Assembly Budget Subcommittee No 5 State Administration

Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Thank you. Thank you Thank you. Good afternoon and welcome to the Assembly Budget Subcommittee 5 on State Administration Hearing today. Today our hearing will focus on general state admin issues. We will have two items for vote only. Hear from Assemblymember Pappin and representatives of San Mateo County on their vehicle license fee funding. And hear several GovOps proposals and an update on Gen AI. And finally, have an update on Middle Mile as well as proposals on Middle Mile from the Department of Technology. Not on the agenda is a request from Assemblymember Ward to get an update from DGS on the Hillcrest DMV, which we will do after issue number one. Housekeeping. This is an in-person hearing with all panelists testifying in person. We will take questions from members of this subcommittee after each panel, and public comment will be taken at the end of the hearing and will be limited to 30 seconds. If you are unable to attend this hearing in person, you may submit your comments via email to asmbudget at asm.ca.gov. And with that, we are going to welcome our first panelists who are already here with us. This will be on item number one. And this would be the fiscal letter technical adjustments. Oh, sorry. Wrong one. Three. Sorry. Item number one, San Mateo's in the house. Here we go.

You can wave, wave. Everybody from San Mateo, wave. There we go.

We'll hear from the witnesses, then we'll hear from our LAO and our Department of Finance, and then we'll bring up individuals that want to comment, and they'll just be me-tos.

Thank you. Oh, all right. Thank you. LAO won't be here. LAO won't be here? Okay. I think.

