BILL ANALYSIS Ó AB 633 Page 1 Date of Hearing: March 22, 2011 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Mary Hayashi, Chair AB 633 (Olsen) - As Introduced: February 16, 2011 SUBJECT : California State University: acquisition or replacement of motor vehicles. SUMMARY : Removes the California State University (CSU) from the definition of "state agency" for the purposes of state fleet purchasing requirements and oversight by the Department of General Services (DGS). EXISTING LAW : 1)Defines "state agency" to include every state office, officer, department, division, bureau, board, and commission. 2)Defines "state agency" to include each campus of the CSU, as of July 1, 2012, and subjects CSU to DGS acquisition and replacement of motor vehicles. 3)Requires CSU, by June 30, 2008, and by June 30th of each year thereafter until July 1, 2012, to report to the Legislature on its motor vehicle procurement, including the following: a) An inventory of motor vehicles by campus and type, consistent with the fleet report to DGS; b) The number of vehicles purchased during the prior fiscal year (FY), by campus and type; c) The average time taken to complete procurement of each motor vehicle purchased during the prior FY; d) Any changes in policies or procedures made during the prior FY relative to motor vehicle procurement and contracts, and the identification of any vehicles procured pursuant to the new policy or procedure; and, e) The estimated cost savings associated with management by CSU of motor vehicle procurement, including average time to complete procurements, reduced administrative costs, AB 633 Page 2 reduced charges paid to DGS, and competitive or reduced market prices obtained for vehicles. 4)Provides that no surplus mobile equipment may be acquired from any source by any state agency for program support until DGS has investigated and established its need. 5)Prohibits a state agency or department, including DGS, from purchasing new vehicles without the approval of the Department of Finance (DOF) and the secretary or director of the agency or department requesting the purchase. FISCAL EFFECT : Unknown COMMENTS : Purpose of this bill . According to the author's office, "SB 1757 (Denham), Chapter 926, Statute of 2004, inadvertently included CSU under a new and duplicative process for purchasing vehicles. For several years, this legislation cost CSU over $240,000 per year to support the DGS Fleet Management Program despite the fact that CSU is less than two percent of DGS's total purchases statewide. "In 2007, AB 262 (Coto), Chapter 679, Statutes of 2007, suspended Ýprovisions of SB 1757 related to] DGS approval for vehicle purchasing and required the CSU Board of Trustees to report annually to the Legislature until June 30, 2012, certain information regarding motor vehicle procurement. "These reports show how CSU was able to procure their vehicles in a more timely and cost-saving manner. AB 633 will allow the CSU to continue to procure vehicles cost effectively." Background . DGS serves as the state's motor vehicle fleet manager. While some state departments have delegated vehicle purchasing authority, others must request vehicle purchases through DGS. This bill, AB 633, eliminates the requirement that CSU obtain approval from DGS prior to purchasing vehicles and excludes CSU from the requirements of Executive Order (EO) B-2-11 by redefining "state agency" to exclude CSU for vehicle purchases. This bill takes a different direction than recent legislation relating to CSU and the state fleet. AB 262 (Coto), Chapter 679, Statutes of 2007, required CSU to purchase cars through DGS and be subject to DGS oversight as part of the state AB 633 Page 3 fleet by redefining "state agency" to include each campus of the CSU for vehicle purchases, as of July 1, 2012. If this bill passes, the statutory provision requiring DGS approval and oversight of CSU for fleet purchases approved in AB 262 will not take effect. In the past few years, due to the budget deficit, there have been several pieces of legislation and executive orders seeking to reduce the size of the state fleet. In July 2009, Executive Order (EO) S-14-09 was signed, prohibiting all state agencies and departments from ordering or purchasing new vehicles for non-emergency use. Exemptions could still be approved by the Director of DGS, subject to review by the Consumer Services Agency Secretary, and only when the purchase was necessary to protect public health and safety, provide critical services and functions, utilize federal stimulus funding, or achieve cost savings. In October 2009, the DGS deputy director overseeing the state fleet resigned over the controversy that DGS and the Department of Transportation spent $5.5 million on new vehicles left idle during a budget deficit. In response, the Assembly Committee on Accountability and Administrative Review held an oversight hearing in February 2010 on state expenditures for vehicle purchases. As a result, AB 2031 (Evans), Chapter 247, Statutes of 2010, prohibited a state agency or department, including DGS, from purchasing new vehicles without the approval of DOF and the secretary or director of the agency or department requesting the purchase. On January 27, 2011, upon assuming office and facing a $25 billion budget deficit, Governor Jerry Brown issued EO B-2-11, which requires agencies and departments to review home-storage permits and fleet usage and submit a plan to DGS to withdraw vehicles that are non-essential or cost-ineffective to be later sold. Like its predecessor, EO B-2-11 also