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

Subcommitee 4 of the Senate Budget and Fiscal Review Committee will come to order. We are holding our Committee hearing- Committee hearing here at State Capitol, room 113. I ask all Members. All Members I believe are present here. We'll provide an opportunity for public comment following the conclusion of the discussion of the item list.

And we'll go ahead and establish quorum. Jessica, will you track and call the roll.

For purposes of quorum, [roll call]. Quorum is established.

Our order of business today is as follows. Our agenda today involves budget proposals from Expo Park, the Department of Financial Protection and Innovation, and Department of Consumer Affairs, the Privacy Protection Agency, and the Fair Political Practices Commission.

We have several matters on our discussion calendar as well as several matters on our vote only calendar for each department with items for discussion. We may begin with a general overview and status report and then delve into specific budget requests or issues. We will take public comment at the conclusion of the agenda.

And we will now turn to to our first item for discussion. And we will begin with Expo Park or Exposition Park. I believe Andrea Ambriz is here, General Manager. And if you don't mind coming on up.

And before we get into the specific budget proposals, Ms. Ambriz, could you please provide us with an overview of Exposition Park and any recent or upcoming park developments that you have. Thank you.

Good morning, Madam Chair and Vice Chair Niello. And also our hometown Senator, Lola Smallwood-Cuevas, and also our local Senator, Senator Cabaldon. And good morning. Thank you so much for allowing me to present on Exposition Park.

As you mentioned, I'm the general manager and have the privilege of serving over this really incredible historic and dynamic space in Los Angeles. It's 160 acre state property. It's one of the oldest state properties. And in fact, as I always say, the park has been there for over 100 years.

It will continue to be there for another hundred years. And it's our opportunity and privilege to steward it and to make sure that we're preparing it for the future. In front of you, I've shared a small presentation to outline some of the different historic moments that the park has had.

It began as an agricultural park, and it's had not one, not two, but will have three Olympiads. It will be the only state property that will host three active Olympiads. One in the 1932 Olympics, one in the 1984 Olympics. And you have a picture here in front of you of that incredible scene.

And then we also will be hosting the 19 or the 2028 Olympics. I wanted to share a bit about the opportunities that we see before us around the future of Exposition Park.

Not only are we excited about hosting these Olympics, but we're also excited about hosting the upcoming FIFA World Cup Fanfest at the park that's just less than 100 days away at this point.

And those are just two examples of really incredible moments and events that we host at Exposition Park on top of all of our other events from our museums and from our many different stadiums. So. So you have in front of you a map on page six that outlines all of the different areas of Exposition Park.

We have four museums, including two state museums. We have four stadiums, we have two schools, and we have multiple green spaces. So again, that 160 acre property that we stored is really incredible and dynamic and it does invite over 8 million annual visitors.

We are expecting with the opening of a new museum, which is the new Lucas Museum of Narrative Art, and another forthcoming to reach 10 million annual visitors that will put us on par with places like Universal Studios and kind of closer to Disneyland, if you can imagine it.

And again, this is a state property, which is really exciting for us. So in order to prepare for all of those visitors, we're looking forward to ensuring accessibility and safety is key for our patrons and our visitors.

We are focused today on bringing up to code and in compliance and really, again, the safety for all of our guests that are walking our streets and that are driving on our roads. The park has probably over about 40 years of significant maintenance needs.

The last time there was some significant investment into the park was around the 1984 Olympics. So we are overdue.

What we're trying to do is ensure that not only for these upcoming openings of museums and different events that we have internationally, but certainly for the future of Exposition Park, that we're maintaining state property, we're reducing liability, we're ensuring efficiencies within our system, and we are also ensuring that the future of Exposition park is bright for all of the guests that we will invite in the future.

So I'm happy to answer any questions as well about the the park itself or happy to go into the specific budget proposal.

Thank you. We'll go ahead and turn over to our first agenda item, which is agenda item number one, which pertains to requested budget augmentation for utility upgrades, site improvements and deferred maintenance at the park. When ready, please proceed with your presentation on that item, please.

Yes, and I'm joined by our- our colleagues over in the Department of Finance.

I can very briefly share the governor's proposal in front of you, you have for your consideration a request for $96.5 million for utility replacement and site improvements at Exposition Park that would go to support the deferred maintenance infrastructure that I was referring to that we do need at Exposition Park that would very specifically target the code compliance ad accessibility projects that we need at Exposition Park.

This comes out of a robust study that we conducted at the park to understand really what was needed to be fixed, what was needed to be in compliance and how we can get there. We did really prioritize some of these projects. So this is about half of where we know we need to go in the future.

But it is a critical step to ensure that safety and accessibility is key over at Exposition Park. There's also a portion of the funding that could be used for public safety and traffic systems. We're looking forward to installing new bollards, new fencing, new gates potentially.

And that is important because as we've engaged with our security colleagues, they continue to remind us that the many patrons that we have, we need to make sure that high traffic vehicles cannot continue kind of moving through the park. So with both of those at 96.5 million that's our first request.

Does the Department of Finance wish to comment?

Hi, good morning. Lizzie Urie, Department of Finance. I just wanted to note that our colleagues from the Department of General Services are here. Should there be any technical questions regarding the progressive design build authority that is requested as part of this proposal?

Any comments from the LAO?

Good morning. Brian Metzger with the LAO. We find the proposal has merit as it reduces safety hazards in the the park and consequently litigation against the state.

The proposal also prioritizes improvements in high traffic areas and seeks to improve public access to the newly opening museums and sports facilities that will be the focus of the 2026 World Cup and 2028 Olympics. However, given the current budget condition, one option the Legislature could consider is whether at least some of the proposed work could be downscaled.

We understand that this comes with trade offs, right? Fewer safety risks would be addressed, but it would also reduce the pressure on the General Fund. And so we're not recommending specific changes to the proposal at this time, but rather suggesting it as an option should additional General Fund resources be needed. Thank you.

Thank you. We'll turn over to questions from the Subcommitee. Mr. Vice Chair.

Thank you, Madam Chair. My question about this is the timing. Deferred maintenance is frankly a common challenge for infrastructure all over the state. But it's not new. Certainly here it isn't new. And you indicate the last improvements go back what, over 30 years.

And this is coming forward in a time when we have a significant budget, at least according to the LAO, budget deficit. And yet just a few years ago we had huge surpluses. I'm sure this was known then. Why didn't we bring that forward then? Bring this forward then.

Thank you, Vice Chair Niello. You're absolutely right that deferred maintenance continues to be a priority that- that we highlight and that we seek to address as much as possible. The growth of Exposition Park has been monumental over these past few years. We opened up a new wing at our natural history museum.

I mentioned the new Lucas Museum that we'll be opening and another partner institution will be opening. I'll let them speak to that. But the- the growth of Exposition Park has seen more millions of people coming to the park. And that's why we took the proactive step to conduct a study to understand what those hazards were.

And this was really in light of increased liabilities that we were seeing on behalf of the the state.

So intentionally we said we need to be kind of forward looking and we need to understand with all of these new people coming with these major events, how can we try to meet this moment and- and ensure that we are creating as much accessibility, as much compliance as possible?

I've been at the park for about three years and- and I've seen that incredible growth. I know it will continue to grow even further. And if I was there in the 1984 Olympics, I would have said let's put these permanent infrastructure improvements from the 84 organizing Committee in. But unfortunately I wasn't there. But I'm here now.

You might not have even been around.

I was around LA. I'm an LA native and in fact, I'll add just to that too. My- My family grew up around Exposition Park and they've seen the many different changes that this park has- has taken and the shape. And our local Senator knows about this and it really is a treasure in the community.

And- And it's our hope that again, we can maintain it for another hundred years by putting some of these just basic improvements in.

That raises a related point with regard to growth, which means people are attending, which creates revenue opportunities for people that- that visit. And a question would be why not? But perhaps a suggestion should be any ongoing operation ought to include in the operation the contemplation of maintenance of the facilities.

In other words, charge for the visits in a way that covers operating costs but also creates a reserve for maintenance because there's overdue maintenance here. There's going to be overdue maintenance again in the future if we don't keep up with that. So what are the plans with regard to that point?

You're again, absolutely right. We are strongly considering how we can generate additional revenue.

In fact, just last year we onboarded a team member to focus on business development, development opportunities for us to rent out the spaces at Exposition Park, for us to continue exploring how we can work with the private sector to bring them, as well as community organizations to- to help support the park.

We're working very closely with our various partners on campus. I mentioned the four museums, the four stadiums, the two schools. All of those we see value for any upgrades and improvements we have at Exposition Park to benefit them.

So in turn, we do work really closely with them to understand how we might be able to collectively generate more revenue through more events at the park.

With regard to your question around the reserve as well, and I'll let my Department of Finance colleague talk a bit about our contribution, but we do intend to do whatever we can to- to try to find a way to preserve any of the new improvements that we have as much as possible.

That means the maintenance that we will have is the upkeep. So, you know, not filling a pothole and then seeing the pothole get kind of, you know, broken up. And again, so we're going to try to do what we can to kind of oversee the property as best as possible with the limited resources that we have.

Thank you. And I would just add, as Andrea noted, that the parking revenue generated into the Exposition in Park- Park Improvement Fund is generated by all folks who are coming to the park using the facilities, attending the museums.