Thank you. We do hear some hammering. You're not imagining that. Let's see. Can I ask the sergeant to see if we can make a call? I don't know that we can fix that, but it might be worth a try. Oh, thank you, Madam Chair. They hurt you. We'll see. Maybe they hurt us. Do we want to do roll right now? Okay, we're also going to do a roll call vote here to establish quorum. Cork Silva, Loza, Haney, Ortega, Wallace, Ward. Okay, sorry. And welcome to our esteemed guest here. Thank you, Madam Chair. All of you are, especially, yes. Madam Chair, members of the committee, Thank you very much for the opportunity to speak here today. And a special thank you to our Assemblywoman, Ms. Papin, for carrying this legislation. I'm Supervisor Jackie Speier. I've had other titles in the past, some right here in this room. But it's a pleasure to be back here in the Capitol. I'm here today to advocate for the full payment of the $157 million in lieu vehicle license fees owed to San Mateo County. and its 20 cities and for a more workable permanent fix. Now, back in 2003, there was a recall. Many of you may not have been alive, but there was a recall of then Gray Davis. At the time, he was being objected to because we were in a structural deficit, not unusual here, But he wanted to increase the vehicle license fee by some three times the cost. So then candidate Arnold Schwarzenegger made it his job. calling card and said, if I'm elected governor, I'm going to get rid of the vehicle license fee. And so it went from 2% to down to six tenths of a percent. It created a $6 billion structural deficit, which was bad then, bad now, but really bad then considering what our budget was. So the decision was made to create the swap. And the agreement was that even though we were going to give our vehicle license fees to the state, and then they would use Prop 98 to fund, that we were promised that we would have that BLF restored to us. And for a long period of time, that has worked. That formula no longer works in San Mateo County. And as my colleague has said, there are only two other counties in the same predicament right now, but it could grow. Alpine County has 1,200 population. Mono County has 12,000. San Mateo County is like 700,000. So the impact on us is dramatic. It will cripple our county. It is 18% today. It could be even larger than that. 18% of our general fund would be wiped out instantly. And for the cities, the picture is just as dire. In the area of public safety, for example, the county would be forced to eliminate $13 million in funding for domestic violence prevention and gun violence prevention. Climate change has made San Mateo County at increased risk of fire. The loss of these funds will directly impact our ability to support wildlife, wildfire mitigation efforts, including the elimination of maintenance and repair of fire roads, fuel reduction and management, and wildland urban interface projects. For our cities, reductions in public safety budgets would be equally disastrous, as almost all would have to cut essential safety and emergency response services. These are public service employees. So, for instance, 23 police officers or 26 firefighters in the city of San Mateo, 19 firefighters in Redwood City, 8 police officers in Foster City, closure of a fire station in South San Francisco, one fire engine and nine fire department staff in Daly City, 38 percent reduction in police in the city of Burlingame, 20 percent reduction in law enforcement patrol in Petrola Valley. I could go on, but you can see the magnitude of the cuts that would take place. Without a fix, our county could lose an estimated $1 billion over the course of 10 years. We have a flyer at your place. If you flip it over, it shows all the impacts on the various cities in the county. We're not asking for anything more than what is due to us. We represent 3% of the population of the state, and we generate 15% of the revenues to the state coffers. Now, some would argue, well, the county sued the state. Well, what would you do in your city or county if they just wiped out the money that was due to you, but you would sue them so we could start negotiations? And that is the reason why we have done that. So I urge you to recognize that we are asking for nothing more than what we are owed and urge your support. Thank you. Next. Good afternoon. Chris Hill, Department of Finance. This matter is the subject of ongoing litigation so I not going to speak in too great a detail I just do want to note for the record that the administration interpretation of statute as the provision of these funds is not statutorily mandated but is discretionary And within the context of the current fiscal situation, the administration doesn't believe that this is an expenditure that is sustainable given the current fiscal situation. It's an ask of about $120 million for all three of the impacted counties. And I also just want to note for the record that since 2012, the state has provided over $300 million for these payments on a discretionary basis. Thank you. Appreciate that. Questions from our panel? We'll go with Mr. Haney first. Well, first of all, let me thank the representatives from the county who are here and the assembly member for being here and for your advocacy and everybody from San Mateo who is here and from the other impacted counties. I think that we have, especially over the last year or so, been furious at the ways in which California has been punished and targeted by the federal government, particularly in light of all of the resources that we send here from California, a disproportionate share of resources that we send to the federal government, and then see the federal government deny our residents, the very people who are sending those resources, the critical services that they deserve and that they paid for. And California shouldn't act like the Trump administration. If the residents have San Mateo, their cities, their county have paid, have an understanding of what the deal has been now for decades, they should receive the full amount that they are paying and that they deserve. And I think that, again, in light of our own experience of this as a city, as a state, we should not be behaving in the same manner. And it's important that we treat all of our counties and our cities fairly. And it's pretty clear that these counties in San Mateo County, my neighboring county in particular, is being treated unfairly. And the consequences, as you laid out, when we cut at this level for a city or a county are very real because the margins are so much smaller. They don't have the ability to float millions of dollars. It means immediate cuts to real people, real jobs, real services, real people who rely on those services. So I hope that we can both restore fully the funding in this year's budget and also have a more ongoing permanent solution so that we're not seeing this happen or the threat of it happening year over year. I know that there's maybe less that can be said around this because there's litigation, although the fact that there's litigation, I think, makes it that much more concerning that we are seeing this cut in that context. What is the rationale for funding just two-thirds of the shortfall? And you noted that this is for Department of Finance, Mr. Hill, that it sounded like that the state does not view this as a binding obligation. What is the rationale for funding just two-thirds of the shortfall? And was there any analysis of the downstream fiscal impact on counties particularly if homelessness health and public safety programs are cut and what the impact that would be on other priorities and funding needs for the state Chris Hill Department of Finance Again I want to note that the administration interpretation of statute as provision of these funds is discretionary not mandatory And the provision of the funds in the current Budget Act was a legislative ad. It wasn't proposed by the administration, so I would have to defer to legislatures to why that amount was provided. And in terms of the particular area in which the proposal in terms of the two-thirds of the shortfall, and then any analysis of what the impact of that kind of cut will be in terms of prior funding? I don't know if the legislature did an analysis of that nature when it provided that funding level. But the administration, again, is just looking at this from the perspective that this is not a statutorily required payment. and within the context of the current fiscal situation, we don't believe is sustainable. Got it. Well, again, Ms. Pappin and the folks from San Mateo County, whatever we can do to support you all in helping to both address this in the short term, I know there's a long history behind this, but again, I think it's important that all of our counties be treated fairly, that they get the services and the funds that they deserve the full amount, and that the consequences of doing this kind of cut to critical services and jobs for individual cities and counties, as we saw in this, is just devastating in terms of what it would mean. And so for my neighboring county who's here represented in San Mateo County, you definitely have my full support in whatever we can do to support you as this moves forward. Thank you. We'll just go to Assemblymember Ward and then Ortega. Thank you, Ms. Atman, for raising this issue as well. Obviously, you're a strong champion for your county, and so I appreciate that we have this on the agenda. And I am deeply concerned and sympathetic for what a lot of our counties are going, but especially the compounded issue that you're facing here with San Mateo County. It is not lost on me how this translates into public services and core deliverables that are expected of you right now. We have to have all of our counties out to different degrees. I know the shortfalls that many of them are facing, and this is only, I think, exacerbating that issue. And so to the extent that we could be helpful with this year's budget, but also you raised the bigger question, what does this mean for the formula and thinking about how to address this on a going-forward basis, begs me to have to go back to what are the inputs into this formula. Because the fact that today San Mateo, Mono, and Alpine, three very different counties, are now experiencing an exacerbation of this shortfall. Is there something unique that links the characteristics of your three counties? What are the inputs here that are driving this shortfall so much for you beyond the county of San Francisco, say? So much for us? Yeah. Well, it's tied to how much non-basic aid or basic aid school districts you have. And that's probably the link that each county has, although they have them for very different reasons. So in San Mateo County, they have a lot of non-basic aid, excuse me, basic aid school districts because of their property taxes. Whereas the likes of a Mono or an Alpine are much smaller. There's less districts to deal with in their instance, so they are able to meet their basic aid with their property taxes as well. but theirs is more a function of lower enrollment than it is for San Mateo County, which is a pretty, I would say a perfect storm if you will of property taxes being high enough that they can support the schools and the basic aid level that schools require Because the way that it works is every other county has a fair amount of non-basic aid school districts. And the way that this formula works is that ERAF and property taxes are used to backfill the VLF. And then the state comes in with Prop 98 money and satisfies the schools and their basic aid obligations. We don't do that because that pot of money, if you will, property taxes and ERAF, does not exist for San Mateo County. Okay. So how is this presenting here today so acutely that it wasn't there five or seven years ago? Well, it's been backfilled by the general fund for quite a bit. We've been able to meet that, but given the current... We had fewer basic aid school districts back then. So the non-basic aid school districts were funded, and through that, the county and cities. You know, it's a screwy formula because you shouldn't link BLF money that was supposed to go to cities and counties with the schools. It was done back then, I think, because we were in a budget shortfall, and there was Prop 98 money. So if the money could be taken from Prop 98 to feed the schools, then it would have created an opportunity for the state to become more whole. Yeah. But it's still a complicated. But the link is what gets you. Supervisor Superior is absolutely right. The link to non-basic aid and basic aid school districts is what gets you. And because we have so many basic aid school districts, we don't get the backfill. Okay. If they were not linked, that might be a better situation. Supervisor wants to know. I don't think anybody anticipated that it would ever get to this situation where you had a county that had a lot of property taxes that was able to make most of his school's basic aid. Got it. Please. Thank you. So I just wanted to add that our understanding of what is law right now, essentially, is that it doesn't it doesn't say that it's explicitly discretionary. It just doesn't ever predict this situation, period. And so the intention was always to backfill and to make counties whole. And so we're in the situation that it's not currently happening. But I would disagree with the fact that it's discretionary. And just to answer your question more directly, I think, you know, I mentioned that for me, the way I see this issue is that it's tied to declining enrollment and increased property values. And that and I haven't actually heard from the state or from anyone that, you know, how do we know how quickly other communities can be impacted by this? Right now, it's just us. But I don't think that in 10 years that would be the case. And so I think the reason for a permanent solution is so that we don't continue to experience this, but also so that other communities never get impacted by this. Because it makes it very, very difficult to budget and to think about how we're going. We can be as prepared as possible, but we could have never foreseen the situation. We've been backfilled in whole all previous years. Right, right, clearly. And this is quite a shock to the system. I want to beg a question, if we're starting to see now that this is the harbinger of other issues until a formula is revisited and fixed, and I want to get to that in a second, that are there other things locally? that I know also wouldn't like, you know, play out immediately, but do we need to look at the