The non-partisan Legislative Analyst Office released its study of the 2011 Realignment plan on Friday, and its findings echo the position of local government groups: the ultimate success of the realignment plan hinges on the next steps.
According to the report, “(the LAO) believes that addressing the longer-term issues… are critical to the long-term success of this realignment.”
The Realignment plan was first proposed by Governor Brown in January, within days of his inauguration. After months of discussion, it was adopted in two phases of legislation, the first of which was passed in March, the second approved in June. The total proposal included some $6.3 billion in transferred programming to local governments. It provided a combination of $5.6 billion in ongoing funding and $763 million in one-time transfers. Establishing efficient and appropriate funding sources and formulas is just one of the many recommendations put forward in the detailed report.
Between January and June, the Realignment plan was subjected to analysis and revision, ultimately the LAO recognized two rounds of public revisions before being adopted in its entirety in June. Among the changes that the plan endured was the inclusion and deletion of various programs, a shift in funding mechanisms, and the omission of a Constitutional amendment that would have provided additional protections to local governments for future funding of programs.
This has not been the first major realignment of services and programs from the state to local agencies. The last major realignment took place in 1991, and provided powerful lessons for how the state should undertake the 2011 Realignment plan. Among the lessons that the LAO gleaned from 20 years of data is that one of the strongest contributing factors to the success of the 1991 plan is that it had consistent and protected funding, and that with increased flexibility comes increased efficiency and innovations.
Friday’s report also reiterated that some of the lessons learned provided examples of how success could be hindered. “We also found that… a complicated system of allocation formulas, in particular, reduced the overall effectiveness of the realignment.”
Unfortunately, the LAO detailed a complicated, inflexible system of formulas, accounts, and subaccounts that would be used to provide funding to local governments. Using formulas, funds collected by the state would be allocated into eight accounts, and then divided into 12 subaccounts. Each would be dedicated to specific programs.
“The budget package limits the use of funds deposited into each account and subaccount to the specific programmatic purpose of the account or subaccount. The budget does not contain any provisions allowing local governments flexibility to shift funds among these programs.”
However, the lack of flexibility does not have to persist. When approved, the legislative package that created the Realignment plan included legislative intent language, which specified that legislators and stake holders from the state and local governments would continue to work to establish long-term funding sources and formulas.
“This process should be designed to include the active participation of not only the Legislature, but also the administration, county and city representatives, local program administrators, and local stakeholders.”
One of the questions raised in the LAO report had to do with discrepancies between actualized and predicted revenues and expenses.
While the LAO report says that revenue projections in the three-year outlook appear to be reasonable, there’s no clearly defined mechanism for sharing the burden of revenue shortfalls. One plan could be sharing the pain equally, where if revenues fall 10 percent short of projections, all budgets would be cut by 10 percent. But the legislation does require that the Mental Health (CalWORKS) and Local Law Enforcement Services Accounts are funded first. As the LAO report states, “If revenues are lower than anticipated by the end of the year, each program except CalWORKs and the local public safety grants funded by the LLESA will receive its proportionate share of the shortfall based on its share of the Local Revenue Fund 2011 revenues.”
An oddity of the Realignment plan is that the programs that could suffer the sharpest cuts in a down economy are rewarded twice during boom years. Among the eight accounts established is a reserve account that can be used to supplement entitlement programs such as Foster Care, Adoption Assistance, and Drug Medi-Cal. During boom years, extra revenues would be disbursed to these programs’ subaccounts and then they would receive extra funding from the reserve account too. In other words, the first programs to bear the cuts would be the first to be rewarded twice. The LAO report says that, “The Legislature may want to consider whether there is another way it would want to prioritize additional revenues.”
The report also notes that state-mandated reimbursements could present a danger to actualized state savings from realignment because the approved legislation did not create a mechanism for sharing the cost-burden if program expenses exceed allocated funding. In other words, counties and local governments would be forced to transfer other funds to the new programming, thereby enabling them to submit the extra costs to the state for unfunded mandated reimbursements.
The LAO outlines seven specific aspects of the 2011 Realignment proposal that need additional work.
“As acknowledged in the realignment bills themselves, the Legislature has additional work that it needs to (be done),” read the report. “Thoughtfully addressing these more extensive and complicated issues will improve the long-term success of the 2011 realignment package.”
- Develop local funding allocation formulas for the long-term.
- “Over the longer term, it is critical for the success of these programs that allocation formulas not be based solely on historical allocations. County financial needs for each program are going to change over time based on changes in county population, caseloads, demographics, wealth, cost of living, and other factors.”
- Simplify the structure of the realignment accounts to provide financial flexibility.
- “The Legislature should consider simplifying this account structure for 2012-13 and beyond, as well as provide each county with some flexibility to shift funding designated for one program to another program. The current account structure is unnecessarily complicated and could be simplified.”
- Enact statutory changes to give counties appropriate program flexibility.
- “The Legislature will need to make some policy decisions regarding how much programmatic flexibility to give counties… Flexibility encourage(s) innovation and allow(s) for greater responsiveness to local needs and preferences. “
- Make sure that local fiscal incentives are aligned with statewide goals.
- “Local program funding and authority must be linked in ways that provide inherent fiscal incentives for local governments to operate successful programs.”
- Promote local accountability.
- “In establishing program accountability mechanisms for realigned programs, it is important that priority be given to creating reporting requirements and processes that are beneficial to local agencies, elected officials, and communities-those ultimately responsible for the local programs-rather than the state.”
- Clearly define the state’s role and funding responsibilities.
- “Even where the state transfers significant program authority to counties, however, the Legislature may still desire that state agencies retain some roles-such as related to program oversight, technical assistance, statewide coordination, and ensuring federal conformity. Defining these specific roles for each state agency is important to ensure that state administrators and their agencies adapt to their new functions and responsibilities.”
- Avoid state-reimbursable mandates.
- “It is possible that-absent additional legislative action or constitutional change-some of the changes in 2011 realignment could be considered a “state-reimbursable mandate.” In general, we recommend the Legislature avoid funding programs as mandates because the reimbursement process gives the state little ability to control program costs, is unduly bureaucratic, and tends to result in some local governments receiving disproportionately higher funding levels than others.”