The budget proposes General Fund expenditures of $4.6 million for the support of the ALRB in 1997-98. This is $237,000 (5 percent) more than estimated current-year expenditures.
Public Employment Relations Board. The Public Employment Relations Board (PERB) protects the rights of public education and state employees to join employee organizations and engage in collective bargaining with their employers regarding salaries, wages, and working conditions. Like the ALRB, the PERB reviews, mediates, and, if needed, adjudicates charges of unfair labor practices and conducts employee union elections.
The budget proposes expenditures of $4.3 million for support of the PERB in 1997-98. This is $220,000 (5 percent) more than estimated expenditures in the current year.
The ALRB was created in 1975 with the passage of the Agricultural Labor Relations Act (Chapter 1, Statutes of 1975, Third Extraordinary Session). The ALRB's workload consists of (1) certifying farm worker union elections, (2) adjudicating unfair labor practices, and (3) collecting restitution from farm employers found guilty of violating the state's collective bargaining laws. The ALRB was created because federal collective bargaining laws specifically denied coverage to agricultural workers.
Light Workload. In our 1995-96 Analysis of the Budget Bill, we noted that the board's two major workloads--election certification and unfair labor practice complaints--showed a dramatic falloff after an early flurry of cases in the years immediately following passage of the Agricultural Labor Relations Act in 1975. For example, Figure 9 shows that ALRB election certifications peaked in the years immediately following creation of the ALRB (1975-1977), then declined sharply and permanently. Our current review indicates that this trend continues. Workload growth from increased union activity has not materialized as illustrated by the fact that the ALRB certified just six elections in 1995-96, an all-time low and 75 percent less than the projected 25 elections. Figure 10 (see page 48) indicates the same phenomena in the issuance of complaints by the board (26 in 1995-96). Through December of the current fiscal year, the ALRB had issued 12 unfair labor practice complaints and held no elections.
Jurisdictional Limits. As noted above, federal law specifically excludes collective bargaining for agricultural workers. In our prior analysis of this item, we noted that board workload would most likely be reduced even further due to a pending decision on jurisdiction over agricultural workers that pack produce in the field. Final resolution of this issue at the federal level placed this category of workers under the jurisdiction of the National Labor Relations Board (NLRB). This is the case even though the "packer" may have just hours or minutes earlier been cutting the produce--an activity that would have put the worker under the jurisdiction of the ALRB. Because of this decision, the number of worker activities covered by state law has been reduced, and ALRB's already slight workload continues to decrease even further.
Given the board's ongoing light workload, we continue to believe greater efficiencies would be achieved by eliminating the ALRB and transferring enforcement of the state's farm labor collective bargaining laws to PERB. Under this arrangement, PERB could handle this important workload, and the state could save significant monies by eliminating duplicative administrative overhead. Specifically, our review indicates that the work of the ALRB board members and their legal and administrative support positions (budgeted at $2,136,000 in 1997-98) could be absorbed by the PERB. Funds budgeted for the ALRB's General Counsel administration ($2,421,000 in 1997-98) would be transferred to the PERB. (This amount could probably be reduced in future years, given other likely efficiencies from consolidation.)
Analyst's Recommendation. In view of the above, we recommend that the Legislature enact legislation to eliminate the ALRB--as of January 1, 1998--and move its residual functions and workload, with necessary staff, to the PERB. Accordingly, we recommend the Legislature: (1) provide half-year funding (July to December) for the ALRB (reduce Item 8300-001-0001 by $2,278,000) and (2) provide half-year funding (January to June) to PERB for its new responsibilities (increase Item 8320-001-0001 by $1,211,000). This recommended consolidation would save the General Fund at least $1,067,000 in 1997-98, with annual savings of at least $2,136,000 in future years. We also recommend that the legislation include those changes needed to conform the Agricultural Labor Relations Act with the transfer of enforcement to the PERB.
The ALRB is required (pursuant to Labor Code Section 1148) to follow the practices and procedures of the NLRB in carrying out its duties. Under NLRB policy, no penalty fine is assessed to an employer found guilty of committing an unfair labor practice. Instead, the employer must compensate the worker for unpaid wages plus interest. If the ALRB does not locate the workers within two years, however, the funds are returned to the employer. The amounts returned to employers vary greatly from year-to-year. In 1995-96, for example, $193,000 was returned to employers, while in 1994-95 no funds were returned.
