcome to the Assembly Budget Subcommitee on Accountability and Transparency. This is the third of the four hearings that we plan to hold before the May revision. Today's hearing will focus on two items.

First, we're revisiting the status of federal funding to get an update from the University of California and the Department of Finance on development since our first hearing in February. We're also going to talk with the Franchise Tax Board about possible impacts to California revenues from the ongoing planned reductions in federal tax enforcement.

Finally, we'll discuss the impact of AB218, which extended the statute of limitations on sexual abuse lawsuits on local governments. We're holding this hearing today during an important point in the legislative process. Most of the Members appointed for today's hearing are also serving on other committees, including me.

I'm a Member of the Appropriations Committee and may have to step out to cast some votes if that is required. And many of the other Committee Members are going to be coming in and out of the hearing and watching our hearing on television later to get the updates that we're going to benefit from.

We'll have the first panel on federal funds present, followed by a break for Member questions and public comment. And then I'll ask the second panel on AB218 to be seated. Just before we begin, I'd like to make some opening remarks. We're turning to the discussion about federal funding that we began at our February 11th hearing.

The federal funding reductions that have already occurred and the additional cuts that are planned will be devastating to both the State of California and our partners at the local and University levels.

With the federal Administration recklessly reducing staffing at the Internal Revenue Service of its tax compliance specialists, I wanted to explore how that action at the federal level could impact state income and corporate tax contributions and collections.

Given those taxes are our largest source of revenue, even a small change in compliance could make a very big impact to the state's revenue picture. We're also pleased to be joined again by a representative of the University of California to provide an update.

With universities being an early target of policy and politically motivated federal grant delays and cuts, the UC system has been one of the first departments to be significantly affected.

Finance, as we requested, produced a short summary of where federal funds stand after the adoption of the continuing resolution by Congress, the goal of these updates is to help shape the June budget. I expect that we'll return in the fall to revisit this topic when we should have more certainty around the federal budget.

One of the lesser known but significant stories of the budget this year is the impact of AB218 on local governments. The state's Fiscal Crisis Management and Assistance Team has prepared a very thoughtful report on how school districts will be impacted by the liabilities from extending the statute of limitations on sexual abuse claims against public agencies.

While it is critically important for us to make things right for victims, school districts will struggle with the financial cost to do so. We'll hear from them and hear their recommendations for all schools.

Well, then hear from Los Angeles County, which has already grappled with the enormous challenge of the liability created by a proposed settlement for past transgressions in the county.

We'll explore how this liability undermines the county's ability to respond to other challenges such as homelessness and responding to wildfire recovery efforts as local governments and school districts also grapple with the impact of possible forthcoming recession.

We'll learn more about this challenge and consider if there are actions we can take at the state level to help local governments make things right. Before we begin, can I please call the roll? We don't have a quorum. All right. Well, we'll start as a Subcommitee and when we have a quorum, we'll call the roll.

I'd like to call the first panel forward that and our first panelists are Roger Lackey with the Franchise Tax Board, Kathrine Newman with the University of California, and Mary Halterman from the Department of Finance. Mr. Lackey, would you like to start? I think you are.

I am Roger Lackey with the Franchise Tax Board. Thank you for inviting me today. So today I plan to overview the relationship of federal and state income tax filing.

Specifically, I will cover the annual process for preparing income tax filing, taxpayer experience and expectation, and the federal state relationship that protects and serves taxpayers and how FTB approaches obstacles related to delays that may occur at the federal level. So the annual process and the timing to prepare each year for the income tax filing.

So it begins now, right? With legislative changes that are taking place both at the federal and state level. The IRS as well as the Franchise Tax Board as well as tax software industry are tracking those changes about what's going to occur.

And what we have in place is our existing tax forms and instructions which then blend into all of our processes. So what we're waiting for is those changes to take place, legislative changes or any other foreign changes that take place so that we can build off of those.

So we're focused on the federal level in terms of those changes so that we can build out our state income tax return forms and schedules.

What's really important to Understand in that is that all of that then feeds to tax professional software that actually builds out their framework for their services that are all required to meet schema requirements. Meaning we do not just accept anything that comes in to the Franchise Tax Board. And format wise the IRS is very similar to us.

So that's kind of the starting point that takes place. And so when that process occurs, we're really trying to move towards having that complete and usually the December time frame and the January time frame so that tax filing can take place at the beginning of the following year where the taxable season, tax season opens up.

So when we talk about how tax returns come to focus on the Franchise Tax Board, I can't really speak for the IRS. 99% of tax returns that are received by Franchise Tax Board are from professional tax software.

Less than 1% or about 1% are those that have been printed off of the forms that are available on FTB's website. So that gives you an idea of what's actually moving through the processes. And so why is that important? The reason that's important important is that within those schemas there's very specific requirements.

So we have rules that are in place that we ask the tax software to meet to allow those tax returns to be accepted. And so over time that's allowed the accuracy of tax returns to come in to be higher and higher than they were. And we'll call it the paper world of the past.

So then we talk about the taxpayer experience and the expectations. So 95% of taxpayers actually file electronically. And so like any other service, when you file electronically, your expectation is a quick turnaround. Especially when it comes to refunds, 75% of taxpayers expect a refund from the Franchise Tax Board.

When we talk about the returns that we actually receive that we have to touch for any type of validation type activities, accuracy rate is about 90%. And so some of those things that we do change don't result in any changes to the actual taxpayers income tax.

So they're not notified those, but we do take a look at them. The other part of it that's really, really important to understand with the process is the tax professional community themselves. About 60% of tax returns are actually prepared by tax professionals. So that's a big part.

We, if you, I think you're aware, I think in the actual information that was provided, you've talked about 163 billion, $166 billion that comes in through the Franchise Tax Board. One of the things that we try to focus on with the Tax professional community, like the tax software community is the accuracy of the filing.

And there's a lot of conversations that go both at the federal level and the state level to ensure the accuracy and the timeliness of filing.

One of the other things that we actually do is to protect taxpayers privacy and so ensure that the tax preparers that they're working with are professional and registered is we actually do receive taxpayer identification numbers from the IRS. Another experience and expectation of taxpayers is free filing. And so you're familiar with the voluntary Income Tax Assistance program.

That is an IRS program that the Franchise Tax Board also sponsors with. That's another expectation for taxpayers for free filing. That's a partnership with us and the IRS. And then the last is the most recent that we've been working with the IRS on is direct file.

I know you're familiar with California's had Cal file in place for close to 20 years where you have the ability to file a California tax return. And the Federal Government, the IRS has been proceeding through this year with their direct file program.

So when we do talk about taxpayer experience, to give you an idea of what taxpayers experience with the Franchise Tax Board and response rate, most taxpayers receive their tax refund within seven to 10 days. So there's not very much delay once you actually send it to us.

Now when we talk about the federal and state relationship to protect taxpayers and to serve taxpayers, one big item is fraud prevention.

So the Federal Government in partnership with the states as well as the tax software, they actually team up to prevent bad actors from stealing billions and billions of dollars both at the state and the federal level. Another partnership is offsets. So we have an offset program.

So if a taxpayer owes the IRS or the taxpayer owes the Franchise Tax Board State of the California and they have a refund, there is a program in place where we share information to offset those liabilities at the benefit of both the state and the Federal Government. Another important relationship is information reporting.

So with information reporting, a matter of efficiency over history is what we call 1098s, 1099s those forms for service purposes.

There is a program that's actually led by the IRS that the states can actually participate in where allows the businesses and the financials to actually report their information return reporting through the IRS through this program and then where the states actually receive their information through that. So it's an efficiency exercise that goes on.

It allows the businesses not to have to interact with multiple different information returns. And then the last is compliance activities.

And so the Franchise Tax Board does have agreements with the IRS to receive information from the IRS so that we can make important and proper decisions as it relates to taxpayers that may have non compliance activities with the Franchise Tax Board.

And then within the information return reporting as well as some of the other information with the IRS, we actually have our non filer program as well.

Then the last I just wanted to touch on is which I think is kind of the why we're here, why you asked us, invited us is just to talk about what is it the FTB does when we're faced with circumstances that affect us.

Whether it's late legislation that takes place at the federal level or late legislation at the state level or pandemic. What we look at is communicating out early. We work with our partners, so with the IRS, the tax software community, to let them know what they can and cannot do at the beginning of the tax year.

So for example, the 2017 Tax act that was actually passed late and that resulted in changes to the federal returns, this was kind of where they went from the long form to the short form and for us and then they increased the itemized deductions. So what did that, how did that affect collection?

Well, California still has itemized deductions for taxpayers. And so we had to stop and we had to modify our schedule ca, which is kind of the main schedule that you'll file with your income tax returns. And we had to expand that to actually capture the data fields for itemized deductions.

So that's a way or a step that FTB reacts when changes take place at the federal level to the state level to actually address state compliance.

Then the other is when we talk about with the challenges that come up also if I refer to the pandemic is that I think we like the Franchise Tax Board, the IRS had challenges with keeping our staff in the building to be able to stay up on top of all of our process of tax returns.

And when the pandemic kind of really was the beginning of it at March, that's in the peak filing season. So our experience through that, you know, we had our own challenges in terms of staying timely, as did the IRS. And why is that important to bring up for the Franchise Tax Board?

What we try to focus on is we try to complete the tax return processing in the tax year or the process year. So meaning for 24 tax year, we want to finish in 2025.

And the reason we want to do that is we want to make sure that it's complete and that our systems can be updated and we can move forward to the next tax year. Some of those same type of dependencies exist for the IRS as well.

And so when we talk about information sharing for the Franchise Tax Board, when we talk about compliance and information specifically, we can talk about our non fire program.

