FY 2010 BUDGET REDUCTIONS - SUMMARY OF ISSUES DEPARTMENT OF REAL ESTATE GENERAL FUND

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1 FY 2010 BUDGET REDUCTIONS - SUMMARY OF ISSUES DEPARTMENT OF REAL ESTATE GENERAL FUND FY 2010 General Fund Budget 3,266,400 AGENCY REDUCTION TARGET - GENERAL FUND $499,000 Priority Issue Title 1 Reductions Amount 1 Cost Savings - Agency Spending Reductions $45,000 2 ISA Termination - Attorney General & Central Services Bureau $34,250 3 Rent Forgiveness - Phoenix $55,697 4 Rent Forgiveness - Tucson $14,350 Elimination of Unfilled Positions and Appropriated FTE Reduction to Match Actual 5 Filled FTE $125,000 6 Salary Realignments - Across the board 15% salary reduction $118,157 7 RIF/Layoff (savings based in current salary) $109,960 8 Contingency Plan for Priority 3 9 Contingency Plan for Priority 4 10 Contingency Plan for Priority 5 Issue Total $502,414 Fund Total as a Percentage of General Fund Reduction Target 101% 1 Please complete the attached Description and Impact Statement for each issue. October 9, 2009

2 FY 2010 BUDGET REDUCTIONS - SUMMARY OF ISSUES DEPARTMENT OF REAL ESTATE ALL NON-GENERAL FUNDS FY 2010 All Non-General Funds Budget (less Federal Funds) 3,321,750 AGENCY REDUCTION TARGET - ALL NON-GENERAL FUNDS (w/o Federal Funds) $8,300 Fund Reductions Percent Amount Reductions Education Fund $3, % Recovery Fund $4, % Condominium Fund $ % Issue Total $8,300 All Non-General Funds Total as a Percentage of Agency Non-GF Reduction Target 100% October 9, 2009

3 FY 2010 BUDGET REDUCTIONS - SUMMARY OF ISSUES DEPARTMENT OF REAL ESTATE EDUCATION FUND FUND Priority FY 2010 All Non-General Funds Budget (less Federal Funds) 55,000 AGENCY REDUCTION TARGET - ALL NON-GENERAL FUNDS (w/o Federal Funds) $8,300 Issue Title 1 Reductions Amount 11 Transfer to General Fund $3,000 Issue Total $3,000 Fund Total as a Percentage of Non-General Fund Reduction Target 36% 1 Please complete the attached Description and Impact Statement for each issue. October 9, 2009

4 FY 2010 BUDGET REDUCTIONS - SUMMARY OF ISSUES DEPARTMENT OF REAL ESTATE RECOVERY FUND FUND FY 2010 All Non-General Funds Budget (less Federal Funds) 55,000 AGENCY REDUCTION TARGET - ALL NON-GENERAL FUNDS (w/o Federal Funds) $8,250 Priority Issue Title 1 Reductions Amount 12 Transfer to the GF $4,500 Issue Total $4,500 Fund Total as a Percentage of Non-General Fund Reduction Target 55% 1 Please complete the attached Description and Impact Statement for each issue. October 9, 2009

5 FY 2010 BUDGET REDUCTIONS - SUMMARY OF ISSUES DEPARTMENT OF REAL ESTATE CONDOMINIUM FUND FUND FY 2010 All Non-General Funds Budget (less Federal Funds) 55,000 AGENCY REDUCTION TARGET - ALL NON-GENERAL FUNDS (w/o Federal Funds) $8,300 Priority Issue Title 1 Reductions Amount 13 Transfer to the GF $803 Issue Total $803 Fund Total as a Percentage of Non-General Fund Reduction Target 10% 1 Please complete the attached Description and Impact Statement for each issue. October 9, 2009

6 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: Cost Savings Issue Priority: 1 Reduction Amounts: General Fund: $45,000 Total: $45,000 Issue Description and Statement of Effects: In accommodating the mandated FY 2009 budget modifications, and in preparing the FY 2010 budget, the Department downsized staff by 5 FTE positions, from 48.2 positions to the current 43.2 positions, as well as reviewing and modifying downward all other expenditures. This was accomplished while maintaining our statutory mandate of serving and protecting the public through licensure, balanced regulation, and proactive education of the real estate profession in the State of Arizona. As evidenced in chart Exhibit A below, current expenditures are projected as follows: Exhibit A October 9,