Under this policy, some employers who break the law are not held accountable. In contrast to the ALRB laws, the Labor Code provisions relating to the Department of Industrial Relations (DIR) require that unpaid wages either be returned to the appropriate workers or deposited into the General Fund. None of the unpaid wages collected by the DIR are returned to the employer. We believe the DIR approach is more appropriate, and therefore recommend that the Legislature enact legislation to require the deposit of any undisbursed revenue into the General Fund.
In addition, the department (1) regulates self-insured workers' compensation plans, (2) provides workers' compensation payments to injured workers of uninsured employers and other special categories of employees, (3) offers conciliation services in labor disputes, and (4) conducts and disseminates labor force research.
The budget proposes expenditures totaling $219 million for the department in 1997-98, which is the same as the estimated expenditures for the current year. The request includes $140 million from the General Fund, a 2 percent increase.
The budget includes $1,266,000 from the General Fund and 20 personnel-years for the Division of Labor Statistics and Research (DLSR) to determine prevailing wages for public works. Existing law requires that workers employed on public works projects be paid not less than the generally prevailing rate of wages for work of a similar character in the locality in which the public work is performed. The DIR is responsible for determining these prevailing rates.
Background. The budget request is the same as a request in the 1996-97 Governor's Budget to do surveying to implement changes to the regulations governing the methodology for determining prevailing wage. At that time DIR was proposing to change the methodology for setting prevailing wages. Under the long-standing methodology, DIR deemed the most-frequently occurring single wage rate for each craft and locality--the "modal" rate--as the prevailing rate. (Wage rates set by collective bargaining agreements tend to be the most frequently occurring single rates in most crafts and localities, even where a minority of workers in a local craft are being paid these rates, because nonunion wage rates tend to vary highly from firm to firm and project to project.) The DIR was proposing new regulations that would set prevailing wages at (1) the single rate occurring at least 50 percent of the time in a given local craft, or (2) in the absence of such a rate, the weighted average rate. To implement the proposed changes, the DIR request in 1996-97 was to add 19 personnel-years at a cost of $1,266,000 to conduct annual surveys for more than 4,000 job classifications in each of the 58 counties. The Legislature denied this request.
New Regulations Adopted and in Effect January 1997. After the 1996-97 Budget Act was approved, DIR adopted the new regulations that were proposed as outlined above. These new regulations for determining prevailing wage became effective in late January 1997. The budget proposes to add 20 personnel-years to DIR, at an annual General Fund cost of $1.3 million, to conduct the annual surveys.
As mentioned above, the budget request associated with the new regulations is the same as submitted to the Legislature in the 1996-97 Budget Bill. At that time we recommended that the Legislature deny the request because the DIR's proposal to implement substantive changes in prevailing wage regulations was a policy proposal that we believed should be considered in prevailing wage legislation rather than in the budget bill. We also suggested that if the Legislature agreed to the proposed methodology, additional staff and an augmentation to the DIR budget might be necessary but at a lower amount than requested. We indicated for example, that the DIR could substantially reduce the cost of implementing the changes in regulations by dividing the state, for survey purposes, into a reasonable number of construction labor market areas rather than all 58 counties.
Presumably, the DIR has determined that prevailing wages can be set under the new regulations using existing staff because under the DIR's scheme the new regulations will be in effect for five months in the current year without an increase in staff. Consequently, the DIR should continue at the current budget and staff level. If after gaining experience under the new regulations and considering less costly ways of performing the surveys DIR can demonstrate the need for additional staff, a request based on actual workload experience would warrant legislative consideration.
At this time, however, we recommend the Legislature delete the requested $1,266,000 and 20 personnel-years. (Reduce Item 8350-001-0001 by $1,266,000.)
The 1997-98 Budget Act purposes $395,000 and ten positions for the Managed Care Unit. The primary responsibility of the Managed Care Unit is the evaluation of new health care organization (HCO) applicants for possible certification and the recertification of existing HCO's on a three-year cycle.