conditions and what in which why, under which we are having a declining student enrollment and what we can do to make housing opportunities more available for families that otherwise might happen to be located across the bay or elsewhere where they can afford to live a little bit cheaper. All these things could necessarily be tied. Sort of a meta question out there, no pun intended, given I think one of your key tenants that's there. but these problems are intertwined and this is another input into the consequence of what you're feeling right now. I both agree but I am sympathetic that yeah, I don't blame you for needing to be able to sue. It's an avenue that any local government would take to try to open up an opportunity to fight tooth and nail to be able to keep things as whole as you can this year right now and you're raising this issue here before the legislature sure to see what we can do in advance of the May revise, which is commendable and definitely needs to be laid there on the table. I might recommend to our chair and our committee that I am surprised that we have not revisited this question from a 2004 agreement that clearly was, creative would be a generous word, but a little bit was definitely so creative that it placed everybody on shaky ground. And I mentioned if you're a harbinger, as long as as well as mono and Alpine counties of things to come, any one of our counties could be suffering future crises because of the same challenges under this formula right now that it deserves us to go back and relook at it may not be a solution that we have for an ongoing solution here. But maybe this is the wake up moment that we have that we need to, you know, have a special attention and go back and look at that kind of a formula because it's just not working 26 years later. So I want to thank you for bringing this as well. We'll keep it under careful consideration as we're thinking about all of our recommendations out of subcommittee. And I appreciate you taking the time to come up to the Capitol, come back to the Capitol today. Thank you. Assemblymember Ortega. Just want to thank Assemblymember Pepin and the presenters today for coming and bringing this issue forward. It sounds like there's definitely two issues here. One is the more permanent legislative fix to address kind of what's happening here and to prevent it from happening in the future. But then the most immediate is the budget request and making sure that you are made whole. I understand from the Department of Finance position that it's not a statutory mandate that we reimburse these funds to the county. but as a legislature we have made statutory commitments to our communities and that includes partnering with our counties to meet our overall goals including housing including youth you know serving our seniors our veterans our public safety all of those things are the things that we've made commitments to throughout the state, and that includes San Mateo County. So I would really reconsider the approach we're taking here to make sure that you are made whole, and then we continue talking about that permanent fix. So thank you for being here today. If I may, thank you, Assemblymember Ortega. You know, if this was truly discretionary, why is it that we would be giving this money to 55 other counties? It begs the question. So I just take a little bit of issue with this idea that well it not statutorily provided The obligation was made by the state when they grabbed the VLF fee back in 2004 In any event I just wanted to reiterate that and I thank you for your comments Thank you, Assemblymember and Assemblymember. Thank you. We're going to go ahead and go to the public, and then I will make comments at the end. If you are going to speak on this item, please come to the mic. The mic does go up and down, so you can raise it or lower it, and we're doing under 30 seconds. So if you see me doing this, it means you're going longer than 30 seconds. Great. Thank you very much, Mike Callaghi. I'm the county executive. This is the greatest taking probably in the history of California from one particular county. With devastating, irreparable impacts, I will be faced with laying off hundreds of our employees and impacting nonprofits that provide critical, critical services to our community. Thank you very much. Thank you. Greg Wright, Vice Mayor of Pacifica. We're looking at cutting police and fire, increasing our response times, coastal infrastructure, road maintenance, food assistance programs. We have a program that's actually working to help the homeless, and we are not a basic aid city. So we have the worst of all worlds. We really need your help. Thank you. Thank you. Good afternoon. My name is Jesslyn Manalo, a daily city council member, and really not having these dollars affect our public safety, housing, and health programs. You know, this gap deepens existing budget deficits and limits our ability to sustain critical services over time. We're simply asking you all to honor the commitment, fully fund the BLF backfill, and ensure that our community has what its needs. Thank you. Thank you. Good afternoon. I'm Stacey Jimenez, former mayor, current council member in Foster City. For us, this translates into millions and millions of dollars of lost funds. It supports core safety services, critical projects for our youth, our residents. So I urge you to please support the backfill. Thank you. Thank you. Good afternoon. My name is Kyla Valenti. I'm a resident of Redwood City. I'm a benefits analyst with the County of San Mateo, and I'm the treasurer of our union AFSCME Local 829, representing over 4,000 employees and their families across the county whose jobs are at risk. I'm standing with my fellow residents and community leaders today to request the nearly $157 million vehicle license fee shortfall for San Mateo County and its cities to be included in this year's state budget. Thank you so much. Thank you. Hello. Good afternoon. My name is Preena Venkatesh, mayor of San Carlos, and this impact would be a shortfall of $2.3 million for our city, which would allude to losses of police officers and maintenance workers and internships for our youth. So thank you. Thank you. Good afternoon. My name is Scott Parham, representing IFF Local 2400 San Mateo County Firefighters, and I'm a firefighter in the City of Pacifica. Department of Finance may categorize this backfill as discretionary, but I can tell you from the front lines, there's nothing discretionary about a 911 call. Our residents expect and deserve an uncompromised level of service. If the state fails to uphold the 2004 VLF swap agreement, it is more than a breach of public trust It is a direct compromise to safety While the legal merits of this case may be heard in a San Francisco courtroom it doesn take a judge to see that the state current path does not honor the commitment made in 2004 Put simply, it is not right. I urge you to restore the VLF backfill in full so we can keep our officers and firefighters on the streets serving the public. Thank you. Thank you. Good afternoon. My name is Eddie Flores. I'm past mayor of South San Francisco and current council member and executive-born member of the League of California Cities. South San Francisco is owed over $5.1 million this year in VLF funding that the state has failed to deliver. We are talking about a fire station, preschool fees, and community policing programs. This is not nice to have money. This is our general fund at threat. We are asking for nothing more than what every other county receives. Please act now. Thank you. Thank you. Good afternoon. My name is Charity Peetz. I'm the communications and marketing officer at CORA, Community Overcoming Relationship Abuse in San Mateo. We're in support on behalf of survivors of domestic violence who are also low income. CORA serves thousands of victims of abuse every year. This funding is essential to providing the social and legal services offered by domestic violence prevention organizations like CORA. Thank you. Good afternoon, Chair and Committee members. I'm Elmer Martinez-Biles. I'm the mayor of Redwood City. In my day job, I work for Life Moves, an interim emergency shelter provider, and I'm here in support of Assemblymember Pappin's proposed solution. The BLF funds that support the critical services our residents depend on every day. Without these funds, we risk losing important services like our city's homelessness support and outreach, as well as the equivalent to 19 of our firefighters. So please restore funding and find a legislative fix. Thank you. Good afternoon. My name is Diane Howard. I serve on the Redwood City Council, and I'm past mayor of Redwood City. I'm here to address the vehicle license fee and an obsolete mechanism that's in place. It means a $5.5 million loss for the city of Redwood City, which are critical jobs and a job loss of 85,000 people who expect to be served with that money. Thank you. I hope you'll consider this. Please support Assemblymember Pappin's request, and thank you for your time. Hi, thank you so much for having all of us here today, and especially to Assemblymember Papin for bringing this forward. I'm Leslie Ragsdale, Vice Mayor of the Town of Hillsborough, and all of our council members also serve on council, but we also volunteer our time for various community-based organizations in San Mateo County, which you'll be hearing from today. For the Town of Hillsborough, our shortfall this year is $760,000, which is the equivalent of three police officers that we obviously need. And we just feel that this funding formula is crazy. We're all trying to understand it, but the state made this promise and needs to fulfill the promise and not be Lucy pulling that football away. Thank you. Thank you. Good afternoon. My name is Julie Lind, and I represent 105 unions and over 95,000 workers and their families across San Mateo County. This isn't just a budget issue, it's a human one. Behind every one of these potential cuts is a worker, and behind every worker is a family. If public services go away, so do our livelihoods. We lose stability, housing, health care, the ability to feed our families. This is a crisis that we didn't create, but one that you have the power to fix. So please help us Thank you Thank you Assembly members thank you My name is Rich Seguin I am the vice president of Local 2400 representing firefighters in San Mateo County Cuts like this will be impactful. The savings that will be needed by cutting millions from fire departments can only be achieved by shutting down engine companies, closing fire stations, and laying off employees. This, in turn, will impact response times. It will degrade an already lean service model. slower response times is the difference between life and death and slower response times to a structure fire means our job becomes more dangerous. In addition, we staff eight state of California OES fire engines. Less firefighters means cities will have to make the decision whether to supplement California's wildland fire response or keep our firefighters at home, protect our communities. Citizens of Works in St. Taylor County deserve better than this, and reinstating the funding is appropriate, and we ask for consideration. Thank you. Thank you. Good afternoon. I am Larry Moody, a former mayor of the city of East Palo Alto, and I presently serve as the Government Affairs Community Liaison for Job Train, a 60-year workforce development organization that's serving in San Mateo County in seven different locations. Our ability to provide free training services for the residents of San Mateo County aligns us with the workforce opportunities of Silicon Valley and certainly of San Mateo County. We put people to work. If you take away our funding, if we're impacted by this 18 percent decrease in funding, it's really going to impact our ability to train individuals at no cost within San Mateo County. We hope that you would agree with Assemblyperson Patman's recommendation today. Thank you. Hello, my name is Dietrich Gale. I'm the president of IAFF Local 1507 in South San Francisco. Here to represent those firefighters. We're at a point now where we're trying to expand our department with the growth of our great city. And we've been in talks to try and figure that out. Without these funds, now the talks have converted to shutting down a whole fire station. That alone blows my mind. I know I'm more of a boots-on-the-ground analysis here, but it just sounds completely dangerous for the brothers and sisters I work with, for the community that we serve, not to mention the police officers that won't be on the streets and the increased cost to preschool for the families that need to work and live in our city. So, again, I implore you to please ensure these funds come back to our county. Thank you. Thank you. Good afternoon. My name is Ed Barberini. I'm the chief of police for the city of San Mateo. The challenges and demands on public safety continue to grow, and we struggle every day to meet those demands. And that's with existing resources. The impact of the loss of funding of this magnitude will have a critical impact on our ability to provide core services. That means police officers on the street. That means answering 911 calls. It contributes to the safety of our city, our residents, and the folks who visit and work in our cities. So I would urge you to strongly consider the recommendation in front of you today. Thank you. Good afternoon. Chair Cork-Silva and members. My name is Yahair Ortega. I'm the Senior Policy Manager at Thrive Alliance, the Alliance of Nonprofits for San Mateo County. Cutting BLF funds would damage a variety of communities, but specifically those investments I go to counties and cities that invest in nonprofits like the ones that you're hearing about today. We shouldn't have to make a choice between essential public services like emergency planning or literacy programs. please make the right choice and invest in our county and continue to solve but for a minute solution. Thank you. Thank you. Good afternoon. My name is LaTonya Mitchell from Nami San Mateo County. I'm the education and outreach lead. The BLF dollars are critical and reliable revenue source for county mental health services. Losing this funding would directly undermine the community-based mental health programs that serve our most vulnerable residents, including education, early intervention, and outreach efforts that help people access care before they reach crisis point. We urge you to support in protecting these essential funding streams. Thank you. Thank you.

