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Fee commission concludes agency lost accreditation due to budget cuts

The State Agency Fee Commission met Sept. 26 for its first review of how recent budget cuts and sweeps have affected state agencies.

A review of two agencies reached these conclusions:  The state Land Department seems to have weathered the budget crisis fairly well, but the Department of Financial Institutions has had a rougher time making ends meet.

The DFI lost accreditation with two national associations because it didn’t have the budget to hire enough personnel to keep up with the required rates of examining financial institutions.   A report by the Governor’s Office of Strategic Planning and Budgeting said the loss of accreditation occurred even though the agency was generating a surplus in fees from other programs, which was being deposited back into the general fund.

The department has since added more examiners to its staff, which has added costs to the program that the related fees don’t cover.  State Rep. Amanda Reeve, R-Phoenix, the commission’s chairwoman, noted that this is just one example of the kinds of problems the commission was created to address.

“There’s a clear indication that because we didn’t appropriate funds correctly.  We had an issue where we couldn’t get accreditation and that’s a real concern… so I applaud OSPB for bringing that to our attention,” Reeve said at the meeting’s conclusion.

“The last thing we want to do is lose any primacy that we have over a program to the federal government or we don’t want to be not accredited because we are not funding properly,” she added.

In contrast, while Land Department representatives mentioned facing budget challenges, the agency came out of the economic downturn relatively unscathed.  Richard Bark, a lobbyist and commission vice chairman, praised the department for  the way it handled its changing funding structure.

“I think the state Land Department has done a great job. Of all the agencies they have had the most twist and turns,’’ he said.   Bark, per commission bylaws, disclosed at the meeting that his employer, Freeport McMoRan, frequently pays fees to the agency.

The Office of Strategic Planning and Budgeting presented reports on the two departments to commission members – a mix of legislators, business community representatives and state department heads formed by legislation during the 2011 session.   The reports detailed the agencies’  fees, methods for setting them and how well they support the regulatory programs.

The office found that the Land Department and DFI had programs that deposited more into the general fund than was required to run the programs, but both also had programs or activities that couldn’t be completely funded by fees.

Most of the commission members’ questions focused on exactly what the agencies’ fees paid for and whether they subsidized activities unrelated to the programs for which they were imposed.

“Now that we have moved to more of a fee-based funding due to the economy, we have to really make sure that we are not gouging people just to stay afloat because we haven’t been running efficiently,” Reeve told the Arizona Capitol Times.

However, she also cautioned that it is the Legislature’s responsibility to avoid drawing so much money from the programs that they can’t be self-sustaining.

“It doesn’t make sense to charge a fee, sweep that and then say, ‘Oh, guess what? Your fees are going up because we don’t have enough money to run that program’… that is what we are really trying to stay away from,” she said.

The commission’s powers include establishing a fee review process, reviewing agencies and producing a yearly report.   Reeve said she hopes the process will not only be a source of information for members of the Legislature, but that participants will form the foundation of an informed community that can debate and support whatever legislation is proposed as a result of the reviews.

“I think that is where the power really lies, in the information that we are going to be able to present… We need to make sure that when [agencies] come to us and say ‘this is what we need,’ we need to make people understand that sometimes it’s not a bluff,” Reeve said in an interview.

“A lot of people just assume that there’s going to be some kind of federal funding for each of these. Well, there’s not and so we are showing people where the money is coming from,” she added.

By statute, the commission does not review the Arizona Supreme Court, the Court of Appeals, agencies that are headed by an elected official, or regulatory agencies that are governed by a board.  For those that do fall within the commission’s purview, a total of 80 agencies, the commission must review each of them at least once in five years.

The commission is set to review the Department of Environmental Quality and the Department of Weights and Measures before the end of this year and will produce a report about all four agencies for the governor and the Legislature by December 31.

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