Background. In 1993-94, the Managed Care Program was established within the Division of Workers' Compensation as part of workers' compensation reform legislation adopted in 1993. Under the Managed Care Program, private and not-for-profit health care providers apply to the state for eligibility to become an HCO that, upon certification, may contract with California employers to provide managed care for employees requiring medical care due to workers' compensation claims. To become a workers' compensation HCO, an applicant must first be approved by the Department of Insurance (for a disability insurer) or the Department of Corporations (for a Knox-Keene primary care health maintenance organization or a workers' compensation health care provider organization). Subsequent to this approval, DIR must certify the applicant by evaluating the HCO's ability to offer adequate occupational medical and health care services for workers' compensation beneficiaries. The applicant HCO is assessed an application fee, and, if certified by DIR, charged an annual fee per enrollee in the HCO. Revenues from these two sources are deposited in the Workers' Compensation Managed Care Fund, which supports the Managed Care Unit. In 1994-95 the Workers' Compensation Managed Care Fund received a General Fund loan of $1.7 million to provide an initial cash base for the Managed Care Program.
Managed Care Workload Continues to Fall Below Projections. The difficulty associated with the Managed Care Program is simply that very few organizations have applied to be an HCO. Since the program's inception in 1994, only eight organizations have been certified by the Managed Care Unit as HCOs. In 1994-95, the Managed Care Unit was funded based on an estimate that there would be approximately 50 HCO applicants that year. In actuality, only 16 organizations have applied to be an HCO since the program's beginning. More significantly, there has been only one HCO applicant since December 1995. Since the primary function of the Managed Care Unit is to evaluate and certify HCO applicants, it appears that there has been virtually no workload for over a year with which to justify the ten positions budgeted for the unit. In fact, the Governor's budget estimates that there will be only $68,000 of fee revenue in the budget year versus a cost of $395,000 to fund the ten positions and associated expenses for the Managed Care Unit. In short, there is strong evidence that market conditions are such that the Managed Care Program is not receiving enough response from possible health care providers to justify continuing to fund the program. Thus, it makes little sense to continue to budget the ten positions and associated operating expenses for the Managed Care Unit.
Program Costs Exceed Revenues. As mentioned above, the Workers' Compensation Managed Care Fund was initially given a $1.7 million General Fund loan. This loan was to be repaid, with interest, by June 30, 1997. The 1997-98 Budget Bill contains language that would extend the deadline for repayment until June 30, 1998. According to the Governor's budget, from 1994-95 (the program's initial year of funding) through 1997-98, the Managed Care Program will receive a total of $176,000 in fee revenue--an average of $44,000 per year. Based on this revenue plus the General Fund loan, the proposed expenditure in the budget year will leave a zero balance in the fund on June 30, 1998. Consequently, there will be virtually no funds to repay the General Fund loan on June 30, 1998 (as proposed in the budget) or to finance this program in 1998-99.
Given this situation, we recommend that the Legislature (1) delete $395,000 and ten positions included in the budget for the Managed Care Program and (2) revert the balance of funds in the Workers' Compensation Managed Care Fund to the General Fund as a partial repayment of the General Fund loan. Any minor work remaining under the program could be handled within current budget and staff of the Division of Workers' Compensation.
The budget includes $191 million for DFA in 1997-98, a decrease of $6.6 million (3.3 percent) from estimated current-year expenditures. The budget total includes General Fund expenditures of $64 million, about 1 percent less than estimated current-year General Fund expenditures, mainly due to the elimination of the Market News program.
Background. The budget includes $1 million from the General Fund for a public education and enforcement program regarding the impact of bringing prohibited agricultural products into California. Previously, a similar program--the Airport Maritime Inspection Program (AMIP)--- had been funded from special fees on international maritime shippers and airline carriers. A December 1995 California State Supreme Court ruling that made the collection of these special fees illegal forced the department to suspend the AMIP program. As a result, the department is proposing a scaled-back version of the AMIP program for the budget year. This new program--supported from the General Fund--would allow the department to continue plant quarantine public awareness campaigns, establish a toll-free inquiry/complaint (800 number) telephone line, and set up a compliance unit to investigate public reports of smuggling activities and sales of prohibited agricultural products. To educate the public about the impact of foreign pests on agriculture, the department proposes to use three positions to, among other things, distribute educational materials (1) on airlines and at airports to foreign and domestic California-bound travelers; (2) at community and cultural fairs and festivals; and (3) to the travel industry. The compliance component of this program would include four positions to investigate public complaints of suspected smuggling activities and sales of prohibited agricultural products (which are violations of plant quarantine and animal disease laws).