We can talk about, we have what's called an revenue agent report program where we receive information is that we will receive that information when the information is complete by the IRS. So they don't feed it to us on a regular basis. It's more on an annual basis.

So when you think about the work that goes on at the Franchise Tax Board, we really have two streams of work. We have the current year tax return processes that are taking place that we're focused on. And then at the same time we have our compliance activities which are using older tax year information, sometimes 23 years.

The hope is to be one year old in terms of then running those through our processes. And if that information is not available for us for the different compliance programs that we have, then we adjust accordingly. So I'm going to kind of stop there, but that's just kind of a breakdown rundown from beginning into the program.

I think it's important to understand how it all works, how the accuracy of tax returns in this new electronic world. It's great. 95% being filed electronically is a great thing that actually has increased accuracy of compliance than what we've seen historically in the past.

Well, thank you, this is really helpful. And I think right at the end there you got to the issues that I'm really looking at, which is, you know, California and the United States has a very successful voluntary tax compliance system. History, tradition. People in this country have historically paid their taxes and understand that responsibility.

But there is an increasing concern that very large corporations with multinational operations have an ability to shift revenues to other operations and under report income that would normally be coming to the United States through the IRS and to California through the Franchise Tax Board.

And the big concern that I have is with the Federal Government's dismantling of the IRS, you know, radical reductions in staff that the multi year audits that you're talking about that are going after these very large corporations and trying to get them to simply pay the taxes that they owe is at risk.

And that there is going to be, if nothing else, significant delays in the ability of the IRS to do its job.

And so the question is, how is the Franchise Tax Board going to deal with that world where the IRS has a 20 to 30 to 40% reduction in critical staff, senior specialists who are handling the most complicated audits of the biggest corporations in the world that have massive financial ramifications, both for the United States and for the State of California.

How are you going to compensate in that environment and make sure that California gets the revenue that we expect from the companies that are operating here in California?

What I would refer to, and this is how with most of our compliance programs, is that each year is its own unique year in terms of very unique.

And so the reason I say that is that when our compliance programs are building out their programs each year, they're looking at the factors specific to that year and then they adjust their models accordingly. That's really based on time, circumstances. That's about the explanation I can actually provide today.

We, you know, our responsibilities as Franchise Tax Board is really to administer the income tax laws and the programs that are in place. And we do a really good job at that. And we have been faced with challenges in the past when I, when I, you know, bring up things like the pandemic.

And we do our best to adjust our plans, mitigate those challenges, and then try to meet our goals and responsibilities for the State of California and serving taxpayers?

Well, I wouldn't expect any other answer that makes perfect sense. You know, this is happening in real time, trying to highlight this issue by having this hearing to put us in a place to respond if in fact these things continue to happen and it becomes a real serious risk of revenue loss for the State of California.

And I think there, you know, there's a lot of evidence, if you go online, there's lots of reports that talk about the reason why the IRS staffing increase has occurred over the last couple of years is because there was potentially a $600 billion non tax compliance problem at the Federal Government level.

You know, you roll that down to California, that's probably $100 billion in underpaid corporate taxes that, you know, are require audits and require people to affect those audits to make sure that companies are paying what they owe. Not talking about increasing taxes, just simply complying with the existing tax laws.

And I think, you know, in the past you've had a partnership with a functional Internal Revenue Service that worked. And we may be getting into a period of time where that does not work as effectively and requires California to do something different.

And I appreciate, you know, you're at the beginning of that situation and looking at options and. But I want to make sure that you understand that we think this is extremely important from the Legislature standpoint if we're going to be Dealing with a really difficult budget year with potentially devastating cuts.

You know, we think that tax compliance is kind of the foundation to the system, that people ought to be paying their taxes, not individuals so much. I mean, your system, as you described, it, does a really good job of handling individuals.

But the complexity of the multinational corporations operations, their ability to shift revenues to other jurisdictions to avoid paying taxes is, you know, extremely complex and difficult and requires us to be flexible and adaptable circumstances. I know that Assembly Member Soria has a question.

Thank you. Thank you for that presentation. I have a couple questions. One related to the VITA program and are we expecting reductions from the Federal Government in terms of this program? I know this program is extremely critical for many of our communities that need free taxpayer or tax return preparation assistance.

Just wondering, you know, what are our projections? Does the state also provide assistance and are we prepared to address, you know, any shortcomings from the Federal Government if that is the case?

Sure. And I apologize.

Yeah, I know. It's okay.

It's a tough question. I can't wait for the next question. At this time, we are not aware of any changes by the IRS as it relates to the VITA program. You know, we've been having conversations with our partners this year.

And just to clarify for the Committee, you know, the Franchise Tax Board, we are partners with the IRS. It is an IRS program. We do have a team of people at the Franchise Tax Board that do all of the training for the trainers, for the sites for the certification.

It's something that we are invested, I think, and you're aware of that we've been very heavily invested in and that we focus on with our partners. But at this point for this filing season, the feedback that I've received is that it was a normal year for the program, but it's still early.

It takes some time for all of the VITA statistics to actually be finalized.

Okay. And then I have a second question related to kind of filings for this year. And obviously, you know, it's a very unique year. And with the new, the change in the Administration, there are changes in policies and priorities.

One of them, the threats of massive deportations of the undocumented immigrants, which we know are backbone of, you know, many of our local, different industries, like in my community, the ag industry and also the threats that. Or the IRS working directly with dhs. I wanted to hear from you.

Have we seen any patterns of reduced, you know, tax. Tax reporting that is happening? I know that our undocumented community is. It's reported that the massive contributions that they give to the State of California, not just in, you know, the taxes that they pay, sales tax and all of that, I think amounts to over $8.5 billion.

And so I have serious concerns that what is happening at the federal level creates a big threat to, you know, the budget challenges that we already have.

So I just wanted to check in and see what are some of the things that you guys are noticing and hearing in terms of those folks that have been allowed or have been filing taxes through the ITIN process and so forth.

Sure. So a couple comments on that. One, the Franchise Tax Board, when we receive process tax returns, whether you're an ITIN filer or you file with the Social Security number, we process your tax return exactly the same. So first, I wanted to start there.

Similar to my other comment related to Vita, we're still kind of tallying up statistics for this filing season. So I don't have the total number of ITIN filers to date that we received.

I don't have the details, but I do have a recent report where we do break down the number of ITIN filers that actually filed earned income tax for the Earned Income Tax Credit. And it is slightly down this year. It's roughly down 10,000 taxpayers out of a couple 100,000 taxpayers.

I can provide that to Committee staff so that you have the specific numbers on that.

Yeah, I think, Chair, if we could just get follow up numbers, I think it'll be important for us to see the patterns and trends and see if we see a decline in taxes being filed, especially from those that don't have a Social Security number.

It's a great question. We'll ask for a report back. Thank you. Other questions from Committee Members.

One thing I just do want to add myself is that I'd appreciate if you take it back to leadership that, you know, we're really concerned about this and would like to have a proactive approach from the, the Department about looking at the partnership that may or may not exist with the Federal Government when we really can't do business as usual.

Understand, you have done incredible things flexing in complicated situations.

This is one of those, you know, with the, the head of the IRS changing three times in a week, the massive staffing cuts that are happening, the morale in that Department, like all the federal agencies that are suffering from these massive cutbacks, you know, is deteriorating by the minute.

There are people undoubtedly, you know, who just physically cannot process the audits of the people who have left the service and that these things are sitting on people's desks.

If we're going to just wait for all of that to come to us, you know, we're going to lose a lot of revenue and we're going to have to make painful budget decisions that we would otherwise not have to do.

And, you know, I'm reminded of the governor's special session action where we provided additional funding through the Legislature, through the Attorney General's Office, to provide them to have the resources to sue the Trump Administration for illegal actions. This, in my mind, is very similar.

We should proactively be ahead of this problem so that we can do, do whatever we need to do in partnership with whatever left at the IRS to make sure that these large multinational corporations that are serious contributors to the tax burden in California are paying their fair share of taxes, simply that they owe taxes.

We deserve to get that revenue. We need that to support the University of California, all the other departments that we're going to hear from today. And you are really in the critical front line of that challenge and would like you to take that back to leadership to say, please hurry.

And if it requires, you know, additional funding from the Legislature, I think that's a smart investment.

If we could put, you know, tens of millions of dollars to increasing staffing at the Franchise Tax Board and return billions of dollars in tax revenue, that is an investment we ought to be making, just like we did with the Attorney General's Office. Any other comments or questions from the Committee? Right.

We'll move on to our other panel. Thank you, Mr. Lackey, for coming. Now next we have Kathrine Newman, the provost from the University of California. Really pleased to have you back, Ms. Newman.

Thank you so much, Chair Hart, and Members of the Committee for inviting me here to talk once again about the alarming changes we are seeing at the Federal Government level. The last time I was here in February, I talked mainly about the threats to the University in three areas, research, support for our students, and patient care.

I regret to report that some of the things we were worried about have indeed come to pass. But I want to give you some updates before I get to those.

President Trump has signed more than 125 Executive orders in less than 100 days, and many of them apply to issues that are important for Californians, including the higher education, research and health care industries.

The University is under a number of federal investigations, and we have taken legal action to try to blunt the impact of these federal orders, which, if implemented, could have catastrophic consequences for us. The University is also closely monitoring the federal investigation of Harvard University. Having spent eight years of my own academic career there.

It's personally painful for me to watch this unfold, but it's also institutionally painful to see an attack on one of the nation's oldest and most venerable institutions of higher education.

As the federal Administration now works to rescind Harvard's tax exempt status and freeze more than $2 billion in their federal funding, our teams, like higher education institutions across the country, are closely following what these developments anticipate for what might come next.