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Thank you. We have anybody else beyond the individual that are lined up if you can line up right now.

Thank you. Any last-minute people coming up to the mic? All right, seeing none, Any final comments from members here? First, I want to... Yes. I'm sorry, just one thing on clarification on the notes, because it noted here, unless we're misreading this, that currently under the state's fiscal condition, the amount provided would cover two-thirds of the respective shortfalls. but we also know that the actual shortfall for these three counties is about 118 million. So what exactly is the impact to this proposal for this year's state budget? Because I'm still hearing 120 million is what's needed to close that shortfall, but we're already giving two-thirds of the shortfall?

Thank you for that clarification. Thank you. And if you notice on that same page, they're requesting the one basically close to 157, which would be the third from last year and this year. I first want to appreciate the assembly member. You know, people get elected in their cities and their counties and often. you get to go home some nights, but for others like us, we travel and we leave our homes. On Mondays we come back on Thursdays And many times the public just doesn know what the heck we do up here And they are impressed for a moment if you get one or two pieces of legislation But when you have been here, this is now my final year, and I've been here since 2012 with a break in between. One term I lost, but really since 2012 under two governors. And if I go to a public forum and I start talking about over 70 pieces of legislation or we even print it out, guess what? Most of the public does not care. They don't care if you did this or that. What they care about is what has been expressed today. And so to all the local electeds, thank you. I served as Mayor Fullerton twice. and they care about things like their public safety, like their fire response time. They care about individuals that are experiencing homelessness. They care about youth. So if I start rambling off on all this legislation, they're going to direct me back to the potholes or to things like that. Understanding how all of these services are funded is still a mystique, meaning if you go to a room this size and you say, what is the vehicle license fee? And do you remember way back when with Gray Davis? Some people will because it got them really angry. I remember that time period. But most people aren't. But I have a direct affiliation with the vehicle license fee related to when I was elected in 2012 in Orange County, the county that I represent, was in the same position. And I was a brand new member, and we were asked to do exactly what Assemblymember Pappin is doing, although I didn't come to the budget committee, so Diane is super smart here. But we were able to retain some of the funding as you did last year, Not the whole, but some. And there was a lot of appreciation for that because ultimately what it means is jobs. And it means important jobs in counties, whether it's health care, whether it's, like we said, service providers, very important. So there's two major issues here. There's one is to retain the promise that has been made and to fully fund. And then the second, as my colleague from San Diego mentioned, is we have to deal with this formula and hammer that out. I'm done this session, but I have good colleagues that will take this effort. And I think there are probably some ideas that we can work on possibly this year. but many of these individuals will be here for a very long time. And with Assemblymember Pappin's leadership, I can't promise that there will be a resolution, but I can promise that there will be a serious look at how do we resolve this. Because some of the major issues on funding related to education, which is all across the state of California, we are dealing with class sizes being reduced. Now, I'm not going to spend a lot of time on that, but we can make inferences of why people are having less children. Why? Affordability. There's a lot of reasons for that. But that would probably come at a later date We not going to resolve that today But I do want to say that I appreciate all of you coming up It really does make a difference I can tell you this committee will take this serious. We're holding it open as we won't be voting on it today. But we've heard you loud and clear. Those of you who spoke at the mic, We appreciate it. This is really government in action. So when I say people don't care, they care. They may not know that you've come up here, but they will know by the services that are in their community. So you should let's give yourselves a little cheer. I was a former teacher. And no, we appreciate that because this is how government works. So with that, if there's any final comments, no final comments. And you've got a good audience because we have five members. Sometimes it's only two of us here. Everybody loves us. But with that, thank you all so much for coming. And to the congresswoman and to the leader, thank you so much. And to the supervisor, thank you. Thank you, Madam Chair. Much appreciated. Thank you. All right. Members, we're going to go to the vote only, which is unusual in this committee. We're only going to go to vote only items, which are on the top of your agenda. So we'll do those two things. And then if any members have anything they want to pull, we'll do that afterwards. Is that all right, members? All right. Let's let everybody get a second here to. Yeah. Are we going to hear them or we just see if there's a motion? The members, we're not going to hear these, but if I can get a motion just to move them once we get the room clear. No. Okay. We can go. All right. Madam Chair, I'll make a motion on issue one and issue two. Second. All right. We have a vote only on issue one and two. That would be item 160 and 840 to move those items and take a vote. Cork Silva? Aye. Coloza? All right. Both of those items are out. All right. All right. Any items that we want pooled on this committee? Yes. Are we doing DGS next? Okay, where is that? We're going to confuse people a little bit. We are going to go to DGS next. And so if you are presenting on DGS please join us And this will be an update on the Hillcrest DMV And then some a little bit. I'm sorry, what? Okay. One of the topics. All right, we'll do it. Okay, welcome. Thank you. And if you want to introduce yourself.

And just so we're clear, Hillcrest is what you're asking about?

Okay, okay, sure. So Hillcrest is fairly easy.

Our colleagues at the DMV. Can you pull that mic just a little bit? There you go. Is that any better? Okay. Yeah. Awesome.

what the best option would be to move the project forward. Ultimately, looking at what's available in terms of funding in the NVF and DMV's needs in the area long term, we came to the conclusion that we could relocate the DMV off that site potentially moving them into commercial lease space in the area at a reduced footprint. They have a BCP in before the legislature. It was just heard in the Senate on the 19th of March. I believe that was held open, but it's a pretty modest ask of $4.6 million in one-time costs, $1.7 million in ongoing costs, and provided that is approved, the next step would be to relocate the DMV out while the developer continues their development scheme, in which case DMV fell street would be essentially just any other vacant site and would be a traditional affordable housing project. Should I move into San Diego or do you want to pause? Okay. So our San Diego project is two lots in downtown San Diego. I know some of the rewards very familiar, but there's an 11 story tower on the east side and two smaller buildings on the west side. That was awarded to the Michaels organization a number of years ago. They proposed a variety of, the scheme has changed over the years, mostly because of changes in collaboration with the city. There was originally an intention by the city to co-locate a fire department there, a significant amount of office space. As that's changed over the years, TMO, the Michaels organization, has changed their scheme. Their core proposal was predominantly market affordability, but also a lot of workforce housing, which is definitely needed in the area. As we all know, there's not a whole lot of direct subsidy for it, so they've been trying to get very creative in it. One of the other elephants in the room is the abatement and demolition of the existing buildings. That was very clearly on TMO in our original solicitation, but HCD was given a pot of money a number of years ago to try to help with those abatement and demolition costs. Money was allocated to the site. It was not sufficient for the whole abatement and demolition, but TMO has not been able to come up with the balance of funds. Meanwhile, we have completed design for all the abatement and demolition for both lots presumptively. We've actually put out to bid the demolition of the the west side, which is the smaller lots. And that contract should be awarded and abatement demolition underway. It actually came in significantly under bid, which is awesome. And so we'll happily apply those savings to the other one. But a hunt for a fun source for that continues. Either way though, once that building goes down, there's still a yeoman's task on the Michaels organization to see that to completion, but that's where that particular project stands. Question? Thank you.