General Fund Refund Obligation. As a result of the court ruling, the department is obligated to refund $22.5 million ($4 million to the maritime carriers and an estimated $18.5 million to the airline carriers). Because the AMIP fund only had $9.2 million in reserves when the program was suspended, the remaining refund amount ($13.3 million) is a General Fund obligation. The department refunded the $4 million owed to the maritime carriers in 1995-96 from the existing AMIP reserve. The budget includes $7.4 million ($2.2 million General Fund and the remaining AMIP reserve of $5.2 million) to make refund payments in the current year. The department estimates that another $11.1 million from the General Fund will be needed to make future-year repayments.
Analysis of the Proposal. In general, the department's proposal appears to have merit. We have some concerns, however, about the on-going effectiveness of and funding source for the program. For example, the effectiveness of public awareness campaigns can be difficult to measure. In addition, the department's workload justification for the compliance component of the program is based on an unknown amount of public reporting of suspected smuggling and sales activities. Furthermore, the department should consider alternatives to permanent General Fund expenditures for this program.
For these reasons, we recommend that the Legislature approve the seven positions on a two-year, limited-term basis. The two years will allow the suspended program to be partially resumed, while also giving DFA and the Legislature an opportunity to evaluate program workload and effectiveness and determine if it should be continued permanently and how it should be funded. Because industry benefits from exotic pest control efforts, one of the alternatives DFA should evaluate is a proposal for the state and industry to share the costs of any permanent program activities.
The budget proposes $509,000 from the General Fund to pay for the salary and benefit increases of the employees of the California Veterinary Diagnostic Laboratory System (CVDLS). The DFA contracts with the laboratory system for diagnostic services for its animal disease control programs. Because the University of California (UC) manages and operates the CVDLS, the 152 employees at the system's five laboratories are UC employees and have been granted the same salary and benefit increases given to other UC employees.
We can find no analytical basis for providing additional funds to the department to pay salary increases granted by UC to UC employees. The UC should pay for the salary increase it grants to its employees from the funds UC had available when the salary increases were granted. This UC decision should not be an additional General Fund cost. If UC cannot pay for the salary increases from its own budget, then DFA should absorb the increased cost of this contract for laboratory services from within existing budget resources. This would be consistent with the budgets provided to other state departments, where no price increases have been given for operating expenses such as contracts.
Accordingly, we recommend that the Legislature delete $509,000 included in the budget for laboratory employee salary and benefit increases.
The budget proposes $364,000 from the General Fund for two positions and one-time equipment costs for the department to expand its efforts to relax international trade restrictions on the state's agricultural exports relating to chemical residue levels. Specifically, this program would (1) establish a database to provide information to industry on the import requirements of the state's trading partners and (2) provide state representation, through an agricultural export liaison, on an existing federal task force that is working to standardize and reduce trade restrictions on chemical residue levels.
The database will help DFA provide exporters with information on restrictions by product and country. The activities of the agricultural export liaison will also assist industry by working with the national task force to standardize international export restrictions. Clearly, this program is designed to aid and benefit private industry by increasing California agricultural exports. While it is appropriate for the state to play a role in promoting agricultural exports, we do not believe this is a General Fund responsibility. Therefore, we believe that industry, as the primary beneficiary of these state activities, should pay for these services.
Analyst's Recommendation. Based on the above discussion, we recommend the enactment of legislation, effective July 1, 1997, authorizing DFA to begin assessing the users of the database and the agricultural export liaison services a fee for these services. To implement this in the budget year, we further recommend that the Legislature structure the full amount requested in the budget year as a reimbursement to be paid to the Agriculture Fund. Adoption of this recommendation would result in General Fund savings of $364,000 (including $120,000 for a one-time equipment purchase) in 1997-98 and $273,000 on an ongoing annual basis.