And that is why there is a component in this proposal of $20 million from the Exposition Park Improvement Fund as Expo Parks cost share in addition to the General Fund resources here.

Thank you.

Senator Smallwood-Cuevas.

Thank you very much, Madam Chair. Can everybody hear me? Okay, thank you very much, Madam Chair. And thank you so much, Andrea, for that great presentation and to the Administration at LAO. You know, I just want to say thank you for your leadership that you show in that park. It really is.

You are a native of LA and it shows in how you love the park and all of the services there.

You know, I want to just put in my- my message on this, and that is we've had over 15 years of deferred maintenance on what is the state's most, I think, beautiful resource that everyone around the world comes to.

And, you know, when you don't put the resources in to pay along the way to make improvements, repairs, it adds up and it costs more. And so that's the situation that we're in.

But this park is a bridge where we have some of our most vulnerable communities, some of our most impoverished zip codes are able to access this park for free. They're able to access the science center, there's a school on this property.

And it means that the state of California does indeed care about having something to showcase to the world. But we care even more that our community has access to it. And we know as we have 15 million visitors that will descend on this, even though it feels very large. But with 15 million, it's not very large.

We don't want folks falling down, you know, being tripped up by sidewalks, you know, and creating a liability that, you know, we- we just don't want to address.

I also want, you know, to- to recognize that we appreciate the investments that have been made, but we know that so much more needs to be done and we don't have a lot of time. We only have a couple months. I don't even think it's probably almost less than two months before we're into the World Cup.

And then we have, you know, a serious countdown to 2028. And I'm hearing there may be some national interest in coming to the park for the nation's birthday. And so we have world class events.

The lights and cameras are going to be on LA and they're going to be shining on the state park, which is such a tremendous value to us. So I just want to say thank you for being such a great steward. I appreciate what Expo Park means to the world, but more importantly to Californians.

And we want to make sure that this is a safe and accessible location, especially when we know everyone will be watching. So I'm looking forward to supporting this item today and looking forward to the continued support and work with Expo Park and your whole team, which has just been a tremendous group to work with.

So with that, I'm ready to move the motion when the time is right.

Senator Cabaldon.

Yeah. Thank you, Madam Chair. This is far away from my district, but I- I grew up at Expo Park. I worked for a legislator who represented Expo park when I first Exposition park, when I first graduated from college, spent many, many, many, many, many hours and days at the Museum of Natural History at Science.

My first science fair was there. My first OBOE scholarship was won at Exposition Park. It is a statewide treasure and also an important part of the community. So I'm- I'm glad to see the focus in the investments that are here.

I agree very much with Senator Niello that when we have any sorts of surpluses, we need to be really focused on- on deferred maintenance, which is just another form of- of debt, essentially. And we should have been making those investments. But this is the second best time to do so is now.

The budget is not in great shape, as LAO has reported, but it might be in okay shape for- for this kind of investment that doesn't involve an ongoing commitment that's permanent in our budget. So this is the time, this is another one of those times that we really should be focusing on deferred maintenance.

And so I also am very supportive of moving forward with this item today.

We have no additional comments. We'll go ahead and move. This item will be held open and we'll move on to item number two. So agenda item two pertains to requested budget augmentation for operational sustainability and legal support. And when you're ready, miss Ambriz if you'll, please present.

Thank you. Thank you again, Chair Hurtado and Vice Chair Niello. This second request is specific to the increase that we will see in the services required to greet the many patrons and the visitors that we see at Exposition Park. I mentioned earlier, we're expected to see about 2 million more people just beginning next year.

So we're going to reach about 10 million annual visitors. With that comes a requirement for us to maintain the property, to provide those parking services, to provide the security service services, to provide the public safety support that we need to make sure that again, it's a safe and accessible environment.

So this request is per $1.698 million for our operational sustainability at the park.

Department of Finance. Would you like to comment?

Lizzie Urie, nothing to add, but available for questions.

Brian Metzger, LAO. We find that this proposal has merit as a way to address le legal and public safety risks at the park. You know, the proposal is also funded from the Exposition Park Improvement Fund. And so it's not General Fund. And so we raise no concerns with the proposal. Thank you.

LAO.

And then we'll bring it to the Subcommitee. Mr. Vice Chair.

Just to clarify, it appears that in this case the- the funds are coming from revenues that are produced within the operation.

That's right. That's right. It's coming from our Exposition Park Improvement Fund.

Thank you.

Okay. I see no other questions or comments on this item. We'll move to item number three.

Thank you for your consideration.

So item number three pertains to Exposition Park. Item related to the California Science Center. I believe we have the representatives up here from the Science Center.

So this item concerns funding for the opening and operations of the new Air and Space center facility at the Science Center. When ready, please proceed with the presentation on this item.

Good morning. Jeff Rudolph, President and Director of the California Science center, and thank you for considering this. The Science center is completing this fiscal year construction and installation of all the exhibits in the new Air and Space Center. It is almost doubling the size of the exhibit space in the Science Center. Major addition.

The Science center is about science learning and inspiring the next generation of scientists and engineers in this state. This is a huge addition. It features the space Shuttle Endeavor and launch position, the only place in the world where you can see a full authentic space shuttle stack, as well as numerous other aviation and space artifacts.

Incredibly inspirational for young people. We're very excited. This is a public private partnership between the Science center and the Science Center Foundation. The project's a $450 million project. The state put in 80 million of that. The rest is being raised privately.

We're ready to open now, anticipating with the adoption of this budget opening in the second quarter of next year, being able to hire the staff and proceed, and happy to answer any other questions and invite you all to come see what's an amazing new facility for the state.

Great. Thank you. Do we have any comments from the Department of Finance?

Lizzie Urie, Department of Finance, nothing to add.

From the LAO?

Brian Metzger, LAO. We find the proposal has merit as it provides adequate staffing for the museum to open to the public on time and with the appropriate maintenance.

However, in light of the budget condition, one option for the Legislature to consider is whether at least some of the funding for these staff and for the new museum could come from other sources.

Some of those alternative sources of funding could include admission fees, which the museum currently does not charge, higher parking fees and or private funds, and that could reduce some pressure on the General Fund.

Thank you. At this moment, we'll bring it back to the Subcommitee for questions. I'm going to briefly step out of the hearing at the moment, and I'll hand it over to our vice chair.

The chair is casting caution to the wind. But I'm in charge now. The- Kind of along the same line of other questions that I've had. This is a significant operation that also has the ability to generate revenue from visits that I'm sure you're anticipating a lot of.

And while the money isn't there because you're sort of beginning perhaps, I don't know what LA or Finance might think about this, but perhaps some of this in the proposal could be a loan to be paid back with operational revenue that otherwise would go to to an improvement reserve. Just looking at the business case,

I'm happy to take a first stab at that and let Mr. Rudolph speak to the details, but would just note that the Science Center is a long standing free general admission museum as part of consistency with its mission and happy to take your suggestion into consideration, of course. But this proposal is consistent with the

General Fund providing ongoing support for the operations of previous phases of the Science Center.

Thanks. And I would add that this is not the first time we've talked about this issue. It's been studied over numerous years. First, I'd mention that as I mentioned, we're a public private partnership with a nonprofit foundation.

When you look at the overall operation, more than half of the funds supporting the Science Center come not from State General Fund but from other operations, both earned income and contributions from many of those contributions come because of the audience we serve, because we're providing learning and education for the whole population, including those traditionally not in science and engineering.

When we've done previous studies at the request of the Legislature, they found that the net income would be very nominal and the effect on attendance would be probably as much as a 50% reduction in attendance, including those in the neighborhood surrounding the Science center in the inner city of LA who don't get science education opportunities.

It has been studied extensively. We've looked at it. It doesn't mean we don't charge parking is $20 a day, which I believe is higher or as high as any park in the state.

So you know, you can price people out in multiple ways, but we do work hard to bring in other money and we charge for some experiences, but not the core educational experiences, as well as making money in things like a store and significant philanthropic support of the Science Center. Thank you.

Brian Metzger, LAO. I think we'd have to take the idea of a loan as a potential funding source for this proposal back and study it further.

But I think your comments align with our option, which is to consider things like admission fees that are charged at comparable Science Centers in other cities as a way to offset some of the General Fund being proposed here.

I think the- the mention of the parking fees being $20 is correct, but to the extent that there would be additional maintenance costs that are caused by increased visitorship or by the museum opening this larger facility. That is certainly a way of providing additional funding to help with some of those costs.

Thank you. And I like that. I always like being in good company, which when I'm aligned with the LAO, I find myself. Other comments, questions?

I appreciate the conversation and I just had a follow up question. Could you talk a little bit more, Jeff, about the public and private partnerships and with the Science Center Foundation? How. What is it leveraging? How does it work? And I want to just say, you know, tickets to Disneyland used to be 30 bucks.

You have to have a payment plan.

I have.

I have some tickets for us.

Years ago.

To take your family to Disneyland.

So it is a very- When we start putting the cost on families to just have an opportunity for children to learn and be exposed to what we hope will be the future of their, you know, career and professional development.