It's a 4.6 one-time, 1.7 ongoing.

I would say, yeah, those leases, obviously depending on duration, can last anywhere from 8 to as long as one would want it to be. We typically would look at something in the ballpark of an 8 to 15-year range to see the payback of that one-time cost. It also allows the DMV to have more flexibility as their own evolving needs and constituent needs in San Francisco happen over time. But what I do want to reassure you is it is significantly cheaper than it would have been had we gone forward with the DMV paying its own way on site. The one-time cost to construct a DMV like that on that site would have been closer to, say, $45 million, and that would be before financing. So when you add the debt service costs on that lease revenue bond over the next 25, 30 years, the total payout would have been closer to 70, 80 million. And the NPV of a lease, this lease, especially with a reduced footprint, is a lot cheaper. It was almost half. So this was the most cost-effective option. It was also the one that prevented the most negative interaction between the developer and the DMV. From a schedule perspective, from a coordination perspective, we were looking at real issues. like how the DMV did their site tests and drive tests and things like that on the site Going around pillars and columns We were looking at issues that had to do with noise We were looking at, I'm blanking on what the other one was that was material. Oh, construction staging. So the housing units would have been in phases, and so the DMV would have been completed, and so you would have had literally constituents going into the DMV around the construction sites and deliveries and the like. And so there were a lot of concerns that made this not just more cost effective, but beneficial to both parties.

The concerns were identified, and in our outreach and our solicitation, that was something we kind of put as a window sign saying, make sure you thought through these things because we were open to all sorts of development proposals, integrated, not integrated, standalone. Maybe you do less housing and you have a parking lot between the DMV. I mean, there was a lot of options considered. And what the developers, like almost to a developer, put forward was a more complicated scheme. I think they were really trying to maximize affordable housing. And unfortunately, I'm being snarky. I don't think they thought through some of those issues as well as they ought to have.

We did. We did. We did. We did. We did. It is. I mean, it's very conceptual on the housing side.

Yeah, I will say that was very, very much the hope of DMV going into that. Hope, push, desire, drive, whatever synonym you want to use. When we did the initial RFI, I mentioned studies. That's really what it was. It was an RFI. We interviewed, gosh, it's years now, but 12, I believe, different develop companies who had all expressed interest in the site. Their proposed schemes fell into various buckets. There was a bucket that offered not a totally free DMV, but almost a fully subsidized one. To do that, the development that would have been necessary, and they were uniform in their responses, would have been 15, 18-story towers and almost entirely market-ranked. There would have been a modicum, if any, affordable housing at the site. And I think I don't want to speak for the members representing the area, but at the time, at least a preponderance of affordable housing was the preference. And so the write was affordable housing leaning at the expense of having the DMV pay its own way Yeah I could see that trade when it comes to the cost of that project

Oh, yeah.

If I can make two quick points just to help allay concern that there's not earnest effort. Number one, I did mention that on the west side and the demolition there, Michael's proposal is two separate distinct towers. So it's not as if originally they had actually planned on an abandonment of the central streets, kind of something more integrated, but their proposal has been separated. So it is not necessarily the case that both have to go down for one to go up. So there could be something interim, and we're happy to kind of work and refine that. Part of that is an accountability piece. We definitely don't want the market side to go up and affordable never to go up. And so we've got to make sure we're working with them on that. But that is an option that once that demo begins, which should be fairly imminently, we can work with them on. The second piece is because we did see bid savings on the demo of the west side, it was material. And we're seeing actually bid savings in general in the area when we put out things to bid. And so we've taken the somewhat extraordinary step of beginning to put the other side out to bid to actually get real, not conceptual, not third-party consultant cost estimates to try to drive down to a real price. So between the bid savings and what that might actually look like, we're hoping that the dollar figure ask is much smaller between, you know, potentially some unused funds from HCD, potentially what Michaels can bring to the table. Maybe, maybe we can jumpstart it. But we're trying to get to a most definitive number as possible so that we're not, no one's throwing out conceptual numbers that are never going to get funded.

Yeah, no, I want to thank the member because these are opportunities to engage. Mr. Kenney, without throwing you for a loop here, and you can say no, you'll get back to me because we didn't ask you before, but since you're in front of me, I too have a few questions, but you can say, you know, we'll revisit. There's two things, if you can just give me quick updates. One is on the

Sadly, I do. So yeah, for Fairview, that one's fairly simple. The specific plan concept has been refined and at the point where they're beginning their EIR process. The city had given us a timeframe, honestly, of April, which we're at the very tail end of. So looking like it'll bleed into May to begin that EIR. If that holds, that would put the entirety of that entitlement process done by the end of the calendar year. Meanwhile, knowing that they're at that point, we have put the Fairview Developmental Center on our state commercial opportunities map. So we've moved away from property-specific solicitations, and now essentially have, for lack of a better phrase, like an auction process for properties. That way we're not doing these very laborious solicitations. Every site that's available, people can come see, they can put offers in on. That site is on there. I would imagine most developers will be interested in putting something on once the EIR is out and there's a little bit more specificity from the city, but the last we checked in, they're still looking at the 4,500 unit entitlement.

Yeah, I'll get back to you. It will largely, too, depend on what the developer would put in for, but I'll get you a percentage after this.

And then for Gypsum Canyon, we have the pretty pictures in the study. will probably take a little bit longer. But the most important piece, the cost estimate, you know, estimates have come in. We have spent, I spent the last couple of days working with the team refining those numbers, trying to also re-cogigger the, where pots of money are allocated so that it's more easily comparable to the 2023 study because that was very, very, very difficult to untangle. We'll be meeting with our client, Calvette, this week. we're on track for, we said the end of the month. I think those numbers will be out shortly. And we can have an intelligent conversation about the next phase of that project. And you are invited. I believe we sent an invite to your office to go to Gypsum Canyon next Friday.

All right. Appreciate it. Thank you. Sorry, I wasn't trying to put you on the spot,

Yeah, I mean, at the risk of getting myself in trouble. I think we do have a very broad portfolio. DGS is a curious mix of service provider and control agency, depending on the topic. And we are also fundamentally a fee-for-service agency. So we effectively look and function much like a private sector company. We charge for our services. Very little is really subsidized.

Yeah, don't want to leave him. And so that provides, you know, a workload goes like this depending on what happens in the budget as well. And so it's difficult to have, you know, really like a long-term steady projection of things. Our buildings, as you can imagine, like most state departments, are also aging. And Assemblymember Ward mentioned the DMV. A lot of our portfolio is heading in those directions. Our buildings tend to be well past their useful life. Rental rates don't account for end-of-useful-life replacements. They count for maintenance, but they don't account for the HVAC that's 45 years or the roof that's 45 years. And so there's a lot of day-to-day challenges that we face kind of on that note, but I'll happily turn it over to my boss to add words.

Thanks so much Director Lasso I won put you on the spot for today but we love to follow up with your office I think you in the position to best give us advice on some of the forthcoming changes that we have come from the administration as well You know, whether or not the state is equipped for, you know, the return to office mandates. I'm sure you all know the state of our buildings. Just would love to hear that from you offline, as well as some of the work that you do in procurement. You just mentioned some of the things that you've done to support our small business community. And so, you know, your economic engine of an agency probably pumping millions of dollars into the economy. And so we'd love to schedule time and learn a little bit more about that.