The budget includes $7.4 million from the General Fund for the department's Mediterranean Fruit Fly (Medfly) program. Through this program, the department originally indicated that it would continue the twice weekly aerial release of 125,000 sterile Medflies per square mile over a 2,100 square mile area of the Los Angeles Basin, bordered by Sylmar, San Bernaradino, Irvine, and the Pacific Ocean. Since full implementation of the program in September 1996, however, the department has released only 75,000 Medflies per square mile on a twice weekly basis.
The Legislature appropriated $7.7 million for this purpose in the 1996-97 Budget Act and adopted supplemental report language directing the department to submit a program progress report to the Legislature on or before March 1, 1997. Upon review of the March report, which should contain information on program effectiveness and progress in developing alternatives to the current program, we will, if appropriate, make recommendations to the Legislature concerning this program.
The budget proposes expenditures of $290.7 million ($180.9 million General Fund) for BOE in 1997-98. This is $6.2 million (2 percent) less than estimated current-year expenditures. The majority of this decrease is attributable to (1) one-time costs in 1996-97 for implementation of a new computer system for delinquent tax collection ($1.3 million) and computer purchases for the audit program ($1.6 million) and (2) board-mandated supervisor reductions ($1.6 million) in 1997-98.
In the Crosscutting Issues portion of this section of the Analysis, we recommend that the Legislature not approve three augmentations for BOE totaling $4.7 million and 21 positions because the Legislature does not have sufficient information to evaluate the merits of these requests. The augmentations are justified primarily on the basis of potential revenue impact. Please see our crosscutting issue on the BOE and Franchise Tax Board in this section for our analysis of these requests and their relationship to the state's audit programs.
The budget total includes General Fund expenditures of $334 million, about 1.5 percent less than estimated current-year General Fund expenditures. This small change is the net result of several large augmentations, (such as increased workload in tax return processing [new computer system] offset by reductions in one-time payments to computer system development vendors.)
The budget proposes $1.9 million in reimbursements (General Fund) from the Trade and Commerce Agency (TCA) for FTB to fund 27 positions in 1997-98 to administer provisions of the California Tourism Marketing Act, as authorized in Chapter 871, Statutes of 1995 (SB 256, Johnston).
Under the act, TCA is to hold an initial referendum of businesses that benefit from travel and tourism for the approval or rejection of a self-assessment to finance a tourism marketing program. The initial referendum is currently scheduled to be held during June and July 1997. If the referendum is approved, the assessments would be deposited in a nonstate fund subject to expenditure through the California Tourism Marketing Commission, a nonprofit corporation. TCA has requested FTB to administer the referendum and collect the assessments.
The FTB, through a Control Section 28.50 notification letter, requested authority to spend $1.5 million from a General Fund transferred from TCA to initiate the program in the current year. In response to the Section 28.50 letter, the Joint Legislative Budget Committee advised that (1) it was unclear why FTB should be involved in an ongoing capacity and (2) TCA and FTB should spend only those funds needed for administering the initial referendum, which should be accomplished at far less cost than $1.5 million.
Our review indicates that FTB is proceeding with the development of the program on the premises that the referendum will pass and that FTB will have an ongoing responsibility to collect and enforce the business self-assessment fee. According to FTB, the $1.9 million in the budget would provide the staff and a new automated system to collect and enforce the self-assessments from these businesses. As noted above, however, it is not certain that the businesses will vote for the assessments. Furthermore, according to FTB, the $1.5 million requested in the current year was to be used in part to initiate the hiring of these staff and to initiate the assessment and enforcement system. Given the Joint Legislative Budget Committee's response to that Section 28.50 notification, it was not clear at the time this analysis was written as to the status of that proposal.
We believe the collection and enforcement of self-assessed fees for deposit in a non-state fund for expenditure by a nonprofit corporation should not be the responsibility of a state agency--especially FTB. The board exists to ensure that state-required tax payments (and certain other legally required payments) are made. In our view, it is unwise to use the board's name and authority to collect a voluntary, privately assessed fee. Furthermore, we believe it is inappropriate to augment the FTB budget and authorize the hiring of staff for workload that may not exist in the budget year. Therefore, we recommend that the Legislature delete $1.9 million in reimbursements and 27 positions included in the FTB budget for this program.