Beyond Harvard's experience, we are also witnessing a fundamental shift in the Federal Government's relationship to states and to universities. For nearly 70 years, the Federal Government has nurtured basic research as a strategy for innovation and economic growth, as well as for improvements in health care.

This partnership has been the envy of the developed world, and it has more than paid off for all of us in life saving therapeutics, improvements in public health, and countless advances in basic research. That whole enterprise is now on a starvation diet.

Grants to support research that have been underway, projects that are right in the middle of completion are being canceled. Right, left and center. Future award cycles are being drastically scaled back under the banner of fiscal efficiency. This is a huge setback for the University of California, but its consequences reach deep into the state's economy.

Faculty research drives high value advanced industry. Basic research in our University laboratories translate eventually into startup companies that then go on to grow commercial markets. Thousands of Californians find employment opportunities in those companies. Accordingly, the disruption of this research cycle reverberates throughout the entire economy and it will hobble this path to economic growth.

The University of California's commitment to academic excellence and research is reflected in our contributions to this pathway to economic growth. UC researchers average five inventions a day, and to date, over 1200 startups have been founded based on UC patents.

In 2023-24 the most recent year for which we have data, the University received nearly $4 billion in federal research grants. We're now seeing the Federal Government making cuts to research funding every single day.

This includes direct termination of awards, changes in policy that reduce the funds for research operational costs, and the elimination entirely of critical research programs. To date, hundreds of millions of dollars in federal awards have already been canceled across the UC system. I want to underline that point.

UC has already lost hundreds of millions of dollars in federal funding that was supported our research enterprise. The scientific community seems to be responding to these federal actions as well.

A recent survey by the scientific journal nature revealed that 75% of the scientists they surveyed were considering relocating to Europe or to Canada, citing actions taken by President Donald Trump.

You don't have to be a genius to think about what that will mean for California's future if we lose these people to places that appear to be much more hospitable to to their life's work. In addition, on April 11, the U.S.

Department of Energy released a policy flash unilaterally cutting the Facilities and Administration rate, or F and a rate on grants to institutions of higher education. On April 14, a number of impacted universities and higher education associations that we belong to filed a new lawsuit in the District Court for Massachusetts to halt that proposed cut.

On April 16, the US District Court for the District of Massachusetts issued a temporary restraining order blocking the Department from implementing the new policy. But I have to emphasize temporary this attempt to reduce the F and A rate on DOE grants is very similar to what we already saw happen with the National Institutes of Health.

That F and A rate reduction was also halted by a district court earlier this month. But if implemented, the NIH FNA rate reduction would lead to the loss of over $600 million for the University of California.

We are working as hard as we can to address these actions in the courts, but those challenges take time and there's only so much you can do from a legal standpoint, especially over the long run. It is at best a temporary solution. It is one thing to cut or block a cut to a grant already given.

It's entirely another to impact the future grant cycles where the Federal Government may feel no fealty at all to the long agreed upon practice of negotiating rates for F and A. We and the University will continue to pursue all appropriate actions and advocacy available to us moving forward, but it's a sobering landscape.

Those research impacts will be felt by UC students as well. Our graduate student researchers are primarily covered by federal research grants. Scaling back those grants means fewer paid opportunities for our graduate students. In addition, federal agencies are ending or reducing programs that provide direct financial support to students conducting research.

The National Science Foundation just announced that next year's graduate fellowship awards will be cut in half. The Mark Training program, which provided awards to juniors and seniors from underserved backgrounds to do research, is being ended after this award cycle.

We are also very concerned about federal efforts to end income driven repayment plans for student loans, which will have a very significant negative impact on our graduates, not to mention their consumer behavior going forward. Escalating loan payments leave less in the family coffers for buying a home or a car or paying the rent.

Ruined credit ratings have impacts forever Regarding support for our students, I'm Certain all of you are aware of the Federal Government's recent decisions to revoke some international students and scholars visas and terminate their profiles in the Student Exchange Visitor Program.

UC campuses are checking Federal Government databases daily, something we used to only do once a year because it generally didn't tell us anything. But we're now checking daily to determine the status of their students, of our students, and proactively notifying students when their visas have been terminated.

Campuses are sharing information and available resources with the affected students, including referrals to legal counsel. Students are also being directed to UC's frequently asked questions on Federal Immigration Enforcement Actions and the UC Know youw Rights Card, which provide an overview of legal protections to keep in mind if one is interacting with law enforcement.

In partnership with UC faculty leadership, the University is exploring ways that affected students may be able to continue their education so that they receive the degrees they've invested so much in acquiring. But it does not take an overactive imagination to think that international students will think twice about coming to the United States under these circumstances.

They form a very important part of our academic community and the talent base of this state since so many of them become elements of our startup brain trust. There are 36,000 international students at the University of California. Imagine what it will mean if those talented people are no longer able to come to California.

We are also keeping a close eye on the dismantling of the US Department of Education. While student loans have been moved now to the Small Business Administration, as of yet, no new administrative processing location has been announced for Pell Grants. Thousands of UC students are recipients of Pell Grants. It makes it possible for them to attend.

The majority of the U.S. Department of Education staff who process Pell Grants have been let go. UC students annually receive about $500 million in Pell grants. So let's imagine, as you were earlier, what it means for the IRS, what it means for the student loan processing system if those people are no longer there on patient care.

And this is a very sobering note, Congress is considering cuts to Medicaid that would threaten California's health care safety net as well as UCHealth's ability to provide those services. As you all know, Medi Cal is California's implementation vehicle for Medicaid.

If these cuts are implemented through a reduction to the federal matching rate or limits on critical Medicaid financial tools such as state directed payments and provider fees, this will harm our ability to care for our patients.

UC Health hospitals are designated public hospitals and we are the second largest provider of Medi Cal inpatient care in the state and very proud of that commitment. We are concerned about proposals that would reduce Medicaid coverage through work requirements or more frequent eligibility redeterminations.

These changes may put millions of Californians at risk of losing health care coverage and the care that they need. I remind us all that 56% of California's children are covered by Medicaid. Cutting reimbursement will hurt them and their families, and we cannot let that happen.

The University of California will continue to advocate for legislation, policies and programs that reflect our values, support our mission, and benefit the Members of all of the communities around us. In line with those principles of community, UC remains committed to fostering a safe, supportive, equitable and responsible environment for everyone that we serve.

I want to thank you again for giving me the opportunity to speak here today. I continue, as I know you are, to be concerned about the future of higher education. And I continue very much to appreciate your partnership. We will need to stick together in order to solve these very real problems.

And I'm happy to take your questions.

Thank you. Provost Newman, you did a wonderfully eloquent job of describing how critical the UC system is to so many facets of California's economic competitiveness, supporting our students through the next generation of leadership, and the medical services that you directly provide to so many Californians. It is sobering to hear what you're talking about. I will let my.

I would ask my. My colleague, Assemblymember Muratsuchi to take over the hearing briefly. I have to go to Appropriations really quickly and I'll be back. And just. Alright, thank you.

Thank you. Any questions from the Committee for Ms. Newman at this point? If not, I. I have a few questions. Thank you very much, Provost Newman. Thank you.

So we had an opportunity to hear from you yesterday in Budget Subcommitee number three in terms of the huge impact that the federal Fund cuts and freezes are going to have. But first of all, I just want to clarify.

Well, I mean, clearly the University of California is a huge economic engine as well as the engine of innovation here in the innovation state. Whether we're talking about high tech, biotech, aerospace. I mean, in so many facets, the University of California is one of the biggest reasons why we are the innovation state.

And so clearly this has implications far beyond just the dollars represented by these federal funds. When you talked about the hundreds of millions of dollars that have. Those are funds that have previously been allocated but are frozen.

Yes, they are grants that have been outright canceled, as I said, many of which were in process of execution and for which we have, because of the way the system is set up, already expended funds which we expect to be reimbursed. And they're not being reimbursed because those, those grants have been terminated.

So multi year awards that have been terminated. And then we have the downstream impacts of award cycles that are not restarting or restarting at a very anemic pace, which will have a future impact, future meaning next year.

So I've never worked in this area, the law, but I mean, are federal grants, do they have the force and effect of a contract? I mean, you relied upon the grants and you made investments and you hired people. And that's being, that's certainly the way.

We think about it. These are promises we made to perform services and promises the government made to pay for them. So we certainly think of this as an element of contract law and hopefully that's how the courts will see it as well.

At the moment, this is mainly taking the form of temporary restraining orders, but not necessarily ones that are being attended to as they should be.

But that's part of the legal, legal strategy that the University of California. That's where it begins.

But we will be in court for years to come, I suspect.

Okay, but in the meantime, the funds are not being.

In the meantime, we are having to take drastic actions, often to cut clinical trials in the middle, not only in the United States, but around the world, because the USAID cuts cut into our ability to care for people in all parts of the world. So yes, these are very drastic, really unprecedented attacks on the University's research enterprise.

All right. And I've heard anecdotally about people that were working on research projects just they're just being laid off.

We don't really have a choice if we have no way to support them, but we do not look forward to doing so. First and second, these are talented people who have options and, and they will go to the countries where there's more consistent support for their lifelong work.

Let me. Okay. Yeah. I mean, I, you know, my district is close to UCLA and I. And we have people that work at UCLA and I have heard of people that have been losing their jobs. And so the University of California, are they independently or through the Attorney General, challenging these federal grant actions in court?

Yes, we are through many different avenues. Some through the Attorney General, some in collaboration with academic institutions around the country that have similarly been affected, some in collaboration with academic institutions like the AAU that are sort of collectively speaking for universities around the country. We are taking every legal avenue we can to defend our research community.

But I do want to emphasize that is not a long term solution. At best, it's a short term reprieve.