7 81% or $2,648,600 of the ADRE appropriation is allocated to staffing expenditures. 17% or $545,900 of the ADRE appropriation is allocated to fixed operating expenditures. o Phoenix & Tucson Rent ($322,900 & $32,100 respectively) o Risk Management ($50,500) o Archives Storage Rent ($18,000) o Attorney General s Office & Central Bureau Services ISA s ($52,000 & $16,500 respectively) o Utilities, etc. ($54,400) 2% or $71,900 of the ADRE appropriation is allocated to the day-to-day operations for the Department, including travel and equipment. Following Governor Brewers request for a 15% budget reduction, the Department has reviewed and evaluated all expenses. Considered expenditure reductions: $2,500 utilities savings Eliminate/combined phone lines. Effect Certain employees would share phone lines. Statute/Rule/Policy Change N/A $3,000 maintenance contract savings Cancel copier maintenance contracts effective January 1, Effect Should copiers malfunction and need servicing, the cost of having them serviced without a maintenance contract will cost more than continuing with current contract. Statute/Rule/Policy Change N/A $5,000 archives storage rent Revise filing processes according to Arizona Library & Archives Department suggestions. Effect o Additional staff needed. o Cost in time: staff will travel to the Archives office in order to file documents within existing files stored at archives. o Increase travel expense. Statute/Rule/Policy Change N/A October 9,

8 $6,500 travel savings Further cut travel expenditures around performing in-field subdivision inspections. Effect Public protection will be reduced, as the Department will be unable to inspect subdivisions for the adherence to the specifications as listed in the public report, allowing for an increase in complaints to the Department for public report violations. Statute/Rule/Policy Change ARS $8,000 operating/supplies savings Reduce supply purchases to below bare minimum standards. Effect o Necessitate modification of internal standards of processes. o Negatively impact the Department s day-to-day operations through the lack of paper, toner, file folders etc., which will lead to poor work product. Statute/Rule/Policy Change N/A $20,000 set-aside Utilize for operations purposes, the budget set-aside from the FY 2010 appropriation, which is a reserve for expenses, such as attrition and emergency capital replacement to ensure that essential services to its constituents would not be disrupted. Effect o The inability to compensate the terminated employee for their annual and/or holiday leave and compensatory time payout. o The possibility that emergency replacement of capital equipment could not be purchased, and therefore compromise the integrity of the Department s security, database and/or online services provided to licensees and the public. Statute/Rule/Policy Change Personnel Rules will need to be modified to allow for either the non-payment of leave balances, or the payment of the balances at a future time when the Department can absorb the cost. October 9,

9 Issue Priority: 2 Reduction Amounts: STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Issue Title: General s Fund: $34,250 Total: $34,250 Issue Description and Statement of Effects: Department of REAL ESTATE Interagency Service Agreement (ISA) Termination Consider the termination of two essential services that are contracted with other state agencies: the Attorney General s Office and the Department of Administration s Central Services Bureau. Attorney General s Office ISA Adhering to the Department s mission of protecting the public in their real estate transactions while serving the Industry, the Department has been provided additional legal services with this ISA. Under this agreement, the Department relies on the Attorney General s Office to confer with and proceed to hearing in a timely manner in reference to violations. Effect o Termination of this ISA will impact not only the Department but the Industry and Arizona Constituents. o Elimination of this ISA will hinder Department processes causing a backlog in cases; as a result, the department s efforts to pursue violators will be significantly impaired. This will jeopardize the Department s ability to serve and protect the public efficiently. o Elimination of this ISA will affect and decrease revenue to another state agency. Statute/Rule/Policy Change ISA agreement must be revised to allow for immediate termination (as of January 1, 2010) as the Attorney General s ISA has a 90 day cancellation notice requirement. Should this revision not occur, the savings generated would be lower and additional RIF/Layoffs would need to take place. Central Services Bureau (CSB) ISA This ISA was initiated following a General s Accounting Office (GAO) audit, and subsequent recommendations for best practices referencing Department processes; i.e. a separation of responsibilities for transactions (one employee controlled the entire transaction cycle from the preparation of claims for payment, approval of claims and the release of payment on the AFIS; the calculation of retro-active pay increases and the entry of information into HRIS, and payment to the employee; etc.) and accountability. October 9,