In the Crosscutting Issues portion of this section of the Analysis, we recommend that the Legislature not approve three augmentations for FTB totaling $14.2 million and 124 positions because the Legislature does not have sufficient information to evaluate the merits of these requests. These augmentations are justified primarily on the basis of potential revenue impact. Please see our crosscutting issue for our analysis of these requests and their relationship to the state's audit programs.
The budget proposes $6.6 million for support of the department's operations in 1997-98, an increase of $2.5 million, or 62 percent, over estimated current-year expenditures. Of the increase, $600,000 would support eight new positions, and $1.9 million would be expended on external consulting services.
Method of Funding the DOIT. With the exception of $750,000 budgeted as reimbursements, the cost of operating the DOIT will be spread across all state agencies through the state pro rata plan. This method of funding has been adopted by the Department of Finance (DOF) in response to the Legislature's direction, in the 1996-97 Budget Act, that the DOF establish a more equitable method of funding the DOIT's operation. The Legislature concluded that the previous method was inequitable because it required two state data centers to fund two-thirds of the DOIT's annual budget, while assigning no funding responsibility to many other state agencies which would receive far more services from the DOIT.
The centerpiece of this reform was to establish a new department (DOIT), reporting directly to the Governor, and to assign to it many specific responsibilities which, if accomplished, would improve the state's ability to apply information technology in a cost-effective manner, and improve the Legislature's confidence in major information technology initiatives. Figure 11 shows the major responsibilities assigned the DOIT by Chapter 508.
Department Is in the Process of Addressing Major Information Technology Issues. According to the department, it is on the verge of completing a number of tasks which must be accomplished in order for it to fulfill its statutory responsibilities. While many of the department's projects are still under development, one project--the California 2000 Program--has been highly visible and appears to be the most complete. We discuss this program in more detail below. Other important projects, including providing policy guidance to departments regarding the initiation and oversight of information technology projects, operational recovery, information security, and improved reporting to the Legislature regarding information technology projects, are in varying stages of progress.
The state, like private sectors and governmental jurisdictions worldwide, must modify its computer programs to accommodate the year 2000. This is necessary because many computer programs were coded without anticipating the millennium change, and they simply will fail to perform accurately, or at all, unless coding changes are made. Given the reliance of many state programs on computer systems, departments have no practical option but to make the changes in order to avoid serious degradation in their ability to carry out important state programs. Virtually all state agencies are affected by this pending change, and there are millions of lines of computer coding which must be screened to identify needed changes. Some departments have already had to address this situation; for example, those that issue licenses with expiration dates after 2000.
|Department of Information Technology (DOIT)
Major Responsibilities under Ch 508/95 (SB 1, Alquist)
|Oversee the management of information technology in state agencies, with authority to suspend or terminate projects.|
|Develop and implement a strategy to facilitate information sharing among state computing systems.|
|Determine which information technology applications should be statewide in scope, and ensure that such applications are not developed independently or duplicated by state agencies.|
|Develop and maintain a computer-based file, accessible to the Legislature, of all approved information technology projects.|
|Develop statewide policies and plans that recognize the interrelationships and impact of state activities on local governments, including local school systems, private companies that provide services to state agencies, and the federal government.|
|Requires the DOIT to submit the following reports (due date):|
DOIT Takes Positive Steps in Year 2000 Challenge. The administration initially focused attention on this problem in 1995 through the temporary Office of Information Technology established by the Governor. The DOIT enhanced the focus and has achieved a number of accomplishments in its effort to guide state agencies to a successful resolution of the year 2000 challenge. These include establishing the California Project 2000 site on the Internet where state agencies can obtain information, ranging from state policy direction to the names of year 2000 conversion managers in each state agency. Also, in November 1996, DOIT issued the California 2000 Program Guide which is intended to help departments by describing the problem and identifying the DOIT's approach to addressing it. In addition, this guide solicited information from the departments which the DOIT believes it must have in order to carry out its statutory oversight responsibility. Although it is too early to determine how well the program guide will work, the DOIT's efforts are important and consistent with the Legislature's expressed intent that the DOIT provide statewide leadership in critical areas of information technology.