Okay. Well, I think it would help not just Californians, but the American people to, if the University of California can summarize, not just as you're doing today, but as part of an ongoing public education effort, of the enormous harm that the Trump Administration is causing the American people, whether in terms of cancer research or, you know, impacts that directly affect Americans and our lives, not only in terms of the dollar figures, but in terms of the actual, you know, research programs that are being impacted.

We do try to make every effort through the media, through our own educational programs to make that very clear. I think people understand it much better when you can talk about, especially the health conditions they depend on. But the downstream consequences of these cuts are so enormous, not just for now, but for decades to come.

If you interrupt a clinical trial, you don't put it back together again, six months later, you lose it. And these are potentially life saving therapeutics that we're on the verge of being able to close and bring to the public. You can't recover that very easily.

All right, thank you, Dr. Sharp Collins.

Thank you, Mr. Chair. You kind of went a little further into. What I wanted to ask you about was basically trying to identify some of the cuts based on the DEI ban. So just wanted to know if you can elaborate a little bit more in regards to that impact.

And as he said, I was hoping that our UC system can even have a deeper dive into the research as well, the impact that it's having on research that is actually identified as a part of DEI as well, such as the black maternal health work and et cetera. So I just was.

I'm hoping that we can get more information in regards to that. But can you even shed light on the lack of grant funding that has been pulled in regards to deia?

It's enormous. We are seeing, first the. In Fact, I just this morning saw yet another broadside from the Federal Government. So first, there are attacks on any research that is specifically itself oriented toward questions of equity. Maternal health training, the labor force to diversify in nursing, in medical schools, in engineering.

The National Science Foundation for quite some time now has put resources into trying to attract people from various backgrounds into these professions. All of that is done, all the training grants have been terminated. And so these outreach programs, training programs, canceled, right, left and center.

So those, those are both research grants and training grants that specifically have an equity focus.

But in addition to that, any University that makes use in any way, shape or form of any aspect of DEI will see grants in completely unrelated areas terminated in engineering, in you name it, art history, it doesn't matter, because the Federal Government is asking universities to basically attest that they make no such investment and have no such priorities in order to receive any federal funding at all.

So the ramifications of this are much, much larger than anything that is specifically about diversity related issues, which is in and of itself quite large. It's really part of the DNA of higher education in many ways.

Thank you. Following up on that. So I know as a graduate of UC Berkeley and UCLA that there's a huge range of programs that support our students of color. Those programs continue to be supported and existed. As far as the University of California is concerned.

We are being asked to attest that we no longer do such things if we want to receive federal funding of any kind. And so this will be a court battle as well, because these are rather vague pronouncements, but they are issued with repeated volleys pretty much every day.

I do want to emphasize that the University of California is here to serve the people of California. And the people of California are a many varied community, communities multiple all over. We don't see this as some special enterprise.

We see this as our commitment to the people of the State of California who pay the taxes that you process and who support us to educate the children and adults that live here in California. We've had that as part of our own institutional integrity forever. But we are seeing those kinds of commitments come under deep attack.

And it's very, very disturbing to us because we take this mission very seriously and we have so much to show for it. We have an extraordinary performance on the part of the children of California who come to the University and the investment that families make in the University.

It's absolutely incontrovertible that it makes a huge difference in the lifetime earnings of residents of California and their occupational Mobility. I mean, there's virtually no aspect of California's great good fortune that isn't attributable to higher education in some way, shape or form. So we take our obligations to serve the people very seriously. That's who we're trying to work to.

But for example, I know that there are programs to, say, provide academic and and social support for Latino students or Asian Pacific Islander students or black students. Those programs are continuing to be provided.

We will support these programs to our dying breath. But I will tell you that the Federal Government doesn't see it the same way. So we are gonna have to defend those activities. And it's a challenge right now.

But we think that supporting all of our students and making sure they all feel welcome and that they continue on and complete their degrees in a timely fashion, that's part of our job.

What about programs or scholarships designated for students from select communities?

Those are also under scuti scooter scrutiny. As you know, the University of California does not discriminate on any grounds whatsoever. Everyone is welcome. We make that clear in our admissions. We make that clear in every commitment that we make. But yes, we try to be sure that all of our students succeed.

And that sometimes requires different kinds of investments to be sure that they do all succeed. That's what any credible University tries to do.

All right, Ms. Elhawary

Thank you so much for being here and for helping us to really understand the depth of the impact of the federal funding cuts. I unfortunately missed part of what you said, so my apologies if I'm asking you a question that you might have already spoken to. I heard you talk about the impact of Pell Grants, especially on low income students.

I'm a proud graduate of UCLA and truly would not be who I am without the impact of the University on my Life.

As someone who came from a low income household and just really wanted to kind of understand from your vantage point beyond Pell Grants, specifically, how do you all envision being able to protect low income students, families and patients as we think about the UC health system as well as the universities themselves, given all of what's happening, and I know part of what you mentioned earlier is the goal is to protect everyone, but recognizing the kind of extra impact on our low income communities.

If you have any thoughts or folks have been thinking about what that might look like. Thank you.

We think about it every day and we worry about it because in all honesty, our ability to protect these students depends on the resources that we have to put to play. If we lose those federal resources or if they just wobble for a time, it will produce very significant consequences for our students.

We don't want to see them take on more debt, for example, but that might be necessary if we don't have the funding to give them or the Federal Government doesn't stick to its long standing practices. I came here and took the job that I have because of President Drake's commitment to debt free higher education.

That is the goal that we have in the University of California. Our ability to execute on that goal depends a lot on these resources continuing to flow and on our partnership with the Legislature for the part that the State of California provides, which is really quite consequential.

So as we look at the budget going downstream, significant budget cuts will make it harder for us to live up to the promise we all believe in.

What about any other questions from the Committee Members? What about. Ethics studies programs? Is there any discussion about any changes or have any changes already occurred, or are there any plans for any changes given?

We have not thought about these federal budget problems with respect to particular disciplines. Actually, I've been much more worried about how we're going to support the science labs, because that's the most immediate hit. But everyone is going to suffer if we find that we don't have the resources to continue with our academic programs.

We entrust our faculty with judgment about those academic programs. But it's a tough season, and we're asking all of our campuses to under and the President's office to undergo some pretty significant budget cuts in preparation for what we're facing.

Okay. Any other questions? Ms. Schiavo.

My apologies for being late so. And stop me if this has already been asked. I was just presenting a. A joint resolution around cuts to Medicare, Medicaid and Social Security.

And we know that the UC system has an incredible health system attached to it as well that provides a lot of care in my own district in Los Angeles County, especially with UCLA Connection and around the state.

And can you talk about what we're being as loud and forceful as we can around not cutting Medicare and Medicaid funding, which I know, I think UCLA is, over 50% utilizes that funding. Correct me if I'm wrong, but, you know, how are you looking at federal cuts impacting the health system?

We are very worried about that.

Yeah.

Probably more than any other cut. That one would be devastating financially to the University. Absolutely. Gutting to the services that we provide. I mentioned before you arrived that we are very proud of being providers of public health information resources and patient care to the public. So we're not a heavy private care provider.

We're a heavy public care provider. And that means we are in some ways more vulnerable to these cuts than other hospital systems in the State of California might be. And it will be hugely devastating and regionally differentially impactful.

Our patients in the San Joaquin Valley, in the Inland Empire, this is a region which we serve and we're proud to serve. In fact, would like to serve even more.

But that depends on reimbursements from the Federal Government that, you know, if they are significantly diminished, will just make it very difficult for us to provide what we think of as a human right.

I. My colleagues have heard me talk a lot about the burning landfill in my district, which unfortunately, Chiquita Canyon landfill is burning 90 acres of trash underground. It's making neighbors sick. We believe there's a cancer cluster associated with it. And one of the neighbors has a very rare cancer that is getting care from UCLA.

And he's a veteran, he's disabled. And so it just feels like insult to injury when people are going through these kinds of illnesses and struggling to survive, just to survive. And on the other end, their care is being cut and threatened. And it will, you know, very clearly mean lives are lost.

And it's terrifying and heartless and unconscionable and unbelievable that all of this can happen. And especially, you know, I sit on the health budget Subcommitee, where we've been discussing this a lot, obviously.

And, you know, and when you're talking about equity and inclusion, cutting programs because of equity and inclusion, what you're saying is that you don't want health care to be equitable, you want it to be unequal. You want an unequal health care system. You want people to be excluded.

If you don't want inclusion, you want people excluded from your health care system. I cannot imagine as a policy of government that that should be our goal, that that would be our goal to exclude people and make our health system inequitable.

And yet these are the policies that are being put forward by this Administration, and if they are successful, that is exactly what they will get.

I would make two points in response. One is that if you ask, where is the research coming from to address rare cancers like the one your constituent is suffering from, that research burden is disproportionately held by, and we're proud of this, by the University of California.

That's where the breakthroughs will come from, but not if we don't have the funding to do the research. And there are lots of research programs that are right in the middle of clinical trials that will speak to these issues and lead to discoveries that will make a difference, and they're being terminated.

So the research element is a very important and direct impact on people with medical conditions of this kind. The second point, and it's one that we don't dwell on as much but I think is just as important, is public public health. Public health has a critical preventive mission. We are cutting infectious disease tracking.

We're not going to be able to know when measles outbreaks spread beyond Texas, when the capacity to track infectious disease disappears. Our understanding of how environmental conditions lead to health problems, those are fundamental preventive measures that depend on research in public health. Public health programs are being slashed right, left and center.

So I couldn't agree with you more, but I think it's important for Everyone to understand that the University is this fulcrum in between the conditions your constituents are experiencing and the research needed to solve them and the commercialization strategies that lead to the world's greatest biotech industry. The University is right in the center of that nexus.