10 Effect o Elimination of this ISA may internally hinder the Department by not allowing for a separation of accounting duties. The Department will be faced with the same risk it faced prior to contracting with CSB. o All functions currently performed by CSB will be assumed by the Department s sole accounting staff person, with a shift in many duties to other staff members. o Elimination of this ISA will affect and decrease revenue to another state agency. Statute/Rule/Policy Change ISA agreement must be revised to allow for immediate termination (as of January 1, 2010) as the Central Services Bureau ISA has a 30 day cancellation notice requirement. Should this revision not occur, the savings generated would be lower and additional RIF/Layoff would need to take place. October 9,

11 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: Rent Forgiveness - Phoenix Issue Priority: 3 Reduction Amounts: General Fund: $55,697 Total: $55,697 Issue Description and Statement of Effects: With the RIF s and layoffs, and the streamlining of internal processes that were conducted to accommodate the reduced budget for FY 2010, the Department of Real Estate made a request with the Department of Administration (DOA) Building & Planning Services to relinquish a portion of its office space in the Phoenix office, located at 2910 N 44 th Street. This downsizing of square footage has occurred, yet a replacement tenant has not been found. The department has requested rent forgiveness for the portion of vacant and unused space to alleviate its financial burden. To date, the Department has received no concessions. Effect o The 2645 of square feet is currently vacant and not being utilized. o The Department remains financially responsible for the space until a replacement tenant is acquired, or if the DOA Director grants an exemption for partial payment. (ARS ) o Decrease revenue from another state agency. Statute/Rule/Policy Change Approval for exemption for partial payment pursuant to ARS CONTINGENCY PLAN should rent forgiveness not be granted Issue 8 October 9,

12 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: Rent Forgiveness Tucson Satellite Office Issue Priority: 4 Reduction Amounts: General Fund: $14,350 Total: $14,350 Issue Description and Statement of Effects: In June 2009 a request was made to the Department of Administration Building & Planning Services for permission to relinquish the Tucson office space, located in the State building at 400 W Congress, while being relieved of the financial burden of this space should a subsequent tenant not be found. To date, the Department has received no concessions. The FY 2010 Budget reflects the Tucson RIF/Layoff and termination of 3 employees (from the then 5 employees) to the current 2 employees, thus eliminating the need for the current 1468 square footage. The rent forgiveness would allow the Department s plan to downsize the service package, yet keep the Tucson office available to serve the constituents of Southern Arizona. Effect o The Department occupies a space that is larger than it needs, while remaining financially responsible for the space until a replacement tenant is acquired. o Decrease revenue from another state agency. Statute/Rule/Policy Change Modifying ARS to allow for agencies to downsize their square footage and alleviating them of their financial burden should they request to occupy other state space. CONTINGENCY PLAN should rent forgiveness not be granted Issue 9 October 9,

13 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: Elimination of Unfilled Positions and Appropriated FTE Reduction to Match Actual Filled FTE Issue Priority: 5 Reduction Amounts: General Fund: $125,000 Total: $125,000 Issue Description and Statement of Effects The current actual staffing level of 43.2 FTE positions is 15 unfilled FTE positions less than the FY 2010 appropriation charges of 58 FTE positions. The requested concession of $125,000 for these 15 unfilled FTE positions includes the Medical & Health Sweep savings that would accompany the FTE reduction. The requested savings to the Department would generate the equivalent of a downsizing by 8.2 employees as of January 1, The Department is streamlining internal processes to allow the Department to no longer hold these unfilled FTE positions for future hiring needs. Effect There is no need to hold and be charged for these unfilled positions. Statute/Rule/Policy Change Require legislature approval to enact the aforementioned request. CONTINGENT PLAN should the elimination of unfilled FTE and the alignment of Health & Dental Expense to actual approved FTE not be granted Issue 10 October 9,