And its starts with that curiosity and just being sparked. If we start putting these heavy levies and price tags on that, we know how far it will go. And there are communities because this is in South Central LA. I mean this park is not on the west side, right? It's not at the beach.

It's in the heart of the hood. And so folks are not going to be able to get there.

And so we don't want to set up a scenario where, you know, this was accessible to everyone and then 20 years later families have to get a loan or a payment plan just to get one ticket to enter a state park.

So I want to really caution there's a lot of places where we could probably put some fees. I don't think this is- this is one of them.

But I did want Jeff Yu to talk a little bit more about the foundation and how it works and what you've been able to leverage because the Air and Space Center is an amazing example of a public private partnership.

It really is. And the Science Center. I've been at the Science Center a long time, four decades. When I started there, we got almost 90% of our support from the state. Over the years we've been able to build a really strong and significant nonprofit foundation which as I said, used to give very little.

But now we move to where the first phase of the Science Center's master plan was 3/4 funded by the state, the balance privately. This project, as I mentioned, $450 million, less than 20% coming from the state, the rest from raising private money. And I might note we're still raising money.

So if anyone had anybody who likes to donate to a wonderful science learning facility. Let us know. But enormous support for our building projects, which becomes a state asset with contributions. I don't know many other state facilities that can show that kind of private support, operating support, almost half and half state and nonprofit.

Honestly, the nonprofit will lag a little bit because it takes us time to build, getting contributions and support. But that's through a committed long term relationship with major foundations and individuals and some corporate gifts in the region and the state and actually now beyond, because this is a nationally significant project and expands our reach.

It's all about science learning. I would say a large percentage of our donors do it because they look at our audience, we talk about other science centers around the country charging admission. If you look at their audience, they don't look like the population of their city or state, ours does.

Everyone comes to the science center, including the children from the communities around us in inner city LA and what we've seen in other institutions over the years, when they put an admission fee on drops of up to 50% of the attendance. And you can guess who doesn't come anymore.

Our focus is on learning, on children, inspiring their interest in science. And we want to do that for everybody. So that's why we've gone that way.

Senator Cabaldon.

Thanks. So I come down on the middle on this one. I- I don- I think LA is raising the right questions. And- And also, you know, rep- the- the citizens of Vallejo, which is one of the poorest parts of my district, have no such.

They have access to nothing and they'll have to pay a lot to go to San Francisco where they'll pay admission fees for the same kind of experiences. So this is a statewide asset and statewide institution. But that has to be in the context of the rest of the state as well, where there- there's no similar asset at all.

And in order to access anything similar there, my- my constituents in the poorest parts of my district have to spend a lot of money. So I- I- I support it. I've always gone to- to the facilities at Expedition Park and enjoyed the relatively affordable parking and admission fee policies. And I'm not proposing, I don't think we should be changing them today.

But I think it's- it's foolish not to recognize the- the budget situation that we're in long term. Because, you know, if it is a $23 parking fee at exped- for- at the Science Center versus the access to Medi Cal at a clinic in the state that also needs general funds, it's clear to me what I'm choosing.

And so I don't support a loan because that's kind of the opposite of where we are financially right now. We- We probably can't afford to do this at the moment, but long term it's not so clear.

And so I just- I just want to really encourage the Science Center to see this as- as a now solution and to continue to press very hard on these questions, how hard those may be and other solutions. I mean, I think LA said, you know, parking, admission fees, but there's a lot of other ways which you are already pursuing.

But to pursue them with the- with the- with the urgency that there's no guarantee that these funds are going to be forever, even though we're hiring permanent positions and all of that- that it's going to- that this- this- this conversation is just beginning this year. It feels like this is within the bounds of what's reasonable given the state's immediate fiscal position.

But long run, you know, you've got to- you've got to ask and answer those- those harder questions about what the right- right balance is and keep- keep pushing hard on the alternative funding sources as you have been successful so far in trying to secure.

One more clarifying comment. Answer the comments made. I would not suggest that an institution of this sort compromises its ability for an educational experience, particularly without charge, to a particularly disadvantaged area. I get that. That doesn't mean that you can't consider admission otherwise.

And I heard what you said about how it could make attendance just simply go away. But I think the issue is still a legitimate one. But the- to provide an educational experience to a surrounding community that is disadvantaged is extremely important.

And it would be particularly good if those children, those students could be better served by our K12 system. This is completely off topic, but I have to take- I have to take the opportunity to point out that our K-12 system particularly disserves kids from disadvantaged areas and particularly black and brown kids. And that's who you're serving.

But it'd be nice if our K-12 system could pick up the slack on that. Also, as I said, a bit off target. We've talked about that. It's extremely important.

May I just. Since you go there and I know it's equally out, we do a lot of teacher professional development. We do have a school that we operate on site, Neighborhood Elementary School in partnership with LA Unified to serve as a model for integrating science.

And we train teachers throughout the state in how to implement the next generation science. We don't do anywhere near as much as we'd like to. If you want to. If we had more money we would. And we do it all with grants. But we really totally agree with you.

Great to hear. Thank you. So we will now move on to our next item, Item 4, the continuation of the California Consumer Financial Protection Funding.

Good morning, Chair and Members. My name is Suzanne Martindale. I am the Chief Deputy Commissioner for the California Department of Financial Protection and Innovation. With me in the room are our Chief of Fiscal Management as well as several of our program leads who may be on hand to answer additional technical questions.

But thank you for having us this morning. We're pleased to be here. I will provide a very brief overview of the DFPI before we launch into our budget change proposals. So at the DFPI, we are focused on protecting consumers and fostering responsible innovation in the financial marketplace.

The DFPI is committed to safeguarding consumer rights and ensuring financial stability across the state of California. We regulate a very wide range of financial services, products and professionals anywhere from state chartered banks and credit unions to mortgage lenders, debt collectors, payday lenders and more. Our regulatory reach even extends into securities, commodities, broker dealers and investment advisors, franchises.

And we also ensure investor protection, promoting market integrity and creating a level playing field for all participants. We've taken a leading role here in California as a model for consumer protection in the nation, in particular thanks to the passage five years ago of the California Consumer Financial Protection Law, otherwise known as the CCFPL.

The CCFPL expanded our oversight authority, enabling us to regulate financial activities beyond what we were previously regulating, traditional financial service categories. So we've now got authority over emerging products, fintech products, credit reporting agencies, and- and more. And this all enhances our ability to protect consumers and support responsible financial innovation as the marketplace evolves and changes.

And critically, the CCFPL gives us broad authority to regulate consumer financial products and services and stop unlawful, unfair, deceptive or abusive acts or practices through investigations and enforcement actions. The CCFPL remains one of California's most powerful enforcement tools, enabling broad oversight across consumer financial markets and protecting Californians from frauds and scams.

In addition, last year the Legislature signed SB 825, which further clarifies our enforcement authority over both traditional and emerging industries in financial services. Given the significant rollbacks in consumer protection that are happening at the federal level, these enhanced authorities help ensure that DFPI can meet its mission to safeguard consumers in California while promoting fair and transparent markets.

Through diligent oversight. We promote compliance with strict standards, fostering trust and confidence among California consumers and communities. By licensing and regulating these entities, we uphold industry standards, we promote ethical conduct and protect vulnerable communities from predatory practices.

As California's premier financial regulator, DFPI champions accountability, transparency and consumer empowerment, fostering a resilient and secure financial marketplace for all stakeholders. The governor's proposed budget seeks to extend our existing expenditure authority for the California Consumer Financial Protection Law, the Debt Collection Licensing Act Program and the Broker Dealer Investment Advisor workloads. We're a special fund department.

This is not General Fund ask. We are simply asking to extend our existing expenditure authority to keep our same staffing levels. And with that, I'll conclude our overview.

Finance and LAO.

Good morning, Members of the Committee. My name is Taylor McRho from the Department of Finance. My counterpart, the LAO, is going to share some of her concerns after me. So I'm going to try and get ahead of that a little bit. The 2025 Budget Act included reporting requirements for DFPI, specifically in relation to their Financial Protection Fund.

And this law would fall underneath those reporting requirements. We encourage every subcommittee and committee in the Legislature to continue working with the administration, and we are always more than happy to answer any questions or concerns that they may have. So I'll turn it over to my counterpart.

Hi. Good morning. Heather Gonzalez with the Legislative Analyst Office. Our comment about this proposal and the following one are essentially the same. Which is that we don't have any concerns with continuing to provide limited term funding for these programs and activities, which we view as pretty early stage. They're relatively new programs.

However, we think it would help the Legislature assess whether these programs are operating as you intended if there's some kind of cumulative reporting akin to a sunset review, something along those lines, before permanent funding is provided in the future. So we would encourage you to consider that as an option.

Questions or comments from the subcommittee? Senator Cabaldon.

Thank you. And I'm very interested in the LAO recommendation in this regard as well. But I'm just trying to pay attention to the a couple questions I have just generally, and I know the next item we have is some of these specifically as well.

But that is the relationship between our projections around the number of licensees or cases or what have you that we would we're expecting in the various programs in the department and then where we're actually at.

And then sort of as a corollary, how are what are... I have this chart, I think, which is the projections of of future revenue and expenditures and all of that. And how confident we are of these projections given where we're at on licensees and cases at this stage.