Okay. Thank you so much. Before you leave, I know the director, she sits on the state board allocation. And I sit on that board as well. So thank you for your public service. Last, just one big high-level question. How many employees under DGS?

Across the state?

And then I know we're just pushing it so much, but it's okay. I know there's been a lot of talk about, if you want to say, rehabbing state buildings and possibly turning those into housing. And yet I've heard everything from it's much more costly than you would expect. It's not really feasible. Do you have any top thoughts on that? Either of you? Yeah. It is more of a mixed bag. I think there is a presumption

We've had some very interesting experiences ourselves as we've renovated buildings. And so if you're a developer and you've got a choice between an empty lot and adaptive reuse, it's riskier to go the adaptive reuse. But it is not impossible. It just takes the right product type. And I would say, Nat, that one thing is to do adaptive reuse for housing and others to do adaptive reuse for education, schools. And so you have different building dimensions and codes and requirements for light and also for your mechanical engineering system So it always depends what the scope is and what the ultimate program and goal

And with that, thank you so much.

Lark Park, I'm the director of the California Education Learning Lab. We are a state-funded higher education grant-making program in our eighth year of operation. We fund intersegmental projects led by faculty of the UCs, the CSUs, and the California Community Colleges to promote innovation in teaching and learning and student success in STEM and other fields. Over our history, we have funded more than 120 projects across the state of California, and our funded projects have reached more than 13,000 faculty and 300,000 students. Our faculty grantees develop innovative curriculum, teaching resources, and technology tools to improve and support student learning. With regard to the governor's budget with the California Education Learning Lab, there are three components. The first component is permanent restoration of Learning Labs funding. The second component is the move from LCI, the Office of Land Use and Climate Innovation, to GovOps. And the third is a trailer bill that relates to the two and also has clarifying and technical changes related to it. With regard to the move from LCI to GovOps, the Learning Lab was created in 2018 under the old Governor's Office of Planning and Research as neutral territory for the three segments to engage in and compete for and collaborate with grants. And in 2020, the Learning Lab entered into an administrative partnership with the Foundation for California Community Colleges because the Foundation for California Community Colleges was more embedded in post-secondary education, whereas OPR did not have much expertise in that area. The relationship is one that we've enjoyed since 2020. In the last couple of years, as the committee knows, the Office of Planning and Research has become land use and climate innovation. That agency has refined its mission and restructured itself. And so it has become a less well-fitting organization to house the Learning Lab program. GovOps, because of the approval of the California Education Interagency Council, as well as the Cradle to Career Initiative, which is also housed in GovOps, GovOps has become the de facto state agency for post-secondary education. And so it makes sense to have all of the higher education initiatives at the state level under one roof rather than spread out amongst different agencies. Regarding permanent restoration of the $4 million, between 2018 and 2022, the Learning Lab program was founded. closer to $10 million annually in 2024. The Learning Lab program's budget was reduced by 50% as OPR's mission had become more defined and further away from higher education. This made our successes and our projects less visible to that agency. So permanent restoration is coupled with the state reasserting itself in terms of its influence in the post-secondary collaboration along with workforce. Also, it is with the understanding that Learning Lab's work is neither duplicative nor inconsequential related to the work that the segments themselves do. We often partner with different segment offices on a variety of projects, and we have benefited from their collaboration and they have benefited from ours. So, given that the state continues, and higher education in particular, continues to face some pretty big challenges, the administration wants to leverage the networks and the grant projects that we have had over the past eight years. The challenges include federal assaults to higher education, unpredictable swings in research funding, particularly educational research funding, which is different than basic science research funding. What has saved California research dollars has often been based on prevailing in the courts. Second is pressures on higher education institutional budgets and enrollment trends. These factors will continue to cause instability for investments into teaching and learning. There are also tremendous changes in the workforce driven by AI and other technology advances such as quantum computing, agricultural technology, advanced manufacturing, robotics, as well as AI itself. This is really going to force higher education to step up to the challenge in order to prepare the workforce for these advancements. And then there is AI itself, which is the biggest change of all, and it's been widespread. The challenges of AI in the classroom environment as faculty and students struggle with how to integrate it effectively and educate on ethical and effective uses versus harmful and wasteful uses of AI. This is impacting all institutions and all disciplines, although not necessarily in the same way. In late 2024, we did award $12 million under an AI challenge, so California could be on the forefront of understanding how AI would impact higher education and learning across various disciplines. With me today is one of our AI Grand Challenge project leaders, Marit McArthur. Dr. MacArthur teaches writing at UC Davis and is a co-leader of a $1.5 million grant project that involves eight different institutions, more than 200 faculty, and impacts more than 12,000 students. And Dr. MacArthur's project is about how to adapt student writing and critical thinking in this age of generative AI with all of its challenges. Dr. MacArthur is here to respond to questions in case you'd like to hear directly about what is happening on the ground relative to student use of AI, as well as perspectives on the Learning Lab and LAO's analysis. Thank you.

Kayla Landman, Department of Finance. Nothing to add available for questions.

just say we are not a program of professional development. It is part of what we do, but it is not the entirety of what we do.

Madam Chair, may I ask, though, Dr. MacArthur just to respond briefly?

I've waited for hours to say something. Could I please?

Thank you. This is very necessary. I'm really irritated that I'm not allowed to speak.

Thank you, Madam Chair, fellow committee members. My name is Justin Howard. I'm the Deputy Secretary for Fiscal Policy and Administration of the California Government Operations Agency, And I appreciate the opportunity to present on the next couple items on the agenda, starting off with the requests for positions related to the California Education Interagency Council. Specifically, we're requesting four ongoing positions to begin staffing up the council. As part of last year's budget, $1.5 million was built into the government operations budget to fund activities related to the potential for our council. That council was ultimately defined in statute later on in the fiscal year through two pieces of legislation. We are requesting that we only need position authority because the funding is already in the budget. I am pleased to announce that we've done a bunch of work behind the scenes in order to stand up the council. We've established domains, payroll headers, and everything else. We have a separate program set up for ensuring that the council is distinct from our regular operating budget within the office of the secretary. We have put into place website drafts. And I can announce as well that the governor has appointed an executive officer for the council. That person's name is Debbie Cochran. She's currently the Bureau Chief at the California Private Post-Secondary Education Bureau within the Department of Consumer Affairs. She'll be moving over as the Executive Officer for the Council effective May 4th, Monday, so just next week. We'll be swearing her end, and she will have a lot on her plate to do. The other three positions that we're hiring for relate to this office. Those positions are posted. We are actively recruiting for those positions. Obviously, we need to get the director position filled first before we can start filling the other positions. So with that, I'm happy to answer any potential questions you may have, just noting that this is a new area for the government operations agency. This is not something that we've delved into in the past, but we are hiring the proper subject matter experts to work in this space.

Okay, I am. Alex Spence, LAO. We have no concerns with this particular budget proposal. Happy to answer any questions.

Thank you, Chair. Thanks for your presentation. Can you just share a little bit more about how the council will be staffed? Will staff from GovOps be moved to the council permanently or how that will work?

Thanks for sharing that. And did I catch you correctly? Is this the first, like, education-related council that will be in GovOps?

And how do you foresee this interagency council working within the other educational bodies in the state?

And so that person's not yet hired, right?

Can you give us the name of this person we will be looking for?

Okay, great. So she'll be the one speaking on this item in the future is what I'm hearing from you. Okay, thank you so much. Not a question, but a request as, again, we held open the prior item, which was on the learning lab. And depending on how that shakes out in the budget, I definitely think it would be worth the interagency council at least keeping an eye on that item and perhaps finding out if there's any overlap that can come into play related to that item.