14 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: 15% Salary Reduction (Across the Board) Issue Priority: 6 Reduction Amounts: General Fund: $118,157 Total: $118,157 Issue Description and Statement of Effects: A 15% salary reduction across the board (based on 43.2 filled FTE positions at current salaries). Effect o A decline in employee morale due to the perception that they are being asked to perform and take on additional duties/responsibilities for less pay. o The possibility that valuable employees will seek employment elsewhere to compensate for their salary reduction. o The potential that employees with institutional knowledge opt to seek retirement. Out of the current 43.2 employees, 24 are eligible for retirement; that is more than ½ the Department s staff. Combined institutional knowledge of employees eligible for retirement is 391 years. Statute/Rule/Policy Change o Modification of statutes and/or personnel rules to allow covered employees salaries to be reduced, as well as a reclassification of some positions. o Modification of salary schedules to adjust ranges for minimum entry level pay. o Flexibility in the State s current hiring freeze mandate to accommodate for possible attrition due to the salary reductions. October 9,

15 Issue Priority: 7 Reduction Amounts: General Fund: $109,960 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Total: $109,960 Issue Description and Statement of Effects: Department of REAL ESTATE Issue Title: RIF / Layoffs (6 FTE Positions) Reducing ADRE workforce by an additional 6 employees from the current 43.2 filled FTE positions to 37.2 FTE positions, will negatively impact the Department, the Public and the Industry. The charts below are indicative of how the real estate industry has grown and continues to maintain growth levels (Exhibit C), while current staffing levels (Exhibit B) are indirectly correlated to market growth. Exhibit B ADRE 6-YEAR REVIEW Approved FTE vs. Filled FTE Exhibit C ADRE 6-YEAR REVIEW Arizona Licensees & Entities October 9,

16 Overall Agency Effect Reduce each division by one staff member. Dramatically impact Department process levels, resulting in drastically reducing customer service levels, violating existing Statute requirements, and adversely affecting revenue generated to the General Fund. Decrease in service measures to protect the public. Decrease in service performance measures around balanced regulations of Industry. Decrease in approval process timeline adherence for license education. Decrease in Department staff morale due to perception of being asked to do more for less. Decrease in revenue to the State General Fund (Estimated decrease of $232,500 annually). The chart below (Exhibit D) is indicative that revenue is proportional to staffing levels. Reducing staffing levels for the Department will reduce General Fund Revenues. Exhibit D ADRE 6-YEAR REVIEW ADRE Appropriation vs. Revenue *Revenue decrease with proposed revenue decrease Statute/Rule/Policy Changes The requirement for legislative statute change, modification of rules and/or policy governing the agency will be outlined by division as needed. To fully understand the impact and results of downsizing the Department, this report will review each division, the effects and any possible Statute, Rule and/or Policy modification/change/repeal that may be need in order to accommodate this reduction. October 9,

17 LICENSING DIVISION The Licensing Division is responsible for the approval and issuance of licenses, the background investigations of all new license applicants, the renewal of licenses every four years, and the monitoring of license compliance. Services & processes impacted as a result of downsizing the Licensing Division Current Service Level Diminished Service Level Process licensing applications containing criminal disclosures 45 days 75 days Process fingerprint cards on all new license applications 400 cards / month 200 cards / month Process new license applications (approx annually) Same day 30 days Processing and responding to licensing incoming mail 1 ½ weeks 3 weeks Response time for returning voic / hours hours Process entity licensing applications (600 applications annually complex process requires Department office visit and more time) General Fund Revenue (license applications; estimate that 300 $ = $60,000 would not be processed timely) 2 weeks 4 weeks $1,120,000 $1,060,000 Effect The Department s ability to meet its statutory mandate of serving and protecting the public will decline dramatically. The Department will decrease the walk-in accommodation for license processing from the current 5 day a week to 3 days a week. Diminished customer service resulting in extreme dissatisfaction from our customers, the Public and the Industry. Customer dissatisfaction will cause a spiral effect of complaints received by the Department, the Ombudsman s office, the Governor s office, legislators and so forth. An increase in wait time in handling incoming calls, calls on hold and the return of calls/ s will lead to miscommunications, misinformation being disseminated and a possible increase in violations of the law, as the majority of communication with the Department is educational in nature. Violations of the law will increase Department s caseload, as the need for investigations occur, with the ramifications of lesser disciplinary actions against licensees/violators. October 9,