At this stage, we are projecting solvency for the department. We have been standing up these new programs without startup funding, so we've been absorbing the cost of standing them up. However, we have hit significant milestones for both our CCFPL program as well as our debt collector program.

We have been bringing in new registrants, new licensees. We do have to conduct regulations. We do have to do rulemaking activity if we want to add additional categories for registration, for example, under the California Consumer Financial Protection Law.

So we currently have under that program 153 approved registrants, with more applications coming in. We are also seeking public comment on additional categories of financial products and services we could seek to register through rulemaking. And we continue to make steady progress there.

And so I think this probably is from the department maybe, since I've missed you. Right here from the BCP. Okay, so the BCP provides by subprogram or by unit, I think, projected outcomes over the next five, this year and the next four after this. They're all, but all the projected outcomes are not, none of them are outcomes.

They're all workload measures. Do we have any indications about the actual effect that we're having in the world with respect to fraud and scams and other challenges that the department is charged with protecting consumers against at this stage?

Well, we certainly can report that year over year we are seeing a rise in complaints that we received to the department. Consumer complaints have certainly gone up, which could be a combination of more things happening in the world or more people knowing who we are.

Right. That we're open for business. We do a lot of education and outreach to communities to make sure people know that DFPI exists, is a resource, is a place where you can come and complain. We also have been very active.

This is not particular to this program, but we have been active in responding to complaints from people who were impacted by the LA fires. And are happy to report that since January of 2025, we received a few hundred complaints from homeowners seeking forbearance, seeking to make sure that their disaster funds are held in an interest bearing account, for example.

And more than 90% of the time we have been able to resolve those complaints in the favor of the consumer. And so that is a core part to our work as well as handling consumer complaints. Also another example that may be of interest when it comes to combating frauds and scams. We all know this has been discussion. The Little Hoover Commission covered it.

The rise of frauds and scams in California. We play a key role there, particularly given that we enforce a recent law, again not the subject of today's discussion, called the Digital Financial Assets Law, which regulates crypto exchanges, kiosks, and the like. Kiosks have been, unfortunately, a major facilitator of consumer fraud.

And we have done sweeps. We have brought back restitution to consumers as a result of enforcing that law, which sets daily transaction limits on how much someone can put cash into a machine. And some of these companies have failed to abide by those limits, and people have uploaded their life savings to a crypto scammer.

And in several cases we were able to claw that money back and return it to the consumer. So those are just a few brief examples of how our expanded authorities are making us better able to serve Californians in today's financial marketplace.

Thank you for that. Do you feel like we are, are we able, are we getting closer to be able to define a set of outcome measures that... I mean, I guess complaints alone is a challenge because obviously the more effective we are, the more effective the department is at regulating and enforcing and licensing. We should hope that complaints will go down over time.

As folks say, let's just, California is not a place to engage in this sort of activity. It's also good when they go, you know, like any other reportable crime or infection, which also we don't want people, we don't, we don't want the numbers to go down because people don't feel like they can get justice or redress.

So it's a challenge to think about that only as the principal metric. And I don't have an idea myself. We're grappling with this on the digital side as well in my own committee. But I'm just, I'm trying to understand how we get to a point where we're able here in the Legislature to assess how are, how are we actually doing.

And in part that's because at least a couple of the of the subprograms are funded in this very strange way where the costs of them are based on how much we spend in compared to other states that don't do it that way or other programs that we offer that we operate in California.

That do not have sort of the amount we spend as the top, the most important thing and everything else has to follow that in an area that's pretty dynamic. And so I'm trying to understand how would we know if we're spending the right amount of money.

If I could jump in here. Your Acting Chair is a mind reader, and I can tell that the Department of Finance has a comment that I think relates to this.

I think her waving and mouthing and...

Well, however I do it.

I think your mind reading is a scam, Mr. Chair.

I'm always happy to bring a sign if needed. To kind of answer your question about projected outcomes, I would point you, I know there's a lot of charts and tables in the BCP, but I would point to pages 13 through 15.

There are actually quite a few of projected outcome tables and they're broken out by area. So for example, you were mentioning enforcement. They have some information about attorney hours and public admin hours.

We have some information about legal that includes rulemaking and external opinions. And we have some other areas. So we're always happy to answer additional questions if you want some more of a deep dive into one of those. But we do have some projected outcome tables.

Yeah, so, but this is exactly my point. So that those outcome tables are really tables of two things, workload and outputs. You know, how many rule makings we did. That's not an outcome. You know, how many hours of time we spent, that's not an outcome either.

And given at least some of the programs where we say here's the funding and then just charge people whatever it is that we need in order to achieve that level of funding, it's somewhere in the process there has to be some point where we ask, is it working? Like how well are we protecting people?

And I don't pretend to have the answer here sitting at the table. But we have to not just look at what we did, but also what is the impact in terms of protecting consumers. And so I'm just hopeful that we will keep pushing both in Finance and here to move towards a more outcome based approach given the way that we've structured the finance of the department.

Thank you. And to help in my mind reading skills, Senator Smallwood-Cuevas has waved at me also.

I don't want to beat a dead horse here, but I do think for me it's the report, it's sort of the semantics of it. I'm not sure what's the opinion, the inquiry. I think just simply what are the results and what are we recovering?

I think some of the, and I see the tables and I get at what you're saying. For me, if we stop scams, we know we have saved the consumer X. They were trying, they were fishing for, you know, $200,000 and we stopped that. So we saved $200,000 from going out.

I think some of it is very technical, but I think we need a sort of more common vernacular that we can all sort of understand what a result is, what recovery is. Like these are things that when I hear fraud, that's what I'm sort of looking for. And for me it's a little hard to, I'm not an attorney, so I don't know what some of these terms mean.

But I appreciate, and I want to say that we now have a federal government that has dismantled a lot of our consumer protections, a lot of our advocacy agencies. And so, and I was had a conversation with someone who was recently detained, who actually talked with the enforcement officer who had detained them.

And the enforcement officer said that they weren't Border Patrol, that they in fact were part of the sort of FBI enforcement that looks at international fishing. And they usually that that area is sort of highest priority or had been than like the cartel work.

Because that is actually robbing and stealing and through economic violence harming so many more folks. And so that had been the priority, but now they are in LA detaining people instead of monitoring these sort of international fraud rings.

So I just say the urgency of what you're doing is very important. It's scary to think that there are folks who are not at the switch because they've been shifted to do things that do nothing to protect the whole country in the ways that these international fraud rings work.

So, you know, I think for me it would be helpful to see recovery results, you know. That putting the consumer next to the dollar amount that we're actually, you know, keeping folks out of harm. So. But appreciate it and will support this item when it comes back to us.

As I pass the gavel back to our Chair, I'd just like to say I really appreciate this discussion, particularly Senate Senator Cabaldon's. Because the whole time I've been involved in government, having come from running a business.

One of the frustrations that I've always dealt with is that we tend to get reports as to what is done in terms of activities. We accomplish what we do, but that's not an outcome. And too often we don't focus on outcomes. And I, this is not General Fund.

The notion is still important. But I have been, as my role on the Budget Committee, I've been continually stating for the last three years that I've been here, that the only way, unless we want to raise taxes, and my sense is there aren't the votes to raise revenue.

Plus we do have increasing revenue with increasing deficits. And so in my opinion, and has also been stated by the LAO, what we really need to do is with regard to programs, particularly General Fund programs, although it's still important for special funds.

But General Funds where we've got the deficit that, and especially those that have been either created or enhanced in the last five or six years. And ask the question, are they accomplishing what they were intended to accomplish? Assuming we defined that when we started them, which is probably a bit of a leap in faith in itself.

But nonetheless, are they accomplishing what they're intended to accomplish? And even if they are, if their increase in cost, unanticipated at the beginning increase in cost is unsustainable, that's where we need to make adjustments to get rid of this structural deficit that we have. So it's a very important discussion.

And as this subcommittee and I hope other subcommittees review the proposals for the Governor's January budget, as partial as it is, but that's another subject. But we need to ask that question for every program that comes before us, what is it accomplishing? Is that what we intended?

Is it successful? Or are cost increases just unsustainable? So I appreciate the conversation from that standpoint. Strategically, with our structural deficit, increasing revenues with increasing deficits, that's really important.

Thank you, Mr. Vice Chair. I had just two questions for you all. Are enforcement staffing levels appropriate considering the number of licensees who are being regulated? And is the department looking at any ways to improve efficiency and lower enforcement cost as the program continues to grow and evolve?

Yes, we believe the staffing levels are appropriate. The workload is absolutely there. And just for example, we're seeing year over year increases in our activity and in outcomes. We opened 566, just under this one law, CCFPL investigations, and issued 391 public actions, a 94% increase from the prior year.

Last year we also brought in, I believe, $13.7 million in enforcement revenue. That's penalties and restitution, which was 240% over projections. Now, of course, for folks who've worked with enforcement, investigations take time. They can take multiple fiscal years and sometimes they just hit.

But we are seeing many of our investigations that have been in the works for months and in some cases a few years begin to bear fruit. And we're bringing in bigger penalties as a result of the use of these authorities. And we'll continue to do so to protect wider swaths of consumers in California. And happy to provide additional numbers as well to break that out.