So we are going to continue to do everything we absolutely can to continue our mission. But I would be lying to you if I said that that can happen without the resources to support it. It can't.

Let me take a brief pause so we can call roll just for a moment.

[Roll Call]

Great, thank you. Sorry to interrupt your answers there. Other questions from Members of the Committee. Yes. Assemblymember Stefani

Thank you, Chair, thank you for your testimony this morning. It's devastating, depressing and causing great anxiety on my part.

But, you know, you talked about the list of clinical trials, or you talked about clinical trials, and I was wondering if we could get a list or to help us tell the human stories, the impact, because that's what's going to tug at the hearts of people who are going to help us change this and turn this around.

As Assembly Member Chiavo was saying, with what's going on in her district, we need to tell the stories of what the impacts are when we cut clinical trials. My dad was treated at UCSF in Fresno at their Memory Care Center. He has Lewy Body Dementia.

I'd give anything to have a clinical trial that would save people from going through what my family has gone through and the suffering that dementia and Alzheimer's and all these diseases bring upon our elderly population.

I know UCSF is working on issues like that, so help us tell those personal stories, because I think that's the only thing that's going to turn it around. To know that clinical trials are being threatened, that's one thing.

But to know what those clinical trials are and how they impact my constituents would help me amplify those stories and help us, you know, continue to really, hopefully turn this around. So in 2026, we see some.

I mean, I don't know if we can wait that long, but I just more information around the human impacts would be helpful.

I'm sure we can provide you with a long list of medical research that's been interrupted and we'd be happy to do that. We try to tell that story, too, but any help we can get, we would be more than grateful for.

Assemblymember Bauer Kahan, thanks for being here.

Not a cheery way to start our Wednesday. But it's important that we face the reality of what is happening. I also think it's really important that we shine a light on it. I don't think there's enough of that happening across the country. But we all are lawmakers because we like to act.

So I guess I'm struggling sitting here with where do we go from here? We don't mint money like the Federal Government. We are in our own budget deficit. So we're not going to be able to make up for this. Are there ways for us to be creative, to look at supporting private public partnerships?

You know, I just am hoping that you can give us some action items that will help us navigate through what I think will be a dark couple of years, but also in a way that maybe we can't do everything we were doing a year ago. That's probably the reality of where we're going.

But that will keep us standing enough that when we come out of this dark moment, it will not take us decades to rebuild. I mean, that's the other concern I have.

So those are very, very good points. Obviously, whatever the Legislature can do to support the University helps us REM on our feet and we understand that this is a difficult time. We are hearing from our industry partners. I was talking with the deans of the medical schools recently who are hearing from industry.

That depends on the discoveries that happen in the medical research domain. And there may be things the Legislature can do. You will know better than me to encourage industry to step forward because at the end of the day they are the beneficiaries and the route to commercialization of these discoveries. So that might be worth a look.

We have certainly heard that there might be some bond activity to help support research which would be enormously helpful right now. But I leave you to it because I'm not the expert in that area, but we certainly are hearing about that, which is very.

I have to say it is very rewarding to us to know that there are people who understand how critical this situation is and that we actually can't wait two years. Too much will be ruined if we have to. So any efforts of that kind would certainly be helpful.

Beyond that, the usual mechanisms for supporting the University are gratefully appreciated because we will need them in order to keep this standing and then hope that there's a reversal of these disastrous policies. I'm sure we can give you a very long list of things we would love for the Legislature to consider. No, I appreciate it. I know long Lists are not so well, right?

I mean, this is my seventh year and every year the UC comes in and they ask for money. And Look, I represent UC Berkeley's backyard and I benefit from UCSF. And I believe the UCs are a gem, not just for this state, but for the world.

And so if I had all the money, there's no question UC would be at the top of my list. But the reality is we don't. So I guess, you know, coming to us with a list of budget asks isn't going to get us anywhere this year.

And so I guess, you know, I appreciate the conversation around how do we incentivize our private partners to really consider this a top priority for them? Because I think that is an avenue that we could try to explore. Thank you.

Thank you. Any other questions from colleagues? Well, thank you, Provost Newman.

We really appreciate, if I may end by just saying that despite the doom and gloom that we've been talking about, and I can say this as a relative newcomer or returnee to the University of California, it's an extraordinary institution. Every dime that you've put into it has paid off in the world's greatest public research University.

So there is a great deal to be proud of. And we shouldn't just walk out of here thinking, zero my God, it's all coming to a close. This will still be here. We will still be here, and this will still be the world's leading public research University. When we turn the page from the chapter we're in right now, I just want to assure you of that.

Thank you very much for those hopeful words. We need it at this point. Next we'll have Mary Halterman from the Department of Finance. Thank you, Ms. Halterman.

Thank you. Good morning, Chair Members of the Committee. Mary Halterman, Department of Finance. I'm the Assistant Program Budget Manager for the Department's Federal Funds Accountability and Cost Tracking Unit.

Since the creation of this unit in 2021, my team has sought to maximize the impact of federal investments by monitoring and highlighting new federal funding opportunities for California, administering and ensuring compliance of over $27 billion in COVID19 stimulus funding awarded to major state programs and coordinating COVID19 direct disaster response, cost tracking and recovery.

In response to the Committee's request at the February hearing, Finance submitted a report pertaining to the recent passage of the full Year Continuing Appropria and extensions act of 2025 and the next steps in the federal budget making process.

While the report details some high level impacts that federal actions may have on the State of California, further and more comprehensive analyses regarding federal budgetary actions and their state level impact still are still premature. In summary, the continuing resolution or the CR that was passed extended funding at the Federal fiscal year 2024 level of funding.

It increased defense spending by $6 billion while decreasing domestic discretionary spending by $13 billion through eliminating congressional community direct funding, also known as earmarks, and making other smaller shifts in funding between various appropriations. For most programs, earmark elimination results in a net reduction in total program funding but maintains base program funding.

In Federal fiscal year 2024, almost 940 million was earmarked for projects in California which were all eliminated. This includes 387 million under the US Department of Housing and Urban Development, 227 million under the US Department of Transportation, and 109 million under the US Environmental Protection Agency.

The CR also provides that mandatory programs are permitted to operate at Federal fiscal year 2025 current law levels and this includes SNAP. It extends the authorization for TANF as well as other health and human services programs and the national flood insurance.

Through September 30, 2025 the CR provides 7.6 billion for the special Supplemental Nutrition Program for Women, Infants and Children as well as providing 425 million for the Department of Agriculture's Commodity Supplemental Food Program to provide food packages to low income senior adults.

Food inspection efforts will also continue under the CR with 1.2 billion dedicated to meat and poultry inspectors to prevent meat processing plants from ceasing operations. While the appropriations process for Federal fiscal year 2025 has concluded, a separate budget reconciliation reconciliation process is underway to address taxes, mandatory spending and the debt limit.

The Senate and House budget committees each adopted a budget resolution to provide fiscal targets or reconciliation directives to legislative committees to implement the risk proposals. The House passed a budget resolution that combines tax cuts with additional defense and border spending into one Bill, along with increasing the statutory debt limit by $4 trillion.

Proposed cuts of at least 1.5 trillion over the 10 year window includes $880 billion by the Energy and Commerce Committee, which has jurisdiction over Medicaid. The House's resolution moved to the Senate for consideration and on April 5th the Senate adopted a revised version of the House's concurrent budget resolution.

The key differences include the Senate's resolution raises the statutory debt limit to 5 trillion. It includes instructions to the Senate's Senate Finance Committee authorizing a $1.5 trillion tax cut over 10 years in addition to an extension of the Tax Cuts and jobs act of 2017.

The Senate resolution creates a non binding Reserve Fund of $2 trillion in unspecified spending cuts over 10 years. While the Senate's directives provide for cuts up to 2 trillion, an amount specified in the House's resolution for mandatory spending reductions, the Senate's directive only requires a minimum in 400 billion in cuts.

The House subsequently adopted the Senate's current resolution, which unlocks the next phase of the reconciliation process. Various reports indicate that the House committees are expected to begin markups the week of April 28th. The House and Energy and Commerce Committee could meet as soon as May 5th.

Additionally, the President is expected to release an outline known as a skinny budget later this month with the full budget for Federal fiscal year 2026 in mid May. Finance continues to monitor policy and legislative developments to assess potential impacts on funds that the state receives from the Federal Government. And with that, I'm available to answer any questions. Thank you.

Thank you. Ms. Halterman, are there questions from Committee Members.

So you're at this stage monitoring everything that's going on. And the next big date is May, when the President's budget will be released and we'll have more information then, right? Yes, thank you. Yes, Assembly Member Muratsuchi.

So I know that there's just a lot of uncertainty. Uncertainty seems to be the theme of our time now.

But one of my biggest concerns in the K12 education space is what are we going to do if it's my understanding that about 8% of our total K12 spending comes from the Federal Government, it's heavily concentrated for special education students and for low income students.

If the Trump Administration puts conditions on those fundings, on those funds that are fundamentally unacceptable to the Legislature and to the State of California, is there a plan B?

I think those are all things that we are considering, not just in the K12 space, but across all of the different programs. That is something that is like continuously, like, as the provost from UC was saying, is continuously being hammered from the federal Administration.

So we are watching all of that and trying to figure out where is there additional funding that we could use from other funding sources, either other federal programs that aren't under attack or. Or other state programs and funding sources that could potentially be available. So those are all things that we are looking at.

I don't know that we exactly have a plan B in place, but it is all things that we are considering.

All right, thank you. Back to the May timing. Is the precise date that the Federal Government puts its budget forward? Is that in statute, is that a specific time? Or is that how does it align with the May revision of the state's budget?