18 General Fund revenues reduced by $60,000. Per ARS (see chart below), the Department has certain timeframes to perform tasks, (i.e. processing individual salesperson/broker applications and renewals, with or without disclosures). If process times exceed overall allowed timeframes the applicant must be refunded the fees paid at the time of application. ADRE estimates average of 25 applications $200 will not be processed timely (total dollars = $60,000 annually). Licensing Timeframes (Calendar Days) Statute/Rule/Policy Change All Statutes and Rules as outlined in the aforementioned chart. October 9,

19 EDUCATION DIVISION The Education Division is responsible for establishing and enforcing the standards for prelicensure and continuing education requirements. The division is responsible for issuing real estate school licenses, approving credentials of instructors and the course content to be taught, as well as ensuring that Statutes are adhered to by schools and instructors. Audits are performed to ensure that all education has been approved by the Commissioner, with certification of student performance and attendance including documentation of attendance. Services & processes impacted as a result of downsizing the Education Division Current Service Level Diminished Service Level Process new education applications and renewals for school, courses and instructors (2700 applications/renewals annually) 2 weeks 4 weeks Process and respond to education incoming mail Same day 2 weeks Response time for responding voic / hours hours Eliminate the ability to audit schools, courses and instructors 30 / month 0 / month Effect The Department s ability to meet its statutory mandate of serving and protecting the public will decrease dramatically. The Department has implementing a monitoring/auditing program to ensure that the adherence of schools, instructors and course content is to the approval of the Commissioner. This program would be discontinued. Increase in potential harm to the Public and Industry and the Department s inability to properly protect the public and industry. Per ARS (see chart below), the Department has certain timeframes with regard to approving schools, courses and instructors. When timeframes are not adhered to, the application receives a default approval (class can be taught). If courses, instructors and schools are not reviewed, approved and/or audited, then the potential for misreporting, incorrect information/materials of industry standards may be disseminated to licensees with the potential of causing harm to the Public in that licensees are not properly educated in the field of real estate. When considering that the Industry is responsible to the management of contracts, trust accounts and ultimately buying and selling real estate property in Arizona, the potential for violations in Statutes and Rules and causing detrimental monetary harm to the Public is tremendous. Education Timeframes (Calendar Days) Statute/Rule/Policy Change All Statutes and Rules as outlined in the aforementioned chart; ARS ; AAC R October 9,

20 SUBDIVISION SERVICES & INVESTIGATIONS DIVISION The Subdivision Services Division provides the approval and issuance of a public report to subdividers and subdivision developers. The Subdivision Investigations Division is responsible for investigating complaints around subdivision and Public Report violations as well as illegal sudividers. Services & processes impacted as a result of downsizing the Subdivision Services & Investigations Division Current Service Level Diminished Service Level Average # of subdivision cases closed 120 annually 72 annually Average # of months to close a subdivision violation investigation 10 months 15 months Average # of subdivision/timeshare inspection conducted 16 / month 8 / month Average # of days for subdivider Public Report issuance (480 Public Reports issued annually) 45 days 70 days General Fund Revenue (subdivision violation fines) $200,000 $140,000 General Fund Revenue (Public Reports new and amended; estimate that 50 $ = $22,500 would not be processed timely) $250,000 $227,500 Effect The Subdivision Services & Investigations Divisions may not fulfill the Agency s statutory mission to protect the public as per ARS While Arizona continues to see a rise in fraudulent schemes, such as illegal subdividing and home builders defaulting on their Public Report, the Department s ability to investigate violations and/or enforce compliance to protect Arizona Constituents will diminish. A decline in services will cause harm to the Public, property values, and delay the processing of many cases. General Fund revenue decrease of $82,500 due to a decrease in civil fines and untimely processing of public reports. Statute/Rule/Policy Change Subdivision Public Report Application & Timeshare application: ARS ; ; ; ; ; ; AAC R ; R4-28-B1202; R4-28-B1203; R4-28-B1204 Modification in Statute pertaining to Subdivision Investigation requirements: ARS Title 32, Chapter 20 October 9,