Okay, great. And is there a current balance of expenditures and revenues sustainable for the program?

Yes.

Okay. All right. I see no other questions or comments on this item, we'll go ahead. And we're leaving this one open, right? We're leaving this item open, and we'll move on to item number five. So item 5 pertains to the continuation funding for debt collector, Debt Collectors Licensing and Regulation Program. And when you're ready, please proceed.

Thank you, Madam Chair. The Debt Collection Licensing act, which was enacted in 2020 by SB 908, authorized the department, indeed mandated the department, to set up a program to license, regulate, and examine debt debt collectors and debt buyers.

This is a, there's continual workload, of course, associated with implementing this law, which is why the Governor's proposed budget includes 13.5 million in expenditure authority to maintain our existing headcount. Our existing 51 positions, which do the following.

Implement and enforce regulations to ensure the debt collectors operate in accordance with the law, protecting consumers from unfair deceptive practices. This includes strict monitoring of collection tactics and adherence to guidelines outlined in multiple consumer protection laws at the state and federal level.

This also enables us to regularly assess, through examinations and data reporting, the financial health and practices of our debt collection agencies to protect consumers. By closely monitoring their activities, we may proactively identify potential risks to protect consumers from harmful debt collection practices that may arise.

This team also enforces compliance with licensing requirements and takes appropriate actions against debt collectors found to be violating the law, which could involve imposing fines or taking actions to hold accountable any debt collectors who fail to meet standards and ensure that consumers are shielded from predatory behavior. Thank you, Members of the Committee, for your time on this item, and we're happy to take any questions

Any comments from the Department of Finance?

Morning, Madam Chair. My name is Taylor McRho. I'm from the Department of Finance. I made these comments earlier and from the CCFP on these still stand, but I'll reiterate them. DFPI already has some mandating or some reporting requirements from the 2025 Budget Act.

It's in their language. They have to report annual expenditures, revenues, within the subprograms of the Financial Protection Fund. And we feel like that is a very robust report that allows the Legislature to kind of see what's going on within DFPI. And the administration will always encourage that if the Legislature or any committees or subcommittees have any questions for DFPI, we are always happy to answer those, answer any questions or concerns.

Comments from the LAO.

Hi. Heather Gonzalez with the LAO. We made the same comment for the prior, but we continue to have the same concerns. We don't have any concerns with providing limited term funding for these programs and activities, which we view as still in pretty early stage. As programs, they're comparatively new.

However, we think that it would help the Legislature assess whether these programs are operating as intended if there is some kind of cumulative reporting, something akin to a sunset review before permanent funding is provided in the future.

So we'll bring it back to the committee. Can you provide details on how you calculate assessment fees?

Yes, under the structure of the statute under the Debt Collection Licensing Act, similar to many of our other programs, licensees are assessed on a pro rata basis to cover the costs of administering the program, which can be partially offset by exam revenue.

But this is how they are structured. And so by and large, companies, larger companies with higher net proceeds, that's the term in the law. Higher net proceeds pay more and smaller companies pay less.

And information suggests that the assessment fees that the regulated community pays might be higher than in other states. Can the department explain why that might be the case and what the benefit to the average Californian might be?

Sure, it's a bit apples and oranges comparing us to other states. Other states may have a flat annual fee that they charge, for example, as opposed to this pro rata assessment model. Which again, is something that is in the Debt Collection Licensing Act and also in several other statutes that we administer.

We provide a perpetual license as a result of issuing the license. So the structure is, it's different. But again, more companies, the higher. The larger companies pay more, smaller companies pay less. But we believe that the robust authorities that we have in the law are really crucial for such a large market as the debt collection market to ensure that people are protected.

And so we see the value to consumers being able to get back on their feet, pay their debts, and move on, as opposed to dealing with predatory or harassing behavior. There are some, unfortunately, some bad actors in the marketplace that may be overcharging people fees for being late on their bills.

And so we seek to make sure that the debt collection market is fair and transparent and that our licensees follow the law so that consumers can get back on their feet, get out of debt, and get on with their lives.

And can you discuss any potential challenges with the first round of assessments? And what steps has the the department taken to ensure the assessments in the future avoid any issues faced in this initial year?

Yes, there are significant challenges that this program has experienced. Indeed, in the early years of standing up the program, the statute had to be amended twice simply to get the licensing component off the ground.

In the early years, the FBI initially denied the department's access to background checks, which is a requirement in the statute, in order to process licenses. So we had to amend the statute to receive conditional licensing authority. We then a year later did get a permanent legislative fix.

So even getting the licensee pool established so that we can establish our population and then get annual reports to calculate assessments, that was a challenge in the first three years of standing up this law. That's why the first full licensing process really concluded in 2024 after amending the statute twice.

And that enabled us to then get annual reports with the financial information we need in order to calculate the assessments. We need to hear from our licensees what their net proceeds are so we can determine what their pro rata share is going to be and then issue them the invoice.

And that's why we did our first assessment in fall of 2025 and then brought in the revenue in early 2026. But now that we've done this first round, we've hit that milestone and now we believe that in the years to come we will be, it'll be much easier, let's just say, the next time around.

Any questions from the dais? Senator Cabaldon.

I have a lot of questions on this, and I wasn't here when any of this passed. I'm just a naive new freshman from rural county just trying to figure this all out. But awe shucks. Yeah. Trice Harvey line. So because, and it's this, and it's this financing mechanism, which I think requires a much higher level of care by us.

And because there's no, there's no other limitation because we've said like decide how much we're going to spend and then everybody else will pay for it through their licensing fees, which we're not, we don't cap, we don't limit, we don't, there's no independent person to review.

It all is just a function of how much we're spending. And so how much we're spending becomes like a very, very important policy question because we don't otherwise make any, any legislative determinations here.

So I guess first I want to start though with, so the program is authorized in the legislation passed in 2020, and it took three years to get to figure out or to get a trailer bill or something passed that would allow for the background check stuff to get fixed?

Yeah, I'm happy, Senator, to walk through the timeline. The Debt Collection Licensing Act was enacted and signed in late 2020 and became in effect January 1, 2021. The statute set a deadline of January 1, 2022 for debt collectors to obtain a license from the department.

From a program implementation perspective, we were doing a BCP in 2021 to get the approval to have the staff to be the program in 2021. So we had to leverage existing staff at the department to build the IT infrastructure throughout 2021, to do the rulemaking throughout 2021, to set forth the licensing application requirements to meet that January 1, 2022 deadline.

Now of course, as a practical matter, it takes time to process those applications. So we informed our licensee or our applicant community, please get your application in by January 1, 2022 and then you can continue to legally operate in the state of California. So that took us into 2022.

All throughout this time period, previously in the statute, the statute required us to do federal criminal background checks going through the California Department of Justice to get to the FBI.

We found out in the middle of year 2022, as we're getting applications in, the FBI came back to California DOJ and said, we're denying California access to background checks because we don't like the way the statute's drafted.

And DOJ asked them, could you give us some counsel as to how we could amend the law to make it something where you would give us a thumbs up? And we never got an answer.

So in fall 2022, the Legislature approved a trailer bill to give us conditional licensing authority so we could issue conditional licenses without doing the background checks, so we could at least get people in the door, which we started to do.

Then in 2023 we identified a permanent legislative solution, a different way to do background checks through something called the Mationwide Multi State Licensing System, which is a pre-approved, FBI approved system where we can do background checks.

So when that trailer bill, that second trailer bill was enacted and signed in late 2023, we then had the alternative path to process permanent licenses for our licensees. So we had to take the conditional folks, reassess their information, in some cases, accept amendments, changes of ownership, and whatever might also be the case.

And then in 2024 we finally went through and did the full licensing background checks and approval. So we finally had that permanent licensee population as of the end of 2024.

Then in March of 2025, we were able to do our first ever annual reporting process, which gave us the financial information we would need to know who's got what in terms of net proceeds, so we could issue the invoices in fall of 2025 for the first time to then collect assessment revenue. And that's why it took all those different steps to get us to being fully operational with the Debt Collection Licensing Program.

So, and during this whole point, we had appropriated $10 million in 42 positions for the program in the 21, 2021 Budget Act, and then 51 after that. So we've been at not trivial amount of staffing supported by the fund in order to do this while all this was happening.

So if the conditional license were issued, you couldn't adopt the regulation early enough for the annual reports from the conditional licenses to get the data that you needed in order to move forward with the final package of regulations that came four years after the effective date of the bill?

Senator, there are multiple rulemaking packages. I'll just go through this very quickly. The first package that we did was literally to stand up what you need to put in your application in order to get a license. That was one package.

There was a second package, which had, and that we had to split into two, that was going to address how to define net proceeds, which is not a typical accounting term. So there were a lot of questions about how do I calculate my own net proceeds?

So we had to do a second rulemaking package just to establish that so that we could tell people when it's time to file your annual report. Here's how you're going to do your own calculations.

We had to do a second rulemaking package just to do that, which we finalized before. We were able to finalize before doing our first annual full annual report in March of 2025. So that is part of the reason why there was an additional challenge in getting that first round of annual reports.

I wanted to turn to then a different issue around how the assessments have worked out. And I'm just referring to some extent some of the responses that the department or the Department of Finance has provided to the subcommittee staff as well, and some of the broader questions.

