SACRAMENTO -- Budget cuts and flawed policies have reduced the effectiveness of the state agency responsible for investigating workplace discrimination claims in California, according to a state report released Wednesday.

The Senate Office of Oversight and Outcomes reviewed the work of the state Department of Fair Employment and Housing on behalf of the Legislature.

One of the department's biggest problems is a "secret" policy that allows the governor's office to review and veto discrimination complaints filed by public employees without public disclosure, the report found.

"This constitutes unequal treatment for public employees, creates a potential for abuse, and compromises DFEH's statutory independence," the report said. "Taken to its extreme, it allows a California governor, in effect, to exempt public agencies from the state's anti-discrimination law."

The obscure policy took effect in 2008 under former Gov. Arnold Schwarzenegger and remains in effect under Gov. Jerry Brown.

In 2007, formal accusations of workplace discrimination against public agencies comprised 15 percent of the civil rights advocacy department's work. But since that policy has been in effect, the figure has plummeted to 1 percent.

Brown's office and officials from the department declined to speak with the nonpartisan Senate investigators who prepared the report, citing attorney-client and other legal privileges.

A spokesman for Brown, however, dismissed the report's findings in an interview Wednesday.

"Contrary to this report's deeply flawed claims, our focus is on protecting the rights of Californians while resolving disputes in the most fair and sensible manner," said Evan Westrup, the spokesman. "The people of California expect and deserve effective management of departments in the executive branch, which is precisely what we are doing."

However, San Jose resident Marlene Massetti said she left her job in the Department of Fair Employment and Housing's San Jose office over the policy, according to the report.

Massetti told Senate investigators that the department declined to prosecute a discrimination case against San Jose's Evergreen School District in 2011 because the request had not been approved by the governor's office. An employee claimed she was wrongly terminated and sued the district, which agreed to settle the case out of court. High school teacher Krisan Meyer alleged she was laid off while other, less qualified teachers of another race were retained.

Other anti-discrimination cases against state and local agencies were not even submitted to the governor's office for approval because administrators feared that the deadline to act within a year would be blown.

"All of us have a personal commitment to civil rights," Massetti said. "It's disheartening when you have to fight your own agency to uphold the law."

A Brown administration official with knowledge of Meyers' case called Massetti's description of its handling "completely untrue." That case was never submitted to the governor's office for review, said the official, who was not authorized to speak about the circumstances publicly.

Martha West, a retired UC Davis law professor, called the secret policy "awful" and accused the governor's office of playing politics with the state's tough anti-discrimination law, which Brown's father signed into law in 1959.

"There are no standards for this secret policy of the governor," said West, who spoke with the investigators who prepared the report. "It's based on politics, not law."

The problems created by the secret policy have been exacerbated by budget cuts and a growing caseload, the Senate report found.

Between 2007 and 2012, the department's budget was cut 11 percent, forcing some regional enforcement offices to close, even while the department's overall caseload ballooned by 16 percent to 20,000 complaints annually.

The San Jose office was among the field offices shuttered because of the cuts, which came as a result of the budget crisis that forced cuts in agencies across the state.

The study makes a solemn recommendation to the Legislature: End the secret policy and increase funding for the department so it can enforce the state's civil rights law properly, or revise the law so the department's leaner budget reflects a more modest mission.

"The solution should be crafted with great care by state leaders to avoid abandoning the state's commitment to preventing and remedying discrimination," the report said.