21 AUDITIING & REAL ESTATE INVESTIGATIONS DIVISION The Auditing Division utilizes the process of audits of financial records pertaining to trust accounts of any real estate transactions conducted in Arizona to ensure Broker compliance with Real Estate Statutes and Rules. The Real Estate Investigations Division oversees the activities of real estate licensees, as these practices apply to real estate law. Services & processes impacted as a result of downsizing the Auditing & Real Estate Investigations Division Current Service Level Diminished Service Level Process Broker Audit Declarations 105 / month 70 / month Process Electronic Broker Audit Reviews 75 / month 50 / month Average # of real estate investigation cases closed 70 / month 45 / month Average # of months a real estate investigation is open 5 months 8 months General Fund Revenue generated through audits resulting in civil fines $60,000 $40,000 General Fund Revenue generated through subdivision investigations resulting in civil fines $150,000 $90,000 Effect The Auditing & Real Estate Investigations Divisions are critical to fulfilling the Agency s statutory mission to protect the Public as per ARS A decline in the number of complaints investigated which address the failure of licensees to disclose criminal convictions; unlicensed activities; website/advertising violations and many other violations that may potentially harm the public. A decrease in the number of audits performed thus allowing the potential for unaccountability of public trust accounts and a decline in the regulation of licensee activities. A reduction in public protection. General Fund revenue reduction by $80,000 in civil fines, due to a decrease in investigation and enforcement violations. Statute/Rule/Policy Change Modification in Statute pertaining to Real Estate Auditing & Investigation requirements: ARS Title 32, Chapter 20 October 9,

22 ENFORCEMENT & COMPLIANCE DIVISION The Enforcement & Compliance Division is responsible for taking action on licensees and nonlicensees for violating real estate laws. Actions include but are not limited to: Intent to Deny Letters, Summary Suspensions, Consent Orders, Commissioner s Final Orders, License Revocation, etc. Services & processes impacted as a result of downsizing the Enforcement & Compliance Division Current Service Level Diminished Service Level Average # of months a case is open 15 months 20 months Average # of closed cases 1131 annually 700 annually General Fund Revenue generated through actions resulting in civil fines (in addition to those uncovered by the auditing, real estate & subdivision investigations) $40,000 $30,000 A potential of an additional General Fund Reduction $400,000 $300,000 Effect The Enforcement & Compliance (E&C) Division is critical to fulfilling the Agency s statutory mission to protect the Public as per ARS as it takes action on violators that are proven through investigations, audits and disclosure applications. The increase in the backlog of open files, not being dealt with in a timely manner, will increase harm to the Public, as actions such as license revocations, suspensions and/or punitive civil fines/penalties will allow for violators to continue conducting real estate transactions. The increase in backlog will diminish the ability to maintain and track cases in the Department s internal database, thus increasing the potential for exceeding jurisdictional timeframes, thus reducing revenue to the General Fund though actions not being enforced on violators. Due to the timeframe being exceeded, as a result of the increased case load, the Commissioner loses the ability to overturn an Administrative Law Judge s decision over a licensee that is deemed to be a proven violator, yet continues conducting real estate transactions and thus is a risk to the Public. Decrease in the ability for Compliance to ensure that actions that have stipulations such as fines, civil penalties, continuing education requirements etc., are being collected and/or met thus further decreasing General Fund revenues. General Fund revenue reduction of $10,000 in civil fines due to the lack time that staff spends on a file in the closing stages. Dramatic decrease in General Fund revenue at a minimum of $100,000 as E&C is responsible for the final action that accompanies the aforementioned investigations, audits and disclosure applications and generates the actual revenue to the General Fund. Statute/Rule/Policy Change Modification in Statute pertaining to Real Estate regulatory requirements: ARS Title 32, Chapter 20 October 9,

23 BUSINESS SERVICES DIVISION The Business Services Division is responsible for the back-end operations of the Department, including the Fiscal Office, Information Technology, HUB, Mail Room and File Room. Currently the Department is working on filing paperwork submitted from licensees dating back to During the height of the real estate boom, the Department was unprepared for the volume of applications and walk-ins, thus creating a backlog that 3 years later, is still being dealt with. The results of downsizing in the Business Services Division will be the elimination of the mail/file room staff. Effect An increase in filing backlog from three years to five years. Public records requests will not be completed timely, or at all, due to the inability to locate files, which will lead to complaints to the Ombudsman s office and possibly law suits being brought against the Department, and thus the State for non-compliance with Public Records Statutes. Hinder or delay the process of a renewal when pertinent information such as past disclosure information, legal presence identification etc., relating to a licensee cannot be located. A delay in mail dissemination (incoming/outgoing) will have an impact on all service processes; this is inclusive of general mail, certified mail and/or mail that has a statutory timeframe. Statute/Rule/Policy Change ARS Title 39 as it pertains to Public Records Requests. October 9,