Right.

Did I already say that? Oh, mixed up. All right. I think that is it. Thank you.

I have that one as well. Oh, there you are. Okay. So this would be the third education-related thing that has been proposed to be placed into the Government Operations Agency. So specifically, there were two pieces of legislation passed last year, ACA. B. 715 and SB 48 that established the Office of Civil Rights and placed that office within the government operations agency. OCR, our Office of Civil Rights, is charged with providing technical assistance to LEAs, to the local education authorities. I'll try to avoid the acronyms here, to prevent and address anti-Semitism and other form of discrimination and bias in our local education entities. So they will work, OCR will work directly with our local education authorities to support the existing California Department of Education uniform complaint process. They'll recommend proactive strategies to combat discrimination or bias to local education authorities, administrators, and educators. They'll review complaints of discrimination submitted under the uniform complaint procedures and provide advice to implement corrective actions, including technical assistance to resolve discrimination issues at school sites. They will also develop a training module in consultation with the Department of Education, the State Board of Education, and the Office of the Attorney General regarding the appropriate manner to process and resolve discrimination complaints. And we will be employing various discrimination prevention coordinators, approximately five. We are aware of pending legislation that may meet that, six as well, some deputy discrimination coordinators as well. So in total, we are asking for 10 positions and $3.5 million in the budget year to implement these two pieces of legislation ongoing that does drop to $2.8 million because there are some one-time costs in order to get the office up and running. Again, we've done all the behind-the-scenes work related to the Office of Civil Rights. They are set up as a separate program, unique and distinct from the Office of the Secretary. They have domains set up. We're ready to go on the website and other administrative tasks. So we were just waiting for the director to be appointed. Right now that has not happened.

Alex? LAO, we have no concerns with this. Thank you.

I just wanted to thank you for undertaking this as a joint author of SB 48, as well as a strong supporter of AB 715. I know that the value that we are able to get to critically address rising incidence aid we have across all these student populations is deeply necessary. We'll pay for itself, certainly, in the form of many other social benefits. And I think it's a very worthy expense for the state. So I think I heard you say this in your presentation, but I'm aware that SB, I think it's 998, is the bill that is going to further improve upon this B-48 for introducing some of the deputy coordinators as well. That is not yet budgeted for?

You mentioned the director is not yet hired for this. Are there any other positions that are filled yet?

Okay, thank you. How do you vision then this department, this office being able to liaise with other established organizations like the State of Hate Commission or the Civil Rights Department?

Okay. Thank you for this today. Thank you. I have no questions.

All right. Thank you. Again, Justin Howard, and I'm going to give a brief summary. Your agenda really goes into it well and kind of lays out where we're at here. In 2023, Governor Nisum issued an executive order directing California state agencies to explore the responsible use of Gen. AI, generative artificial intelligence, to improve government operations, enhance service delivery, and strength of the state's capacity to address complex policy challenges. In response, the state entities launched a series of what we call Gen AI proof of concepts, commonly referred to as POCs, designed to test the practical applications of the technology while adhering to California's core values of equity, transparency, privacy, and accountability. The POCs came in two tranches. There was five as part of the first round of POCs and three of the next round of POCs. POCs. If you want, I can go into the eight individuals, but just as a real quick update, I mean, we are pretty much at the end of the POC process here. Of the first five POCs, four of them went on to the MVP stage. MVP stands for minimum viable product, meaning they worked with the vendors to develop a minimum viable project that they were then able to evaluate. whether or not that department then proceeded beyond what we call the MVP stage was up to that department, whether they had funding or they needed to enter into a follow-on contract for those services. My understanding is of the first five projects, only two are potentially moving on to ongoing projects, and those are primarily in the Caltrans area, if I recall correctly. Of the remaining three of the second round POCs that started afterwards, one moved on to the MVP stage, the minimum vital product stage, and that was for the Department of Finance. And I believe finance is still working on developing whether or not they move on to a follow-on contract related to their use of this technology. And with that, I have CDT in the audience in case there's some technical questions or anything related to just the Gen AI in general. But that's kind of where we're at with the proof of concepts and the state's effort.

Yeah, Ryan Bender, Department of Finance. Nothing to add, but we're available for questions.

All right. Madam Assemblymember, anything to add? You don't have to. It's okay if you don't want to.

We'll do your own special hearing next time.

we work primarily with our control agency department. So that would be the Department of Technology, who helps sets the regulations in state that all state departments have to follow when they go out and procure generative AI technology. We also work with the Office of Data and Innovation to help spur innovation. That's not to say CDT also does the same thing. They also help spur innovation in the technology space. So working closely with them, we collaborate routinely on projects within the state. We routinely review legislation and provide input to authors who have pending legislation that they want to look at. And we are trying to foster an environment where we're not necessarily stifling the development of the technology. We do want to do it in a responsible way, as we stated in the goals of the original executive order. And we will continue to do so going forward. We have regular meetings that are set up with our agency information officer. He meets regularly with the parties at both CDT and ODI and the governor's office as we discuss all these challenges that are out there. And we always stand ready to work with the legislature and any members who want to work on legislation in this space, and we will continue to do so. I mean, so at a high level, that's really what we do. We help convene and collaborate and coordinate activities across the state on this space.

Well, I don't know if I can go into the higher risk ones, but in the lower risk one, the state has developed its own kind of generative AI tool called Poppy that was created by the Department of Technology, which is essentially a secured environment in which there is similar to like a chat GTP type effort where state departments can sign up and use that as a tool for doing their work, hopefully to streamline and speed up the way. in which their work is being done. So that is a low way because it done in a very secure environment It state We have everything We control it I not sure I can speak to a high example I don know if my colleagues at CDT have any high examples that they may think of

Is that because you're just not aware of what would be considered a high-risk? I may not be aware of what would be considered high-risk.

I will say that we did develop, CDT developed as part of the first EO. there is a risk assessment process that departments are supposed to follow when evaluating whether or not they're, you know, the type of Gen AI tool they're going to use. I don't know all the details about it. I'm probably not that one to speak to it, but I do know that that was considered and that there is a process in place to evaluate the risk of Gen AI before a department can procure a Gen AI tool or use a Gen AI solution as part of an IT project.

Finance has nothing to add right now. Thank you.

No, I appreciate what you're saying. I mean, in AI, it is changing almost daily. And for people that work in this space who are experts. I'm sure it's a lot to keep up with, but for the vast majority of people who aren't working in this space, I think there's quite a bit of individuals that just aren't sure what they're seeing and what's real, what's not real. I know that there is going to be some pieces of legislation moving forward that will be asking to put markers on, so forth, if you're not sure. But it's a tool that's exceptional, but it's also in the field out there, we're already seeing real results of fake images, all of these things. You mentioned the state poppy chat. I actually like that. I think the more we can do with branding California, and I know we're going to hear about the Golden State Network, but those are things that are internal. And even though we're not asking, and at this point, there isn't a request or a requirement to put out reports, I do think the more You can communicate with the legislative body, particularly, and it's going to come up next with Middle Mile Department of Technology. All of these issues that the state is moving forward with, it's a very small in-house group, whether you're on the budget or you happen to be on the committees, maybe at CNC, you might know about these. but the broad public, including legislators, don't know. Like if we were to say the state poppy chat GP, I don't think they would know about that. It's the first I've heard of it today. So making sure if there are going to be these type of initiatives that we can start, in essence, branding those or the Golden State Network. If we were to go out there, we'll talk about it next. Do people know what that really is? But with that, no other questions. Anybody from the public wanting to speak? Not seeing anybody. We appreciate you. Thank you. And we will be going to our next California Department of Technology, which, of course, intersects. There's our good Middle Mile friend. But do you see I'm using these terms like Middle Mile and Golden State Network and State Poppy Chat GP? We want the public of California to know what we're talking about, so it's not just kind of an in-house discussion. That being said, Mr. Monroe, welcome.