So the, at the federal level, the President's budget is actually supposed to be released in February. However, like the federal timelines don't seem to normally be adhered to even in prior administrations. So there isn't a real set deadline or timeframe as to when the President's budget will be released.

I see. So it's just the best estimate today is.

From what we've seen in reports. Yes.

Thank you. Any other questions? Well, thank you, Ms. Halterman. Really appreciate you being here. Appreciate the report too, and keeping us up to date with as things progress. And I know you're right in the middle of all this, so thank you for your time today.

Right. Thank you.

We'll now transition to the next panel. I'd like to invite the panelists to come up. We have Michael Fine with the state's Fiscal Crisis Management Assistance Team and Fesia Davenport from the County of Los Angeles. We're Very grateful for both of you to be here. Mr. Fine, would you like to begin?

Thank you. Chair. Good morning, Committee Members. I'm Michael Fine. I'm the CEO of the state's fiscal crisis. I don't know what I am Fiscal Crisis and Management Assistance Team. We predominantly work in the K14 sector, as many of you know, dealing with school districts, charter schools, county offices of ed and community colleges.

In this particular subject of childhood sexual assault. In the current year's trailer Bill budget trailer Bill in K12, we were asked specifically to study the fiscal implications of childhood sexual assault on not only local educational agencies, but on the broader subject of public agencies.

And so we reached out to our municipal partners, state partners, joint powers authorities, others representing that broader community of public agencies. And the result of our roughly six months of work and research was in a report that we issued at the end of January on the fiscal implications on public agencies.

The report, which I will do just a very brief summary of and certainly happy to go into any detail that you may wish issued on January 31st. And it contains an introduction, a discussion on available childhood sexual assault claim data. That claim data is varied as we'll talk about, and the limitations from that.

It also contained an explanation on how public agencies secure insurance coverage or provide for self insurance and the current look at the public entity insurance marketplace. We also looked at financing considerations. This was really the core piece of our report, to be very honest with you. How do we, how do public agencies pay the Bill?

We weren't, our report doesn't debate whether these are Legit claims or not Legit claims, whether we should pay them or not. It assumes we're to pay the victims and compensate them. And so how do we do that without bringing our local public agencies into fiscal crisis?

And so we looked at several financing considerations, including some timing considerations to make those financing mechanisms work. We also explored, as is our expertise, school district and community college emergency apportionment process where they have some protections that other public agencies do not enjoy. And then we looked at the idea of a victims compensation Fund and a series.

In fact, half of our 22 recommendations are on the idea of prevention. Well, that wasn't originally in our scope of work. As we worked through this, it became very clear to us that the focus we really should have two focuses.

One is what do we deal with the claims that have happened in the past and how do we pay those bills, but how do we stop this going forward? And so we, we embarked on some 11 recommendations regarding prevention considerations. In total, 22 recommendations across four themes.

I think it's important to understand what the report is and is not. The report meets the charge that the Legislature and the Administration gave us in the budget. Trailer Bill provides, as I've already indicated, a roadmap on how to finance indebtedness created by settlements and judgments resulting from both uninsured and underinsured causes of action.

I'll go into this in a bit more detail in a moment, but I think we have to understand there are cases where there is some form of insurance. It may be self insurance, but some form of insurance. There are cases where that insurance coverage is insufficient or there are gaps in it over time.

And then there are cases where some of these claims go back so far in time that there are there is no insurance, so it's an under it's an uninsured claim in its entirety.

The financing of public agency indebtedness is nuanced, as I think the Committee is well aware, and thus we address the hurdles of time, judicial validation and the constitutional debt limits within our discussion. We also explored the special constitutional provisions, as I mentioned, afforded school districts and community colleges experiencing insolvency through the emergency apportionment process.

We did, as I've mentioned, step outside of our scope to address the financial impact on public agencies with a focus on local educational agencies. The report concludes that there is a data and information gap driven by the lack of consistently classified and reported data on the subject that will fully convey the magnitude of the challenge.

Understanding how public agencies are insured is central to comprehending the local and statewide financial impact on public agencies through premiums, special assessments, and other impacts from insured causes of action.

Therefore, we did spend some time in our report describing public entity risk pools, reinsurance and insurance, including the discussion, as I mentioned, of the current market insurance marketplace impacting public agency budgets. We introduced the concept of a first resort full service victims compensation Fund as an alternative to the time consuming and costly judicial remedy for victims.

We also stepped outside our scope to address inconsistent and inadequate protections and preventive steps for children in the care of our education system. It's also important to know what the report is not the report does not limit the rights of childhood sexual assault survivors or limit in any way their remedies from public agencies.

And of course the report wouldn't limit anyway, but doesn't make any recommendations to limit their rights or their remedies. It's not a call to abandon or otherwise discharge the obligations of those that our judicial system holds responsible for injuries to children. It is not a call to amend the revival statute and makes no recommendations to do so.

It's not a call to set tort limits or make any other far reaching tort reforms. While the report mentions ways the state could assist public agencies financially, it does not call upon the state to appropriate funds to do so.

We acknowledge that some of the enhanced prevention measures could result in mandated cost reimbursement considerations that the state would be obligated for. The report, as I mentioned, contains 22 recommendations. Using the summary of the recommendations on page 41 and 42, the last pages of the report, and number in each bullet 1 through 22.

Recommendations 1 and 2 are about data. Knowing more about the volume and nature of the claims requires establishing a statewide data repository with common definitions and classifications. I would say this is the lowest of our priorities. Although understanding claims helps to inform public policy and prevent Future Offenses, Recommendations 3 through 11 deal with the financing topic.

Recommendations 3 through 6 are about timing with the judicial process. Timing is important as it facilitates the mechanics of funding options which are represented in recommendations 7 through 11.

Given our task, which was to focus on the fiscal implications, to identify financing options so that LEAs and other public agencies may pay their obligations and continue to instruct students and serve their community, these would be our highest priority. Recommendation 12 Victims Compensation Fund this recommendation stands on its own.

It's really not about the retroactive claims, but about future claims. It would provide an alternative to the time consuming and complex judicial system for victims to seek redress. Our recommendation is the topic be studied. California has some examples of victims compensation funds. They are not a first resort Fund, they are a last resort Fund.

Probably the best one that we the best example we saw across the country is actually the federally created September 11th Victims Compensation Fund based in New York. What distinguishes of course it has hundreds of millions of dollars of federal funding in it, which would distinguish it from anything we would consider here.

Recommendations 13 through 22 deal with prevention. Our scope didn't include prevention, but based on what we heard, we simply could not ignore the importance and magnitude of this unacceptable societal problem. Simply put, these assaults on children need to stop and we should do everything reasonable within our authority to prevent them.

As a father, these are the most important to me than the other recommendations. But as FCMAT as the agency that we are, these would be our second highest priority. Less important than smoothing out the financing mechanisms, but more important than other recommendations.

I fully appreciate, as I've already mentioned, that recommendations 13 through 22 dealing with prevention are mixed bag and some are more important than Others, some also are easier fixes than others.

And as this Committee is probably well aware, going on right now is Senate Education Committee and Senator Perez has taken up each of the recommendations on prevention in, in her Bill that has its first hearing this morning with that chair.

I'd be happy to answer any questions about the report. Thank you. Mr. Fine. I just want to congratulate you on really excellent report. I read every page of it. I was stuck in an airport and one of my local school district Members had a copy and shared it with me.

And it was really enlightening and thorough and I think a great start to the conversation of how we're going to address this issue. And I think maybe just for the to have the sense of the whole scope of the problem and the impacts on local governments. I'd like Ms.

Davenport to talk about the experience in the County of Los Angeles. Then we'll have questions for both of you. Thank you, Ms. Davenport, for being here.

Sure. Thank you. Good morning Members of the Committee, and thank you for the opportunity to appear before you today. As stated, my name is Fesia Davenport and I am the Chief Executive Officer for Los Angeles County.

I'm here to speak candidly about the serious financial challenges facing our county, challenges that strike at the heart of our ability to maintain a stable, resilient safety net for the more than 10 million residents who call Los Angeles County home. As CEO, I rely on clear principles to guide me and my recommendations to my Board of Supervisors.

The first of those is never losing sight of the real lives impacted, especially by the acts that are as incomprehensible as they are heartbreaking that we are here to discuss today. And the next one is to do everything in the power of my office to maintain a fiscally sound and intact budget for Los Angeles County.

Before going any further, I want to take a moment to acknowledge the victims of those reprehensible acts, those that are alleged in the AB218 claims. And to everyone harmed, I extend my deepest apologies. We know that victims deserve accountability, they deserve compassion, and they deserve justice.

And I remain fully committed to ensuring that Los Angeles County responds with the seriousness and integrity that they are owed. At the same time, I must also remain focused on improving how the county serves all of our residents, especially the most vulnerable among us. And again, that requires a sound and stable budget.

I recognize that striking this balance will not be easy, particularly in light of the challenging fiscal realities we face at the state and local levels and the federal level, as well as previously discussed by Provost Newman, who was here earlier this morning. But it is a responsibility that the county must meet.

We must meet it head on with care, courage and clarity, even as our budget comes under unprecedented pressure from several compounding financial strains, including one, the devastating wildfires that we have seen in our Palisades and Eaton areas.

Those wildfires have driven increased expenditures and decreased revenues, and I thank both the Governor and Members of this body for supporting the the revenue, the support and assistance under AB102.

We have anticipated reductions in our federal and state funding streams and some of those you heard this morning during your discussion with the provost from the University of California. Three, we are seeing market volatility and we hear that there is a looming risk of recession.

And then four, are slowing local revenues, basically from our property taxes due to increases in the interest rates in 2022. We have seen a steady decline in our revenue growth over the last two to three years.