24 ARIZONA MEXICO COMMISSION The Arizona-Mexico Commission (AMC) is a cross-border non-profit that was established by Governor Paul J. Fannin in The AMC mission statement is: To improve the economic well-being and quality of life for the residents of Arizona through a strong cooperative relationship with Mexico and Latin America through advocacy, trade, networking and information. The Commissioner s participation and position as Co-Chair is promoted by the Governor. With the proposed funding reductions, the Commissioner will be unable to fulfill her appointment as Co-Chair of the AMC/Real Estate Committee, which helps educate Arizona Constituents on real estate transactions in Mexico, and foster Arizona Mexico relations and economic development. Effect Non-attendance at conferences will: o Impair the economic growth for both Arizona and Sonora. o Diminish inter-country relationship between the Arizona and Mexico and Latin America. o Decrease consumer protection; Statutes, Rules and Policies that affect real estate transactions of Arizona constituents will not be discussed, promoted, enacted and/or modified as needed. Statute/Rule/Policy Change The AMC is considered an Office of the Governor and not required by Statute, but rather the Commissioner serves at the pleasure of the Governor. October 9,

25 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: CONTINGENCY PLAN: RIF/Layoffs (3 FTE positions) (Rent Forgiveness Phoenix Issue Description # 3) Issue Priority: 8 Reduction Amounts: General Fund: $57,685 Total: $57,685 Issue Description and Statement of Effects: Should the rent forgiveness for the Phoenix Office not be granted, the Department will have no other option than to further reduce its FTE, by an additional 3 positions. Decrease the average amount of subdivision cases closed by an additional 168 cases annually. Increase the average number of months a subdivision investigation case is open to 19 months. Decrease the inspections conducted to 4 per month. Increase the number of days to issue a public report to 100 days. Decrease General Fund revenue generated through subdivision investigations which lead to civil fines by $60,000. Decrease General Fund revenue generated by an additional $50,000 for non-timely processing of new and amended Public Report applications requiring reimbursement. Effect o A reduction of an additional 3 positions will further impact services and revenue generated to the General Fund, as stipulated in Issue Description #7, namely in the Development Services & Investigations Division. o The Development Services & Investigations Division is critical to fulfilling the Agency s statutory mission to protect the public as per ARS o The loss of services will reduce public protection and delay the processing of these cases. When investigations are not completed, it harms the public, the industry and the Department. o As Arizona continues to see a rise in fraudulent schemes in all areas of real estate transactions, the forced decrease in the ability for the Department to investigate violations will further impact the Public s Protection. o General Fund revenue decreased by an additional estimated $110,000 in civil fines and fees. Statute/Rule Policy Change October 9,

26 As stipulated in Issue Description #7. October 9,

27 Issue Priority: 9 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: CONTINGENCY PLAN: RIF/Layoff (1 position in Tucson) (Rent Forgiveness Tucson Satellite Office Issue Description #4) Reduction Amounts: General Fund: $14,600 Total: $14,600 Issue Description and Statement of Effects: Should the rent forgiveness for the Tucson Office not be granted, the Department will have no other option than to RIF/Layoff the remaining employee in the Tucson Office. While services are eliminated in Southern Arizona, the Department will still be obligated to pay rent for a space that will remain vacant, thus creating an even greater disservice and negative perception to Arizona Constituents. Result Decrease the average number of Broker Audit Declarations processed by an additional 35 a month. Decrease the number of Electronic Broker Audit Reviews processed by an additional 25 a month. Decrease General Fund revenues generated through audits which lead to civil fines by an additional $20,000. Effect Minimizing services that were provided through the Tucson office will result in all applications/mail/communications being routed to the Phoenix office, and processed accordingly. This will result in: o Delayed response to communications o Delayed processing of applications o Increased call/ volume to the Phoenix office o Increased customer dissatisfaction, frustration and complaints Reducing an additional employee will further impact services and revenue generated to the General Fund as stipulated in Issue Description #7, namely in the Auditing & Real Estate Investigations Division. October 9,