So at the outset, when the act was passed and then the BCPs moving forward, as I understand it, again, I was just a rural county mayor at the time. That the department estimated that there would be 7,000-ish licensees.

The industry had said, we think it's no more than 2000 or 2200. Something in that space. Was the budget, the expenditure plan and the staffing and the 42 and then 51 positions, was that all built on the expectation of that larger number?

Essentially, is the department's current spending and operation based on an assumption of workload to process 7,000 license applications, or is it a smaller number based on the experience over the last couple years now?

Back in 2020, before any of this legislation was passed, and this little bit predates me, but I do remember this history. The department, in consultation with other state regulators in other states with industry, sought to develop an estimate, again, without historical baseline data.

But to develop an estimate largely going off of what, how much activity there is in other states, trying to extrapolate based on California's population versus other states, which was our good faith estimate of where we would be in terms of potential licensees.

Acknowledging, however, that the scope of our law may differ from other states and who's in and who's out and requires a license may be open for additional discussion. We did, after extensive engagement with the industry and as we learned a little bit more, we did revise some of those numbers.

But I will say, we have found that the workload continues to be there and processing licensing applications took many more hours than was originally estimated. As my understanding, the department sought to come up with good faith estimates about how long it would take to process a license application based on other programs the department already administered.

However, with a new program and with certain challenges, particularly with the debt collection industry that's covered by this law, there are different industry segments, there are different kinds of models, first party, third party, debt collector, debt buyer. There are different kinds of underlying types of consumer debt that they are collecting.

And the sheer complexity of the industry and the analysis that has had to go into determining who is subject to licensure, how they should be reporting their information, has resulted in the workload being what the workload is for the existing headcount.

And of course, the overall positions that are in this BCP include positions that are the direct program positions like the deputy, the examiners, who really are doing the core work of licensing and examination.

But there are additional positions in this BCP that went to adding to our admin division or IT or some of the other support functions that support the overall operations of the department and where we needed to make some adjustments to account for having to help provide support for this new program.

All right. This raises exactly the policy question that I was interested in and whether it's through audit or through before this item comes back for a vote. I definitely want to understand this better because what it seems, what it appears on first impression is that the spending plan was built on the larger estimate of licensees.

As it turns out, at least at the moment, it's substantially lower than that. But we're but as you're indicating, but the workload still justifies it. And that's exactly my concern with this approach to budgeting is that the workload...

I've been a Deputy Director of a state agency. The workload will always justify whatever the budget is and more. And there's no control on this. And so the difference between 7,000 licensees and 1242 is substantial.

And so like an explanation, a real explanation or an audit of why it's costing five to six times as much per licensee from what was anticipated is a very important fiscal question that I'm hoping that we are expecting that we're going to get some better detail about why it's justified that we would spend the same amount on 1200 applicants as we were, as we built for 7000.

And how we get, how we oversee and get this under control so that we can be assured that we're spending the right amount and not just the amount that we had last year, again, depending on what the market is and then certainly what the outcomes are.

Because I think, I mean, I don't love this system anyway because, you know, we've got licensee applicants that are spending 100 times more than they would spend in another state and because they're bigger. But, but I would personally prefer, you know, more of a risk based approach.

And is the, are those the most, are those the segment of the market that are generating the biggest number of complaints, the biggest, you know, fraudulent activity, the biggest award, you know, awards, when we, when we do track them down.

But the system just seems like not designed to promote a appropriate public accountability or review or an audit or the right budget outcome for me. So this one I do have big concerns about as it comes back. Not about anything specific. Like there's, I'm not, you know, there's not some fraudulent activity in the department's budget.

But just given this very strange way of budgeting where we say expenditures first, and we'll take your word for whatever the expenditures are, and then whoever is going to pay for them is going to have to pay whatever that is.

Because 7,000 licensees dividing up the budget before, now we're spending five to six times more. But those licensees themselves are also having to spend a lot more. Both because 1200 people are now sharing the cost of what 7000 people or licensees were anticipated to spend before.

So we need to get some answers to some of the important questions about this program and this method of financing in order to assure that we're really delivering on the promise, the very important promise of the department and the original act. So thank you, Madam Chair.

Any additional questions? Mr. Vice Chair.

What he said.

I don't think we have any other. Senator Smallwood-Cuevas, do you have any comments or questions for... All right, well, we're going to hold this item open at the moment. Thank you so much. And we'll go ahead and move on to item number six.

And the department doesn't, the Department of Consumer Affairs Board of Registered Nursing does not have to provide an overview. We can just begin with the item. And we'll proceed when you're ready.

Good morning, Madam Chair. My name is Taylor Schick, and I'm the Chief Fiscal Officer for the Department of Consumer Affairs. And did I hear correct, you just want us to go straight into the item? Sure. So the Board of Registered Nursing is requesting $1.4 million to fund eight special investigator positions to address the board's increasing complaint workload.

The board has seen a 3% annual increase in complaints over the last four years, with complaints being referred to investigation growing by 64% since 2020-21.

This workload is being driven by the board's growing licensee population, which has grown from 466,000 in 2021 to now over 565,000 currently, as well as the lifting of COVID restrictions and increased complexity of complaints received.

I'm joined today by Loretta Melby, the Executive Officer for the Board of Registered Nursing, and we are happy to answer any questions that you may have for us today.

I don't have anything additional.

Taylor McRho, Department of Finance. We have no comments at this time.

Heather Gonzalez with the LAO. Nothing to add at this time.

Can you go into detail regarding investigations themselves? How often are they successful? Are there particular types of common infractions that Department faces?

So, I'd like to get some clarification on what you guys are considering successful when it comes to investigations. I mean anytime that we're able to either open up—so, we, so I'll kind of do a broader.

You are the Department of Consumer affairs, right?

Yes, we are.

I would say success based on what a consumer would define as success.

Yeah. So, I'll probably provide—I'll try to provide a little bit of additional clarification for that. So, anytime we receive a complaint, that's to us is also successful as well because we don't do just drop in investigations. Right? So, every consumer is our eyes and ears.

And so, when we receive a complaint, having them actually reach out to us and let us know, this is fantastic. We don't have a law that says that employers must report that something occurred. Board of Vocational Nursing and Physical and—sorry, and Psychiatric Technicians do have that in their law. We do not.

So, just receiving a complaint is a success for us. Then, when we open up that complaint and do an investigation, if we're able to close it and say that there was no violation, no scope, that is a success as well.

But additionally, if we do find a violation and we're able to turn it over to the Attorney Generals and we're able to get them into probation or encourage them to enter into our intervention program so they can be rehabilitated, that's a success as well.

So, when you're dealing with this kind of extensive and complex process, it's, it's kind of all, all of it is a success for us. Hopefully that answered your question. I'm not quite sure what—I, I, I apologize.

It's okay. I mean, more or less, right? I mean at the end of the day, when we here represent constituents and when they have a concern or they bring a concern to a department or to a particular agency, they want it addressed.

And so, you know, success, as you defined it today in your response, is different from what I would say my constituents would define success as. Right? Maybe success for them is making sure that there's justice for them at the end of the day.

Maybe that means going all the way through the end and seeing a real outcome that's positive for them. And so, I guess for me on that, on defining success, what, I mean, are people generally happy with what your success rate across the board?

I have not received a lot of complaint around our investigation and probation and intervention process. That is something that is successful. We do focus on 100% protection of the public, and that is done through that collaborative process where they provide us a complaint.

Sometimes the outcome of the complaint that comes through when we do the investigation, we identify other areas and it's not always ends in discipline for the nurse.

It may end in that this is an opportunity for education of the community to let them know that that's actually appropriate or that's not appropriate, but that's not held within the BRN. Maybe that is with California Department of Public Health. Maybe that's a healthcare facility issue or something that is not directly related to the RN licensee.

So, there is different ways that we get to that outcome, and I would say that the majority of our consumers that provide the complaints are happy when we get to the resolution, whether that be discipline or not.

Got it. Okay. Thank you for that. And then does the Department have inspection authority currently for businesses like med spas?

And if the board does not currently have inspection authority, will the board be able to adequately investigate the, you know, claims, or will the lack of inspection authority for the facility itself make it difficult to determine, for instance, whether a physician might be properly ordering treatment at the facility?

When we receive a complaint, we do have inspection authority based on the complaint. So, we are able to go into the facility based on the complaint and get information. But it's usually hindsight. It's did this occur and can we investigate and prove that it did occur. Typically, it's not preemptive. Right?

We're not going out and finding the errors. We do not have that type of inspection authority. We did ask for that type of inspection authority through our sunset bill, which was heard earlier this week. So, that is something that we are asking for.

We would love to be able to do, you know, spot checks into specific areas that would be med spas, IV hydration. What we've found anecdotally by working with other DCA healing art boards and pharmacy, et cetera, is that our licensees do not necessarily understand that they're violating their scope of practice.

And so, when a—I saw the head nod, I could further elaborate on that. So, when maybe pharmacy, which does have inspection authority, goes in and they'll say, how do you do this? Our licensee is like, I will show you. And they jump and they do it, not understanding that they actually shouldn't be doing it.

