BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 564| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 564 Author: Portantino (D) and Lowenthal (D) Amended: 9/1/09 in Senate Vote: 27 SENATE HEALTH COMMITTEE : 7-2, 7/15/09 AYES: Alquist, Aanestad, DeSaulnier, Leno, Negrete McLeod, Pavley, Wolk NOES: Strickland, Cox NO VOTE RECORDED: Cedillo, Maldonado SENATE APPROPRIATIONS COMMITTEE : 13-0, 8/27/09 AYES: Kehoe, Cox, Corbett, Denham, Hancock, Leno, Oropeza, Price, Runner, Walters, Wolk, Wyland, Yee SENATE FLOOR : 20-5, 9/9/09 (FAIL) AYES: Alquist, Calderon, Corbett, Correa, DeSaulnier, Hancock, Kehoe, Leno, Lowenthal, Maldonado, Negrete McLeod, Padilla, Pavley, Price, Romero, Simitian, Steinberg, Wiggins, Wolk, Yee NOES: Ashburn, Cedillo, Cox, Denham, Ducheny NO VOTE RECORDED: Aanestad, Benoit, Cogdill, Dutton, Florez, Harman, Hollingsworth, Huff, Liu, Oropeza, Runner, Strickland, Walters, Wright, Wyland ASSEMBLY FLOOR : Not relevant SUBJECT : Substance abuse treatment: prohibition of excessive salaries SOURCE : Author CONTINUED AB 564 Page 2 DIGEST : This bill limits the maximum amount of public funds in the Substance Abuse Treatment Trust Fund that may be used for compensation of a director, officer or employee of a nonprofit entity that provides substance abuse treatment in California to the salary limitations established by the federal government. ANALYSIS : Existing law provides for the licensure of substance abuse treatment programs by the Department of Alcohol and Drug Programs (DADP). Existing law, Proposition 36, establishes the Substance Abuse and Crime Prevention Act of 2000. It requires that non-violent drug possession offenders and parolees receive drug treatment in lieu of incarceration. It also establishes the Substance Abuse Treatment Trust Fund, which requires the transfer of money from the General Fund commencing in fiscal year (FY) 2000-01 and ending in 2005-06 for allocation to counties through a specified distribution formula. The program received General Fund transfers of $60 million in start-up funding in FY 2000-01, and $120 million annually from FY 2001-02 through FY 2005-06. In the following years, the Legislature appropriated $120 million in FY 2006-07, $100 million in FY 2007-08, and $90 million in 2008-09. There is not an appropriation for this program in the FY 2009-10 Budget. Funds are used by counties to provide drug treatment programs, vocational training, and family counseling, among other programs. This bill provides that the following restrictions shall apply to the compensation of any director, officer, or employee of any corporation providing substance abuse treatment in the state, and shall be required terms of any contract entered into in the state to provide drug treatment if, under that contract, public funds are to be used to provide the drug treatment: 1. The maximum amount of public funds that may be used for compensation for a full-time director, officer, or employee shall not exceed the salary limitation established by the federal government on awards made by the federal Substance Abuse and Mental health Services Administration (SAMHSA). This amount shall be prorated AB 564 Page 3 for any person working less than full time. 2. Public funds shall not be used for compensation for any director, officer, or employee who collects rent from a substance abuse treatment facility unless that person certifies that he/she is in compliance with the federal Office of Management and Budget Circular A-122, relating to cost principles for nonprofit organizations. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund DADP data collection $100 $220 $50General/* and maintenance Federal * Substance Abuse Treatment and Prevention Fund - its sources are the General Fund, federal SAMHSA grants, and other federal funds. SUPPORT : (Verified 9/1/09) --- OPPOSITION : (Verified 9/1/09) California Association of Alcohol and Drug Program Executives California Association of Nonprofits California Opioid Maintenance Providers ARGUMENTS IN SUPPORT : According to the author's office, this bill is intended to limit excessive executive compensation paid with public funds allocated to drug treatment programs under Proposition 36. The author's office explains that under this bill, the amount of Proposition 36 grant funds that could be used for executive compensation would be limited to one percent of the grant AB 564 Page 4 multiplied by the percentage of revenues the organization receives from public sources, provided this limitation is greater than or equal to one-quarter of a percent. The author's office argues that this calculation ensures that programs receiving substantial public funding are allotted more funds for executive compensation than those funded by private sources, while still limiting compensation to a reasonable percentage. The author's office points out that the federal government, through the National Institute of Health, imposes a cap of $196,700 on salaries paid from grants. The author's office argues that California lacks a similar limitation to protect public dollars from being spent on excessive executive salaries and that this bill ensures that Proposition 36 funds are used for the purposes intended under the Substance Abuse and Crime Prevention Act of 2000. ARGUMENTS IN OPPOSITION : The California Association of Alcohol and Drug Program Executives (CAADPE) opposes the bill because although they agree with the intent of the legislation which is to assure that public funds are expended in the most efficient manner, they do not believe that this bill will achieve this goal. They argue that instead, it will result in less government efficiency. CAADPE also points out that this bill has not been properly vetted through the legislative committee process as the bill was amended on June 26 and is scheduled for hearing on July 15, 2009, which, they argue, is not enough time for adequate public policy discourse and for legislators to make informed decisions. They also question the need for a separate state standard, given that the federal government has standards governing executive compensation for SAMHSA grantees. CAADPE argues that to establish a separate and inconsistent state standard will require nonprofit agencies to establish recordkeeping procedures to meet two reporting and operating standards and would force nonprofit agencies to redirect a portion of public funds that otherwise would go to program support into administrative functions to account for the new state requirements outlined in this bill. They also argue that this bill sets arbitrary limits on cost allocation procedures and ignores federal tax rules related to non-profit organizations as well as generally accepted accounting procedures which are acceptable methods of determining cost allocation for rental property AB 564 Page 5 for agencies with multiple grants. They note that generally accepted accounting procedures take into consideration the fair market value of the leased property and cost allocation methodologies with agencies that have multiple grants and assign a proportion of the grant activity to the rental cost of the facility. DLW:mw 10/12/09 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****