28 Auditing & Real Estate Investigations Divisions is critical to fulfilling the Agency s statutory mission to protect the public as per ARS The loss of services will reduce public protection and delay the processing of audits, thus harming the public, the industry and the Department. Audits are performed to ensure that the trust account management prove no irregularities and/or fraud. General Fund revenue decreased by $20,000 in civil fines that are generated from audits. Statute/Rules/Policy Changes As stipulated in Issue Description #7. October 9,

29 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: CONTINGENCY PLAN RIF/Layoff (Positions) (Elimination of Unfilled Positions and Appropriated FTE Reduction to Match Actual Filled FTE) Issue Priority: 10 Reduction Amounts: General Fund: $125,000 Total: $125,000 Issue Description and Statement of Effects: Should the elimination of unfilled positions, with appropriated FTE reduction for Health & Dental Sweeps, not be reduced according to our request, the Department will have no other option than to RIF/Layoff an additional 8.2 positions bringing the Department s total filled FTE positions to 25. A 42% total FTE reduction in the Department s staffing will ultimately reduce service levels to a level that will foster huge risk, not only to the public and the industry, but the Agency as a whole. As staffing levels decrease, risks will increase in the following areas: Separation of duties will be non-existent in many areas, thus increasing the potential for fraud and irregularities, increasing cost to the state and tax payers. Decrease in the Department s ability to adequately serve and protect the public as mandated by statute. Decrease in service levels proportionate to staffing levels. Decrease in employee moral due to the reality of being asked to do more for less. Decreasing General Funds revenue through fee reimbursements, and/or a decline in civil fines and penalties generated, through duties stipulated in Issue Description #7. October 9,

30 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: Transfer funds to the GF Issue Priority: 11 Reduction Amounts: Education Fund: $3,000 Total: $3,000 Issue Description and Statement of Effects: Commissioner Lowe and ADRE are dedicated to serving and protecting the public. The real estate industry and Arizona Constituents rely on the Department for knowledge and expertise. Any decrease in this fund will diminish the delivery of Real Estate educational programs to the industry and the public, and thus the Department s ability to fulfill its mission to protect the public. The Real Estate Educational Fund consists of monies received from the sale of educational matter and grants. These monies are used in the production of educational products, such as the printing of Real Estate law and rule, books, educational publications, seminars and other educational efforts provided to licensees, the public and the industry. October 9,

31 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: Transfer funds to the GF Issue Priority: 12 Reduction Amounts: Recovery Fund: $4,500 Total: $4,500 Issue Description and Statement of Effects: Any decrease in this fund will minimize the Department s ability to compensate Arizona Constituents aggrieved through a monetary loss, by any act, representation, transaction or conduct by a licensee violating the Arizona Real Estate Statutes and/or Rules. The Real Estate Recovery Fund was established July 2, 1963, and is funded solely by sales agents and brokers who contribute to the fund during their real estate license application and/or renewal. It exists because Arizona Constituents, the Industry, and the Department worked together in 1963 to establish it as a consumer resource. Its purpose and benefit is to consumers who are financially harmed due to the actions of a real estate licensee during a purchase, sale or lease of real estate in Arizona (including a cemetery plot), or from a property management transaction executed by a licensee on the applicant s Arizona property. The Real Estate Recovery Fund can help make consumers whole when financially harmed. October 9,

32 STATE OF ARIZONA FY 2010 BUDGET REDUCTIONS - ISSUE DESCRIPTIONS Department of REAL ESTATE Issue Title: Transfer funds to the GF Issue Priority: 13 Reduction Amounts: Condo Fund: $803 Total: $803 Issue Description and Statement of Effects: Any decrease in this fund will minimize the Department s ability to compensate Arizona Constituents, involved in a Condominium transaction, who have suffered a loss, when a subdivider fails to adhere to the requirements of their Condominium Public Report. In 2007 the Real Estate Condominium Fund was established. It is funded solely by sales agents and brokers who contribute to the fund during their real estate license application. Its purpose and benefit is to reimburse consumers for actual out-of-pocket losses if the Developer does not complete the Condominium Project. Like the Real Estate Recovery Fund the Real Estate Condominium fund can help make consumers whole when financially harmed by a subdivider. October 9,