And then finally, there's our $4 billion settlement related to the AB218 claims brought under a law that greatly expanded the window and the circumstances under which survivors of childhood sexual assault can seek justice. In addition, the county is currently in the midst of multiple labor negotiations.

We are currently negotiating at about 6462 separate bargaining unit tables, all within the budgetary pressures that we are here to discuss today. And we're working hard to balance the very real needs of labor with the financial pressures that we are talking about today.

So now let me speak very directly about the tentative $4 billion settlement under AB218. This settlement is unprecedented and by far the costliest in the county's history. And if approved by the Board of Supervisors later this month, anticipate using a combination of our reserves, drawing down on our rainy day Fund, and borrowing to meet this extraordinary obligation.

This is not a one year or even a 10 year challenge for us. We expect to pay hundreds of millions of dollars annually through 2030, and that is to finance the settlement plan. But then we'll have to take out debt to do that.

So we also anticipate additional costs in the hundreds of millions of dollars per year continuing through fiscal year 20502051. To manage this long term financial impact, my office has directed our county departments to prepare curtailment plans, including cuts to vacant positions. And we saw those curtailment plans included in my recommended budget for fiscal year 25-26.

These targeted reductions aim to save nearly $100 million while avoiding layoffs and limiting impacts on public services. As we navigate these realities, we are also watching the progress of Senate Bill 577 authored by Senator John Laird and informed by Senator Bill Allen's SB832.

We are hopeful that this legislation will provide essential tools to help public agencies like the county meet our obligations to victims while continuing to serve our broader communities. My view is simple. Delivering justice to victims should not come at the cost of the safety net that we are entrusted to maintain.

The Los Angeles County budget is large, yet our budgetary pressures are even larger. We are doing more with less. And with the support of this body, we hope to still to do better still. Thank you again for the opportunity to speak with you today, and I am happy to take any questions you may have.

Thank you very much for coming today. And you have just an enormously important and difficult job. And I really appreciate you sharing the complexities of the issues that you're dealing with. It's really important for us to hear that. Are there questions for Members for Mr. Fine or Ms. Davenport? Ms. Bauer Kahan?

Thank you, Mr. Chair. Thank you both for being here and for providing this insight. I want to thank you for starting by acknowledging the survivors of these sexual assaults.

I think it's critically important that we center them in this conversation because the liability here is a sign that we failed way too many kids over way too many years. And so I'm really very grateful that the Senate Education Chair is taking on the prevention.

And I actually really appreciate that that became a central part of your report because it isn't just about avoiding future liability, which obviously prevention will do. It's about ensuring the safety and security of California's children, which is, as I said yesterday, and I'll say again, today is our highest calling.

I represent small school districts, small cities, but I have been hearing from them as well about the liability. Obviously, none of the numbers are what Los Angeles is facing, but for a smaller entity, a small amount of dollars can have a real impact.

And I actually had the privilege of taking mass towards from Kenneth Feinberg, who was the architect of the 911 Fund. And he didn't just do the 911 Fund, he also did the BP Fund, which was funded very differently. And so victims compensation funds can be done in many different ways, funded many different, through many different entities.

And as I was starting to hear about this problem in my district, it was the first thing that came to mind for me is that I see it potentially as the only path forward. To be honest with you, I think the problem with not.

I think one of the things that we don't talk about when we talk about victim compensation funds is that when you have Liability of this magnitude and limited resources, the people who come to court last lose because there's only so much. And so the people who are there first get paid and the last don't.

And so when you do a victim's compensation Fund, it isn't just about ensuring you can pay the liability, but it's also about ensuring that all survivors are paid. And one of, I think Kenneth Feinberg's brilliance was then how do you. The question becomes how do you figure out who gets what and how much?

And it is an art, it is not a science. That's true in court as well as we figure out damages, but it is even harder when you're looking at a mass amount of people. So I really think it is something we need to contemplate very seriously.

I agree with you that I think it needs to be something that everybody buys into and that we look at now. I was having a conversation recently with one of my school districts, a High School District that had a claim from the 70s. They were not able to even figure out if they were insured in the 70s.

They tried to look back to see if they had insurance. They could find no records of it, doesn't mean they didn't have it, but the paperwork is gone. And so for that claim at least, it's not clear that they'll be able to rely on insurance.

And so I guess I was reading the report and I'm not an insurance expert and so I was trying to figure out, obviously the public entities are on the hook, but they have this insurance.

As I view it, if we were to go down the path of victims compensation Fund, the insurers should obviously be a very large player in that. And I don't know how we would navigate that given the complications of sort of the endless amounts of time and different coverage. But I see that there are pools. So I'm curious what your thoughts are about the insurance piece of that.

So I'll take a stab at some of that. I wouldn't describe myself as an insurance expert either, although in a previous life in school districts I sit on several public entity risks, public entity risk pool boards, in fact, the majority of my career, 30 years in school districts, but since the mid-80s.

So a claim in the 70s, using your example, is probably going to have commercial insurance. The likelihood of that company still being around whether they can identify them or not is going to be pretty remote. Right.

But since the mid-80s where we introduced public entity risk pools as a result of a bit of an out of control insurance marketplace similar To a little bit of what we're experiencing right now. Public entities chose to form pools, joint powers authorities, with the Legislature's blessing, to pool their risks and pool their resources for those risks.

Cities, counties, other municipalities do this. School districts, predominantly, the majority of traditional school districts do it. About 75% of charter schools are in a pool, are in pools. So it is the preferred way to manage your risk from that standpoint. Those pools charge a premium, so they look like an insurance company.

They charge a premium for liability coverage. Like we're talking about here in the school world. It's based on the number of kids, so it's a price per average daily attendance or enrollment in the municipal marketplace. It looks just slightly different because their metrics are different. Those pools, Self insure certain layers or what we call tranches of coverage.

Maybe the first 5 million in one pool, maybe only up to a million in another pool. And then they buy insurance in the commercial marketplace or from even other pools to handle additional tranches. We call that reinsurance. That reinsurance is subject to marketplace, all types of marketplace conditions and they vary.

And we've seen in the last decade where the reinsurance is more difficult to get you. What used to be to insure up to say, $50 million, maybe you had seven reinsurers, now you have 20 reinsurers because they're only willing to take smaller and smaller bits of them. There are also limits on each tranche of insurance.

All of that influenced all of that. All of those changes are going to be a go forward change, right? Whatever the policy was at the time that the coverage was in effect will be the policy that's followed.

In most cases, when a public agency joins a public entity risk pool, becomes a Member of that risk pool, it has a joint and several liability for all the claims in that risk pool for the period of its membership.

So if in 1990 they were a Member of I'm going to speak to schools, Member of schools, excess liability Fund based here, right around the corner here in Sacramento. But they left Self and went to a different pool during that period of time.

If Self has insufficient reserves to pay any of these claims during that period of time, they will reassess their Members retroactively. We call those special assessments. Some call them retroactive premiums. But you get the idea they go back.

So let's take Self, the largest at the every school district but two in California have in their life at one time been a Member of Self, L.A. unified and Fresno Unified are the two exceptions.

Self has already built about 300 million in retroactive premiums in the last couple of years, they have roughly another 400 million to build and that is a year to year analysis of claims coming in. And do they have any reserves left for those years?

If the year is negative in that they need to pay claims and don't have reserves to do that, then that's what generates a retroactive premium to their Members for that year.

So that's a, so we have premium impacts, we have self, we have special assessment impacts and then we have the underinsured and non insured impacts of an actual claim happening with public agencies.

Yeah, I just, I mean, I guess I don't see how these entities that obviously are so critical to be it our kids education or the daily lives of our constituents can bear these costs.

And it's so, I mean, I guess that's why as I think through this, you know, I'm a, I think that we need to be looking at this question of the victims Compensation Fund. I saw your recommendation that we study it between now and 2026 and then move from there.

That feels like fairly problematic timeline given the fact that the liability is already being accrued and owed. And I don't, it seems to me, and maybe you can speak to this time appears to be of the essence as we figure out a solution to this quandary. We're in.

Thank you for that. So two things as my colleague has pointed out Yes. So Los Angeles County is self funding. We are taking curtailments and budget reductions. We are taking hundreds of millions of dollars off the table in the subsequent fiscal years that we would have used to Fund programs and services, parks, libraries, things of that nature.

The other thing is we have seen with our foster family agencies, those are agencies that help place children in foster care. Working with our Department of Children and Family Services, we have seen some of them give notice that they may be unable to continue providing services because now they cannot find insurance on the specific issue.

We would love to explore the Fund that's being suggested for school districts. And the sooner that we could do something, the better for us because we know that under AB218, the liability just does not stop with the victims that have come forward and filed claims as of December of 2022. Okay, thank you. Thank you, Mr. Chair.

Thank you. Assemblymember. Other questions from colleagues. Could you go a little bit more into the data collection question that you asked? Because I think there is a scope challenge here that you know, as you just described, Ms. Davenport, we have, we have sort of A handle on the claims that have been filed but that were not done.

And some of the local jurisdictions that Assembly Members of Beer mentioned that he represents, you know, my school districts and my districts, you know, the numbers don't seem to add up to what we're looking at as a scope. It seems like much bigger numbers. And is that a weakness in the data collection system?

Is it just the inherent nature of the fact that we don't know the claims that are coming forward? How would you assess where we are really financially in this? If you're looking back at the entire State of California and all the public agencies that are affected.

So I think there's two pieces to this. One is we are not public agencies are certainly not aware of 100% of their liability at this point in time. Claims. While there was a deadline to file claims that only applied to certain victims based on age there, I like to describe it as a kind of a two step.