The Bishop Paiute Tribe.

Correct.

Thank you. Appreciate that.

LAO. Thank you, Chair. Zin Ma with the LAO. The agenda already provides a very comprehensive background on the Middle Mile Broadband Initiative. The LAO would just like to highlight a few things for the legislature. In terms of progress on the network itself, 423 miles of the more than 8,100 mile network are complete and ready to connect. The remaining miles of the network are in various stages of construction and the expected timeline for completion is December 2026 but that may lag into the early months of 2027 and in terms of funding most of the appropriated funds which is about three point eight billion dollars have been encumbered only about 68 million remains unencumbered we recognize that there's been significant progress on the network but there are still major outstanding milestones ahead one thing that we would like to note for legislature is this new three-party structure that the department has introduced with the addition of a separate operator to oversee the day-to-day operations of the network This is a completely novel arrangement for the state having the department the third administrator as well as this operator And it raises some operational and accountability issues down the road For example, if there are service disruptions or performance issues, it may be difficult to pinpoint which party is responsible for resolving the issues. We encourage the legislature to ask the department how responsibilities are defined between CDT, the third-party administrator, and this operator. And something that our office has flagged previously that remains a concern is the long-term sustainability of the network. This is a massive public infrastructure investment, and the question of whether it can cover its own operating costs without ongoing state support remains a question. We encourage the legislature to keep this in mind as the network moves into operation.

Absolutely. Thank you for those questions. First of all, in terms of the three-party arrangement, going back to SB 156, SB 156 acknowledging that the state had never done anything like this before. This is a very unique project. Required CDT to hire a third-party administrator to help manage the project. And it lists a certain number of activities there that are kind of falling into two categories, development of the network, you know, your construction, whether you're leasing, and the whole design of the network, the development side, and then also the operations side. And so when CDT immediately contracted with Golden State Net, which the statute's fairly focused in terms of kind of who could qualify and Golden State Net qualified. And so we contracted with them immediately in 2021, and they began helping us with the development work. And so in terms of their role, their role has always been really that to help manage it. Right. We want to make sure we have somebody doing this who has more experience as that industry experience in developing and operating a network and making sure that it's being done correctly. And so the TPA doesn't actually do the development work at Caltrans and a number of about 15 different partners are all working or doing the developing work for the network. But the TPA and its function has helped to manage that and make sure that as we develop it, everything works. We're developing the right, you know, doing the right engineering, the right technology, and to make sure that when the whole thing is plugged together, it actually works. And so that was really the role of the TPA. We're moving now into operations. operations. And so they, they were finalizing another contract with, again, with Golden State Net as the TPA to continue filling that management role for, for the operations of the network. And so they will, they're going to go ahead and there'll be our operator or there'll be our, our third party administrator helping to manage the operations. and then we have contracted with Skyline Technologies to be the actual operator. And then we will, the Golden State Net will serve as CDT's manager to make sure that as the network is operated, it operated to the state standards Thank you Who will be responsible for maintaining long entire network Skyline will be. Skyline. Yes. And Skyline will have a help desk and all of that, any questions about the network, any concerns would all go through that help desk.

Thank you so much, Chair. Thanks for your presentation. Thanks also for the map specific to my district. That's very helpful. And just to clarify for this item, so currently right now, since you're still continuing to build out the network, no households are currently being served because this program is not yet online. Am I understanding of that correct?

Um, that's kind of going to be my, my next question is why are we waiting to serve households and families and communities? Um, you know, it doesn't seem like, I mean, we'd love to hear more about what the delay is of waiting until we build every last mile. because I think the completion date is December 2026 until likely 2027, which I know is only around the corner, but you know this, given your work around the digital divide. Is there plans to start having the network go live to help some of these neighborhoods and households where we have the capacity?

We also have to build these huts every 50 miles, put in the electronics. There's power utilities have to go to those. Everything has to be able to connect back to the existing Internet. So we're doing all of these things at the same time, and as soon as we have a segment, we plan to light it up. So starting in July, we expect to be able to start serving approximately 1,300 miles of the over – thousand mile network. And was this December 2020, was that the original completion date or did that have to is that delayed? That was the original completion date. It was really driven by the fact that when this was all started in 2021, it was federally funded from ARPA funding, American Recovery Plan Act, I think. It was originally all funded with ARPA. And the ARPA funding had to be under contract by the end of 2024. And in terms of all of the funding, we were 15 months ahead of schedule on that. And then it had to be liquidated with, you know, presumably fully, you know, functioning network by the end of 2026. Subsequent budget actions have swapped this out for general fund. And so there's the state now has until, I think, until December 31st of 2028 to spend that, but we're still shooting for that December 31st, 2026 deadline because the need is there and we're going as quickly as we can. Thanks for sharing that. Yeah, I would love to follow up with you afterward

So with over several budget acts, about $3.8 billion has been appropriated. And of that, I think the LAO correctly referenced that approximately $60 million has yet to be put under contract. So all the rest has already been, when you say spent, it's already under contract. And then, and I apologize, in terms of the liquidation numbers, it's the majority of that is, yeah, I want to say it's about $2.5 billion has been liquidated, but I'd have to get back to you on the specifics of that.

Absolutely So I would say their strongest presence is in Maryland where they operate the network Maryland their 3 network that I noted But they also operate networks in Texas and Florida, I believe some other states. And so they have a presence in all of those states, and they have a presence in California through the data center in the Bay Area. And then they have partners that will actually be doing that daily maintenance and operation of the network here in California. And so as we went through, we had, I think, eight different companies that bid. We were really excited to have Skyline. Obviously, their price fit with what we were hoping for. But really, the experience. So we're developing a network that really hasn't been done before. And so to be able to find somebody to operate that actually has experience operating a similar network, that was really a deciding factor.

You're welcome.

Anybody from the public wishing to speak on this item? Seeing none, this is information only. only, so we will move to our next item, which is Middle Mile Network. And we'll go ahead and hear from what?

So Mr. Monroe.

I believe the last question here is really relative to what's in the budget. And so we had asked for two changes. One of them is budget bill language relative to the encumbrance or the encumbrance period. And so back in, as I noted, about $550 million was appropriated over the past couple of years to help fund the project. And we're getting, as is noted, that almost all of that has been already under contract. But as we move our period for putting that under contract, for basically encumbering it, it would end at the end of 2026. And so what we're trying to make room for is that we still have until the end of 2028 to liquidate the funds. And so, I mean, they're still going to be there and on the books. But if as we we always tried to get this out to the people as quickly as possible They really need the service And we always tried to make that a priority So if as we move into the first and second quarter of 2027 trying to finalize if I need to move money between contracts, if I've got one builder who is struggling with maybe some bad weather in a certain area, if I just need to move some funding or miles between contracts, under this limitation, under current law, I would not be able to do that. I would have to come back to the legislature, which would, you know, potentially, definitely delay the project. So what we're really trying to do here is kind of a belts and suspenders approach. I want to make sure that as we move towards completion, we can make any final changes we need to. It's a zero net dollars, but it would allow us the flexibility to be able to adapt and make any last-minute changes.

Department of Finance.

Thank you, Chair. Nothing further to add.

Five. Five.

Oh, we're leaving it open.

Non-presentation items. All right.

Thank you. Thank you.