And so, they're very proud of their work and they think they're doing it well, but they don't understand that they're actually forbidden. It's out of their scope of practice. They're not supposed to be doing it. So, we've got to kind of address this issue in a very kind of broad sweeping way.

We're doing outreach, we're doing education, we're doing a bunch of things to really kind of right the ship that has kind of went off course.

Did the eight requested special investigators request to have any case or type focus? Are they applied to all cases evenly? And do the special investigators themselves determine the focus of their work or is there some other process?

So, we do—we have a complaint prioritization process that's done through Department of Consumer Affairs, and we follow that. When we do assignments within the Board of Registered Nursing, the assignments that stay with us and don't go to the Division of Investigation or are done, we do triage them. But it's usually time in, time out.

It's not something that is like you get all of these or you get all of these. We do have some investigators that do kind of specialize on a certain case.

Specifically, with the FBI cases that we've had come through out of Project Nightingale, we do have a particular investigator that used to work with that, and we haven't have now expanded on that one to work more of those cases just because they're limited to a 30 caseload. And within that 30 caseload, you can fill those up quickly.

And it makes it more efficiently to have kind of a person that's familiar with that process when they're working with FBI and HHS to really just kind of go through it. So, we do do time in, time out, but we also can take some more egregious cases and take it in an alternate pathway.

That alternate pathway would be pursuing like an interim suspension order or what's called a PC23, where they suspend the license if it's criminally related, et cetera. I know there was a second part of that question and I completely forgot it. I apologize. They do not determine the focus of the work.

They have a broad spectrum of abilities, and we work with them. We have supervisors as well. We do break it up right now by regions. We have a Northern investigative unit, a central investigative unit, and a Southern investigation unit.

Do you see certain areas needing more support than others?

Based on population and where the licensees are, yes, we absolutely do. So, our Southern investigation unit tends to have a higher caseload than some of our other investigative units do.

They typically have more investigators than the others because of that caseload, or?

Right now, they're pretty equally distributed, but not because it's not needed because we don't have the authority for the additional positions.

Got it. Okay. Thank you. Do we have any questions or comments from? Senator Smallwood-Cuevas.

Thank you, and yes, I was in the oversight hearing. And yes, my mother is a nurse. And so, I'm always glad to be a part of these because I grew up with all of the challenges and opportunities of the sector growing up.

I think my question has to do with the sort of this trend and conversation about enforcement action and disciplinary. You know, we have, unfortunately, still continue with the issue of bias.

We have ways in which our vulnerable communities, either because they have challenges in trying to advocate for themselves in their care, or there are professionals who are, for whatever reason, don't provide the care that they should be providing.

And so, I would like you to talk to share a little bit about kind of, particularly when complaints come in on—to the board—how many of them actually lead to disciplinary action and against the licensee. And also, trying to understand the backlog.

Here, you don't have the authority for more positions, which sort of says to me, we need more positions because we don't have enough in the south because of, you know, the population and the scale. So, if you could talk a little bit about those two things, I'd appreciate it.

Yes. So, it was noticed right prior to Covid. So, I came into this position February of 2020, and when I walked in, we were immediately talking about needing a budget change proposal at that point.

That was two weeks before the world shut down with COVID. During COVID, our complaints decreased because we didn't have patients' families at the bedside. We didn't have people there advocating. They were removed from the facility and the patient that was sick is the only one that was there.

And we typically don't receive a lot of complaints from the patient themselves. We do receive a lot of complaints from the family members that have witnessed some of the issues that go on. So, during COVID, obviously, our priorities shifted a bit, but we also saw a decrease in complaints coming in.

So, when, you know, the world opened back up and people started going back in, our complaints increased. We also kind of went off of that part where, you know, nursing was really regarded as the hero during that point. And so, maybe people were really reluctant to make a complaint potentially.

And so, now, we've actually seen that come back to more normal status where we're receiving kind of the similar types of complaints in the same complaint process. We also have an added layer now where we get viral complaints.

So, because of social media, because of the stuff that happens with them, we are receiving viral complaints where it's just click, two clicks, and you've got a complaint that comes in on a standardized form. And we can get up to 3,000 complaints in one day on one nurse or one individual because of that.

We have a law that says when you get a complaint from an individual, you have 10 days to respond to them individually. So, it then pulls all staff to respond to 3,000 people who issued one complaint against one nurse on an individualized basis. We don't have an automated process for that yet.

I would love to explore that and actually have talked to DCA and OIS, the Office of Information Services, to see if that's something that we can work on when we get a viral complaint.

But at this point, every complaint has to be opened, every complaint has to be addressed, and every complaint has to be responded to, even if it's a viral complaint where we get 3,000 complaints in one night. So, that is something that does occur as well.

When we get the complaint, so, if you get 3,000 complaints, we can't say that they all end up to discipline because we might find that that viral complaint of 3,000 actually didn't lead to discipline. So, to talk about it in ratios or percentages, it would not paint an actual picture of what is really occurring.

There are also some things that people don't always like to, to talk about, but sometimes you get complaints because people are upset for other reasons, maybe a child custody case or something like that. And so, then they start to make complaints against licenses.

And so, we do have to investigate those, but again, they don't always end up in discipline. The other thing that we really pride ourselves with the California Board of Registered Nursing is we're not always going towards disciplining the nurse. We want to rehabilitate the nurse.

And so, anytime that if it's a competency issue that was affected by either mental health or a substance use disorder, we don't want that nurse to go down to the disciplinary pathway. We want to get them into our intervention program, which is the alternative to discipline program.

That way, they can go through a confidential rehabilitation program, maintain their license, and come out in three to five years. And no one is, no one is removed from practicing. The public is maintained in—with the safety and expectation, and it doesn't end up in a disciplinary process.

It ends up in a much better outcome at that point. And we have the—we have the largest participants in the intervention program that we offer through the state of California with all the other DCA healing art boards. So, we really are proud of that, and we'd love that to continue to grow.

If we get a complaint that comes in that is practice related, so, maybe there was a knowledge deficit or something that didn't occur during school, they missed a section, but they were still able to practice. And so, then, when they went to work, they were not competent in a specific area and there was an error that occurred.

Again, we're not looking at removing them from their license. We want them to continue practice. We want them to fill in that education gap. And that is done through our probation process.

And so, when they go into probation, we have ability to work one on one with that licensee, provide them and assign them some courses to reeducate them with that, get them back out there and practicing in a usually a three-year monitored—fact-monitored process. And in those three years, they're back to work.

They have what's called a work site monitor that is assigned to them at their place of employer. And that way, no further errors or any mistakes can happen while they're at work, while they're kind of doing this and learning that and getting that practice in, so, that when they complete their three years probation, they have that skill set that was maybe missed and then they get to continue to be licensed.

So, that is a public record that does go on their license. You're able to view that. And so, that, that becomes a hindrance to them getting licensed or continuing to get employed sometimes.

But they're able to say like yes, I did this, this is what happened, I've learned and now I'm not on probation, I successfully completed. So, it's also kind of a thing to say look what I did and I am better now. There are also different levels of disciplinary action that we can take.

So, one is up to suspension and revocation. We don't typically do that. That is not something that we want to do because we also understand that this might have been an error that happened once. We don't see the recidivism; we don't see that. So, we want them to continue to be licensed.

We can do other things which is just a public approval. They don't have to go on probation, it is just noticed on their license so that a future employer or somebody does know that this did occur, but it didn't rise to the level that probation was required.

But we also have the ability to do what's called a cite and fine and that is considered non disciplinary in nature. We don't typically assign a fine to it, but we will issue a citation that says, hey, take a look at this. This is not what you're supposed to be doing. And we can move it that way.

So, we have various different levels.

I know I didn't get an actual number in terms of, you know, how, how many ultimately lead to disciplinary action. Maybe I'll get the actual number from you. Maybe that's not available right now.

I am curious to—I am curious about the number of complaints and I see the viral, a lot of the viral complaints that I see on Instagram and others has to do with bias in the treatment, disparate treatment of black women, particularly black women in labor, particularly black women who are coming because they're having a crisis in birth and how they are treated.

I am curious about those complaints. I am curious about what, and I'm appreciative because we have a workplace—force—shortage. This is a tough industry because it's a women-led industry. The pay has never been adequate. It is just a really tough field.

But at the same time, we want to make sure that there is fairness in the way that we are administering care and that our nurses are trained, particularly nurses that may not have an expertise, authentic relationship to a community, that they are able to care for that community with compassion and professionalism.

So, I am curious, I would like to see what those complaints look like. I would like to understand what steps are taken when those incidences occur and to make sure that if there are repeat offenders, you know, what are the disciplinary steps? So, I appreciate us working together on that.

And then, I have a follow up question because this came up in the joint oversight hearing and I don't know if this is the right place for it, but it feels like I want to ask it because, you know, we talk about deficit, we talk about the challenges that we have in funding our healthcare sector, particularly now with Medi Cal, and what we know this is going to do to the nursing profession if we see the closure of more and more of our clinics and hospitals.

In the oversight hearing, there was a conversation about medical debt. And in that discussion about medical debt, one of the states have moved forward—a number of states have come forward with programs in which the state buys back medical debt from individuals, pennies on the dollar, and then, those dollars get reinvested in things like boards and hospitals and care, and also, in many instances, just protecting and helping families get off of the brink of bankruptcy because of medical debt.