AB218 provided a deadline for those over, basically over 40 or. And then it provides a tail from those, I believe it was age 26, up to 40. For victims that are still in that window, they have up to age 40 to file or within five years of acknowledgement of the assault, if you will, of the offense. Right.

If it's been repressed in some fashion and then through therapy or other means, they're now acknowledging that. So that's the first issue. Right. We still have victims we don't know about out there. Right. The second is for those that we do know about, there is not a central database clearing.

Each public agency or its risk pool has their own data. Some of them are more willing to share with one another and we're not.

In most cases the value of sharing isn't the specific claim as it is data around the claim, such as who's the perpetrator, what was the age of the victim, when, where did the offense occur? So in a school environment, did it occur in a classroom or in a gym or outside the school environment?

That level of data is super important because it informs us on how to prevent and it informs us on where to address and where to place safeguards. Right. So that's the value of the data. But key here is there's not a single point of data collection.

This high level components of this data is publicly available information or subject to public disclosure. Details of a particular claim may not be public information. And so our recommendation was to consider a statewide data repository, require public agencies to cooperate. There are pluses and minuses to that.

Obviously and then beyond that was to come up with a common classification system. And we used the, the workers compensation classification system as an example. We can go into that data because it's collected by the state as a central repository and it has classifications.

We can look at the types of injuries in what environments, because there's a common classification system. In the case of liability coverages, we don't have a common classification system. So it's a two part one, a database. The second is a common set classifications.

Ms. Davenport, in your settlement, you comprehensively addressed all the cases that you knew about. Are you concerned about future liabilities that are unidentified?

Oh, absolutely. So we have, we have settled the. A portion of the claims to date. We are still working on settlement of additional claims.

And to the data point that you asked earlier, once we started to delve down into the language of AB218 and sort of that longer time frame to file a potential claim based on within five years of, you know, let's say, if there was a repressed memory.

We have started to compile data through our looking at our probation data. Like, what is the potential, the largest number possible. So that is a number in progress.

And we do have concerns for related to additional liability in the sense that if we have claims that date back to the 1950s, which in our case we do, the question becomes how do we proceed going forward? How do we defend ourselves? It's the same issues that we have today.

And so we do have concerns on a go forward basis. And again, I'd like to reiterate, it's not how to essentially deprive people victims of their day in court, but how do we find the balance? How are we able to understand which claims should move forward and then how do we pay for those?

It is a significant challenge, and it's sort of the theme of the day. Feels a little bit like a snowball has been coming down toward local governments, State of California, from the Federal Government, and circumstances from long past horrific events. And the victims of those circumstances do deserve compensation.

But how we navigate this financially and equitably is a serious challenge. Are there other questions from Members of the Committee? Well, thank you again both of you for taking time to really help illuminate this issue. There's a lot for us to consider, and this hearing has been extremely valuable and, and advancing the conversation. So thank you both.

Thank you. Thank you to the other panelists, too. I want to thank everybody on the Committee for being here today and asking such good questions. And our next Subcommitee hearing is on May 7 on the budget stabilization account proposals. Look forward to seeing you all then.

And excuse me, I almost forgot what many of the people in the room are waiting for is public comment. So please just come on up to the microphone and love to hear from you. That's okay.

Good morning, Mr. Chair and Members. Jack Anderson with the County Health Executives Association of California representing our local health departments throughout the state. Related to issue number one, just wanted to note that our 61 local health departments had nearly $400 million in federal funding across multiple multi year grant programs abruptly terminated by the U.S.

Department of Health and Human Services in late March. This federal funding was appropriated by Congress during the COVID 19 pandemic and has been truly foundational in strengthening our public health workforce and infrastructure that was decimated leading into the COVID 19 pandemic.

At the local level, these terminated funds have supported staff positions including epidemiologists, data analysts, laboratory professionals, infectious disease nurses and more. And it has also modernized our public health infrastructure and equipment that is vital in keeping our communities safe from COVID 19 communicable diseases and and other public health threats.

The termination of these funds are anticipated to result in staff layoffs, cancellation of school vaccine appointments, reduced capacity to provide support to shelters and congregate care facilities, and more. As the Legislature considers how to address the federal funding terminations and the potential future termination.

CHEA urges the Legislature to leverage the future of public health framework to provide flexible, sustainable funds to our local health departments to continue their critical work. California cannot afford to return to our pre pandemic capabilities. We urge you in the Legislature to protect public health because it protects you. Thank you.

Thank you very much for adding that additional important data point in this conversation.

Good morning, Mr. Chair and Members. Dorothy Johnson with the Association of California School Administrators on the FCMAT report item.

We just want to express our sincere appreciation for the opportunity to discuss this with this group and extend our sincere professional appreciation for fcmap for the robust and thorough study that really helps illustrate just how huge of an issue this is and all the complex details and for acts that we're not necessarily asking for state dollars to try and backfill.

What we are hoping to pursue this year is really a balanced approach forward additional checks and balances that ensures victims have a pathway to justice and compensation while also considering this unsustainable wave of claims that is draining essential valuable resources from our schools. Thank you.

Thank you, Ms. Johnson.

Good morning. Sara Pietrowski, on behalf of the California Association of School Business Officials. Thank you. Chair Hart, Members of the Committee for Hearing the second item today. I want to align comments with Mr. Fine and Ms. Davenport. I think they. They summarize the issue very well.

Of course, victims deserve restitution and California School Business Officials are working hard every. Day to ensure strong budget and operations. For California's nearly 6 million students. We are greatly concerned about the impact of AB218 settlements and judgments on our ability to have a robust educational and support program for today's students. We support the FCMAT recommendations and additional. Conversations to help us balance our obligations to both victims and and the current students in our care. Thank you.

Good morning, Mr. Chair and Members. Chris Reefe, on behalf of the California School Board Association, will echo the comments made by the previous two from AXA and from CASBO. I'll just make a couple points here. And there are several measures on the Senate side.

Some of them are not moving forward that are really providing some good tools that can help address the issue of the balance of the liability with the need to address issues of redress for the victims. There's also a circumstance where state statute is not constructed in a fashion to address these scenarios.

We have FCMAT was created by AB 1200 years ago as a result of issues of insolvency of districts. This is presenting that Bill and that legislation did not anticipate these types of liabilities. The constructs that are available and the tools that are available to districts and county offices are few and far between.

And also I'll say the policy changes in 2018 that really have opened up a window where we are continuing to see these cases coming forward. Although it did reopen the time period to file cases, it did create scenarios.

We can have cases in perpetuity from a district's point of view and from the School Board Association's point of view, we very much want to balance the needs and the right to restitution and redress for the victims. This is extraordinarily important. These are heinous crimes. But on the other side, we also have 5.64.

Sorry, 5.4 million children that we have to serve. And that is a very constant daily struggle. So these are existential crises that, as Mr. Hart, you probably already know, many of our districts are already facing. So thank you for the opportunity. Thank you.

Good morning. Thank you. Chair, Committee and staff. Ryan Morimune with the California State Association of Counties here on behalf of all 58 counties. As explained throughout the testimonies today, counties have been severely impacted by AB 218. While we don't know the full scale of liability statewide. We do know it's substantial and potentially crippling.

While counties share the underlying intent of AB218, simply put, this legislation and other subsequent measures that attempt to relate relitigate previously outdated claims and dangerous public resources that are necessary to support our communities now and far into the future.

Although we are very sensitive to all claims and supportive of all victims, such revival legislation makes it nearly impossible to defend some of these cases, even those that may be fraudulent. This leads to widespread advertisement campaigns and aggressive outreach to potential plaintiffs, resulting in enormous settlements.

And so, as noted by the Committee, what is needed are solutions that prevent abuse while ensuring that those who fall victim have a path to seek justice and are made whole.

But another important distinction is doing so without enriching opportunistic in overzealous law firms that risk the fiscal solvency of county government, which we as as we all know, are the primary providers of essential services for millions of Californians.

And so we look forward to ongoing discussions around solutions to support local governments and again appreciate the Committee's consideration of this critically important topic. Thank you. Thank you.

Hi, my name is Elizabeth Oseguera and I'm with the California Alliance of Child and Family Services. That represents over 160 the organizations that support children, youth and families throughout the state. We are very excited to see that the Committee is looking into AB218 and its impacts and the hardships around liability insurance.

We encourage that the Committee to continue exploring the impacts of AB218 specifically for Foster family agencies and the insurance crisis that they're undergoing currently. Right now we have about 220 FFAs that may be closing, impacting about 7,400 children and impacting the counties who also care for these children.

We want to make sure that FFAs can continue to serve this population. Right now what we're seeing is that FFAs are having to pay sometimes over 300% more for insurance. That's about $300,000 more for insurance. And this all came about through the insurance crisis.

So it all started in August and we're really looking for support for a budget ask, but really for this Committee looking for you all to continue exploring AB218, how it's creating an insurance crisis here in California.

And although we very much support children have been abused to have an outlet and a legal avenue to be made whole, we want to also make sure that the organizations that are providing services today can continue to provide those services. Thank you so much.

Thank you.

Kim Lewis representing Aspiranet which is a foster family agency serving over 31 counties in this state. And I think we would just echo some of the comments my previous colleague.

But just note then whatever solutions you guys are putting forward that we really include nonprofits in this because we are partners with the local governments and serving especially our vulnerable children and youth who are at risk or involved in the child welfare system.

I also represent the California Coalition for Youth serving you through experiencing homelessness and they too are seeing the impacts of increased insurance costs just because of the high risk of the population they are serving. So just really encourage you to ensure that we're thinking of a holistic solution and including our nonprofits as part of that. Thank you.

Thank you. Anyone else? Well thank you all for being here. Thank you very much for the very effective additional comments and we are adjourned.