prohibits the purchase of non-emergency vehicles, unless the vehicle is essential for health and safety purposes or realizes cost savings. The sponsors of this bill, the CSU Board of Trustees, contend that CSU previously was authorized to independently purchase goods and services, and did so more efficiently than purchasing through DGS. AB 1191 (Aguiar), Chapter 1097, Statutes of 1997, authorized the CSU Board of Trustees to lease any real property AB 633 Page 4 for use by CSU and procure goods and services, including telecommunications goods and services, without going through the DGS approval process. CSU's procurement of its own vehicles ended in 2005, with the passage of SB 1757 (Denham), Chapter 926, Statutes of 2004, which established requirements for the acquisition of motor vehicles under the supervision of DGS. SB 1757 authorized DGS to collect a fee from CSU to offset the cost of services provided. CSU contends DGS charged CSU $80 per vehicle per year for service costs. AB 262 (Coto), Chapter 679, Statutes of 2007, afforded CSU the opportunity to purchase their own vehicles under their own policies, and subject to annual reporting requirements to both the Legislature and DGS, until July 1, 2012. CSU maintains that this sunset date was negotiated to allow enough time for CSU to collect data and prove that their vehicle procurement was more cost effective than vehicle procurement through DGS. CSU began reporting its vehicle procurements to the Legislature in 2008 by providing two reports. The first report was split between the period July 1, 2007 to December 31, 2007 when DGS was controlling CSU vehicle purchases and the second report was split between the period January 1, 2008 to June 30, 2008, when CSU was controlling its own vehicle purchases. CSU writes that it "was charged approximately $153,000 in DGS Fleet Administration fees. Although DGS was only servicing CSU for the first six months of the fiscal year, CSU was refused reimbursement for the last six months when DGS was not providing services. CSU also paid approximately $10,400 in DGS procurement fees for the 22 vehicle 'approvals' from DGS. CSU still issued all purchase orders and made payment directly to the vendors. "It is very difficult to associate any estimate to savings in actual vehicle costs resulting from CSU processing vehicle procurement without DGS involvement? CSU experienced an average DGS approval processing time for a 'passenger' vehicle of 63 days for 20 vehicles versus 13 days for the 37 vehicles purchased directly by CSU without DGS involvement. Due to the nature of CSU campus vehicle fleets, when a campus requires a vehicle, it is typically an immediate requirement where the additional time to procure a vehicle means substantive loss of program productivity." AB 633 Page 5 CSU claims that it has been fiscally responsible in managing its fleet and was never intended to be captured under DGS vehicle procurement in SB 1757. CSU purchased 86 vehicles for FY2007-08, 81 vehicles for FY 2008-09, and 43 vehicles for FY 2009-10. The decline in purchase of vehicles has been attributed to recent budget reductions, with a steady purchase of vehicles for campus police. CSU states that while recent budget reductions have decreased its number of vehicle purchases, CSU could still acquire vehicles at a cost savings of approximately $500 per vehicle and 50 days earlier than if CSU were to utilize DGS to procure its vehicles. Staff notes that deleting CSU from the definition of state agency would remove CSU from the requirements of EO B-2-11 and would delete CSU's annual reporting requirements to the Legislature and DGS. Support . According to the sponsor, CSU, AB 633 would "eliminate duplicative administrative processes by making permanent ÝCSU's] ability to purchase vehicles for academic programs and personnel. Since 1986, the CSU has had the authority to make all procurements, including purchasing vehicles within state law. The CSU was awarded this authority after successfully demonstrating Ýthe] ability to be more responsive to the unique needs of Ýtheir] campuses and their faculty, staff, and students. ÝIt was] also demonstrated that the CSU can be more efficient in the use of taxpayer dollars without unnecessary and duplicative work by the DGS." Prior Legislation . AB 2031 (Evans), Chapter 247, Statutes of 2010, prohibited a state agency or department, including DGS, from purchasing new vehicles without the approval of DOF and the secretary or director of the agency or department requesting the purchase. AB 262 (Coto), Chapter 679, Statutes of 2007, required CSU to purchase cars through DGS and be subject to DGS oversight as part of the state fleet by redefining "state agency" to include each campus of the CSU for vehicle purchases, commencing January 1, 2012. AB 262 also deleted mandatory annual fleet reporting requirements and cost savings information from CSU to DGS. SB 1757 (Denham), Chapter 926, Statute of 2004, established requirements for the acquisition of motor vehicles under the supervision of DGS, and encouraged the University of California to follow these requirements. AB 633 Page 6 AB 1191 (Aguiar), Chapter 1097, Statutes of 1997, authorized the CSU Board of Trustees to lease any real property for use by CSU, and procure goods and services, including telecommunications goods and services, without going through the DGS approval process. REGISTERED SUPPORT / OPPOSITION : Support California State University (sponsor) Opposition None on file. Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916) 319-3301