So, I, you know, I'm curious if in, you know, as we think about health care and the boards are trying to think about ways to have some reinvestment, you know, is there any interest or thought or conversation about how medical debt plays into this?

And what are the ways that we can look at ways to further fund our whole infrastructure and help Californians by maybe buying back some of that debt and helping, one, you know, make sure our healthcare facilities get paid and two, make sure that our constituents are not burdened with debt.

I'm just curious if there's a broader conversation about this. And yeah, so, yeah, one follow up question that we may have to deal with later if you don't have the information. But the second is really about this idea of reduced costs and how can we make sure that California is using all the tools at our disposal.

Yeah. So, of the cases that make it to the Attorney General's Office, I would say 75 to 80% of those do lead to a disciplinary action. It's getting the case to the Attorney General's Office for any kind of processing.

Because again, when we are investigating the case, we may not find evidence that supports that there was something that violated our Nurse Practice Act. We might see evidence that there was an issue with the facility. When that happens, we close it from the BRN and we send it over to the California Department of Public Health.

We may also see an issue where there is something that happened. Our nurse was involved, but it wasn't a nursing error, but maybe it was a physician error. So, then we close it with the Nursing Board and we send it over to the Medical Board.

This can also be where we get a complaint and they thought it was an RN and it was an LVN. And so, then we would close it at the RN board and send it to the LVN board. So, even when we close complaints, it doesn't mean that nothing occurred.

It just means that we don't have the jurisdiction to address it. So, we do move it to the agency that can address it. But of the ones that make it to the Attorney General's, over 75, I'd say closer to 80%, make it to a disciplinary process.

When you talk about the disparities in nurses, in my prior life, I was a labor and delivery nurse. That was my specialty area. And I worked about 10 miles from the Mexican border in a very underserved area and I loved it.

It was actually where my passion was and which actually drove me to go back into education so that I can teach. And then, when I was in education, I realized I wanted to do more, which is what brought me here, because I was seeing that disparity that you talk about.

And the positive thing is California's metrics are better than any other state in the nation when it comes to it. But we're still like a third world country. I don't think that we're doing what we're supposed to be doing.

One of the things with the California Board of Registered Nursing is we have a lot of focus on implicit bias. So, when you are initially licensed, if you are going to a California Board of Registered Nursing approved nursing program, you must have implicit bias as part of your graduation requirements. That was recently added a few years ago.

If you graduate from an out of state nursing program, obviously, we don't have authority over what is required with them. But we do say that once you are licensed here in California, within your first renewal cycle, which is two years, you must complete an implicit bias course as part of your continuing education. So, that must be done.

Additionally, we do require 30 continuing education units every two years for renewal of your license. And we require that all education providers that are providing a course to our nurses that it must also complain—must also have in place implicit bias aspect.

I used to do, and again, in my previous role, not as the EO, but as a Nursing Education Consultant working for the board, when I would review the continuing education courses, when that was first implemented, they were saying, I don't understand how I can include implicit bias.

And one of the examples that we used is the pulse ox, the little piece of machine that goes on your finger and tells you what your heart rate and your oxygen saturation is. That was built on a white male. That was not built on anybody that had any kind of color in their skin.

And so, when you do that, it doesn't record it. So, the machine has an implicit bias. So, not even the nurse or the provider, you have to, I mean, they do usually have some sort of implicit bias, but in healthcare, it even goes down to the machines that were made.

So, that's why it's very important that we include the implicit bias training in our education, in our continuing education, and in anybody that comes into California that must be licensed here, if they're educated elsewhere. Hopefully I've answered some more of your questions. Okay, thank you.

Go ahead, Senator Cabaldon.

Just a quick one on this, on the viral complaints. I'm just being interested in, if you can share more, not today, but either with the Subcommittee staff or my own office. We're, we're working on some similar issues. And the, the increasing use of AI agents to auto, to auto generate these.

I can, you know, I could, if I have a beef with a nurse, I can just tell my, my Claude agent to file a, a slightly different complaint every four minutes for the rest of the week and swamp the system and swamp your, swamp the board and, and your outcome metrics and everything else.

And so, just we're trying to look at some solutions this year. We've seen some of them at the Air Board in the South Coast and elsewhere in the same space.

So, we'd just be very interested offline if you could share with us some of the, some of the experience that you've been, that you've had in this space what, what you're seeing both on Instagram, but I'm mostly interested in the automated set that can help us figure out how to evolve our laws to make sure that we're privileging people and not robots in that process.

So, appreciate it. Thanks, Madam Chair.

That'd be fantastic. Thank you. Happy to work with you on that.

Mr. Viceroy, do you have any questions or comments? Okay, well, that wraps up this item, and we'll hold that one open. And that moves us over to public comment.

We're going to go ahead and take public comment on all items of the agenda, including item number seven, the continuation funding for Department of Innovation's broker dealer investment advisor workload. Item number eight, expenditure authority for the California State Athletic Commission. Item number nine, chief of licensing related funding for the Board of Pharmacy.

Item number 10, enforcement funding for the Veterinary Medical Board. Item number 11, IT expenditure authority for the Contractor State License Board. Item number 12, enforcement funding for the Osteopathic Medical Board. Item number 13, enforcement funding for the Physician Assistant Board. Item number 14, public campaign financing related position funding.

Item number 15, AI disclaimers and campaign advertisement related funding. Item number 16, enforcement resources for the Privacy Protection Agency. And item number 17, procurement support for the Privacy Protection Agency. And with that, we'll begin public comment.

Good morning, Madam Chair and Members. Ed Howard, on behalf of the office of Kat Taylor. It's a pleasure to be here this morning just briefly to applaud the work of the Department of Financial Protection and Innovation.

They've done a remarkable job in a relatively short amount of time and to observe, as others did during the hearing, that its importance has increased as consumer protection commitments have declined federally. Thank you very much.

Good afternoon. My name is David Reed. I'm General Counsel at the Receivables Management Association International. RMEI was the sponsor of the 2020 law that created the Declaration Election Licensing Act. RMEI first expressed concerns in 2021 about the FPI's estimate that they would have 7,000 licensees.

As they were standing up, the Department, including we had requested a meeting with the then Commissioner—we did it via Zoom because it was during the pandemic—the Commissioner asked what did we think was a realistic number, and we said at most, about 2,200. The same concern was later expressed by the LAO also in 2021.

Now, at full implementation, there are only 1,200 licensees. That is 5,800 fewer licensees than the DFPI predicted. At 13.5 million, we believe the cost of this Department is more reflective of a Department of 7,000 licensees in the Department of 1,200 licensees.

These costs are being passed down to the licensees and quite frankly, it's causing havoc within the industry. Thank you.

Thank you. Melissa Cortese, on behalf of the California Association of Collectors. We have significant concerns with the BCP surrounding the Debt Collection Licensing Act as well. Our Members are, by and large, small businesses who collect for small businesses and public services. As a result of the high assessments, we have seen agencies close their doors.

If this continues, we will see just large corporate agencies collecting for the state and those generally do not collect for small business and small local services. So, it would leave that void in your communities. We've heard a little bit about the 7,000 licensees estimate with only just over 1,200 licensees actually today.

We believe that instead of the Department, instead of reducing their budget for the caseload, what we've seen is enhanced assessments to cover—well, to cover the overstaffing that they have at the Department. We would like to see this Committee work with the Department and the industry to look at alternate structures for the assessment.

We believe that we can find a solution that would cover the—provide the significant resources that the Department needs without overburdening small businesses. Thank you.

Good morning, Madam Chair, Members of the Committee. Randy Pollack, on behalf of the International Franchise Association. We represent about 1,000 brands and 12,000 franchisees.

I'm here to support Senator Umberg's request for $150,000 allocation into the Department of Financial Protection and Innovation that would implement his bill from 2024, SB 919, that would require franchise brokers to be registered with the Department.

We believe this is a very important consumer protection bill because when someone goes out to purchase a franchise, you want to make sure that that broker who's trying to sell you something has been registered with the state and that there's certain transparency of what disclosures they have to make.

Now, in the past, this Bill has not been funded due to the cost, but the Department has recently instituted its new system of the franchise and securities electronic submission that has significantly reduced the cost of registering different entities. So, we believe this $150,000 is a very small cost.

In addition, and probably most importantly is that the Bill also calls that each broker has to pay a $450 fee annually. So, when you look, and I'm not a math major, but $450,000 times brokers, between 2,000 to 3,000 brokers that would be registered in the state, it would adequately cover the updating of the system and any future administrative costs. Thank you.

Anyone else? Public comment. This is your time. Okay. Public comment is now complete. Thank you for your participation. And we'll go ahead and move over to votes. Looks like we have some time. And we are going to take on items number 8, 10, 11, 12, 13, 15, 16, 17. Do we have a motion from Senator Niello?

So moved. There's a motion that has been made. Thank you.

[Roll Call]

Okay. All right, well, thank you all for the individuals who participated in today's hearing and providing testimony.

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

And thank you to the LAO, the Department of Finance, the departments, and for today's discussion. And we have concluded the agenda for today's hearing for Senate Budget Subcommittee 4. The meeting is adjourned.