How Much Will the Year 2000 Change Cost, and How Will it Be Funded? In last year's Analysis we estimated that the total state cost to convert computer programs could exceed $50 million, based on some preliminary estimates from a very small number of departments. Some observers think the cost will be substantially higher once all departments complete their assessment of the situation, as has been required by the DOIT in its California 2000 Program Guide. An accurate assessment of the potential cost is important, given that the budgets of most state agencies do not include funds to convert their computer programs. We discuss this funding issue in this Analysis in our discussion of the DOF (please see Item 8860 of this chapter), where we recommend that the DOF advise the Legislature during budget hearings as to the estimated cost to convert computer programs and how this cost will be budgeted.
Although officially established on January 1, 1996, the department was essentially active before then in the form of the temporary Governor's Office of Information Technology, which was established in April 1995. In addition, the current Chief Information Officer was appointed by the Governor in September 1995. Consequently, the administration has had in excess of 18 months to address the various information technology problems identified in independent reports and subsequent legislative hearings.
As we pointed out earlier, the department has taken important steps in addressing the year 2000 change which has important fiscal implications for state agencies. Nevertheless, many significant problems remain unresolved despite the amount of time which has passed, and the fact that the DOIT has been provided all funds requested of the Legislature. These problems range from improving the state's ability to apply information technology successfully and in a cost-effective manner, to replacing the obsolete electronic mail system used by thousands of state employees.
We acknowledge that it is going to take time to implement the changes embodied in Chapter 508. However, relatively simple but important tasks have not been implemented, such as modifying project-related documentation submitted to the Legislature so as to provide members a better understanding of the status of major state information technology projects, or establishing training and certification programs for the managers of technology projects and related contracts in order to enhance the opportunities for project success. Below we discuss our concerns with the DOIT's performance to date.
Department's Oversight Track Record Is Spotty. Chapter 508 requires that the DOIT identify which applications of information technology should be statewide in scope, and ensure that such applications are not developed in isolation. Despite this requirement, several state agencies are in varying stages of planning or implementing costly new personnel management information systems--for example a $22.6 million project proposed by Caltrans. This is being done at the same time that a consortium of key state agencies has been involved in a project initiated in 1995 by the State Controller's Office (SCO) which will lead ultimately to the replacement of the state's personnel and payroll systems currently operated and maintained by the SCO. Clearly, this is a situation which the DOIT is required by law to resolve, but so far has not, and the cost of developing multiple redundant systems will be substantial.
The DOIT has also delegated broad authority to the Health and Welfare Agency Data Center (HWDC) to upgrade costly mainframe computing systems. This delegation of authority is troubling because it removes oversight from such purchasers. Such oversight is important because: (1) a mainframe computer can cost several millions of dollars and the state needs to ensure that its data centers are not purchasing more capacity than is needed, (2) computer costs are a major determinant of the data center rates that are changed to other state agencies, and (3) the state needs to ensure that it is considering appropriate alternatives to mainframe computing.
DOIT Role in Assisting Troubled Projects Is Unclear. The DOIT was established in response to deficiencies in state planning, leadership, and oversight of information technology. The failure of the Department of Motor Vehicles' (DMV) information technology project has been cited by many as symptomatic of fundamental problems in the state's information technology infrastructure. To our knowledge no other state information technology project has failed since the DMV project was terminated. However, the state auditor in a January 1997 report on the Office of Emergency Services (OES) notes the partial failure of the OES' $5 million Public Assistance Damage Survey Report Management Information System. Moreover, several major projects continue to experience problems. These include:
The departments managing these complex projects are applying their efforts to resolving project problems, and in many cases are using external consultants to help them. The DOIT's performance in terms of facilitating problem resolution for these projects is not clear; however, in the case of the Lottery system, DOIT involvement has been minimal despite a Memorandum of Understanding between the DOIT and the Lottery which the Legislature was advised would ensure a DOIT oversight role.
Required Reports Have Often Been Late and Fallen Short of Meeting the Legislature's Needs. As shown in Figure 1, Chapter 508 placed several specific reporting requirements on the DOIT. The reports have been submitted late and have not provided all of the information needed by the Legislature. The first report required of the DOIT was a progress report on compliance with the requirements of Chapter 508, including a plan and schedule for complying with this legislation. This report, due by July 1, 1996, provided minimal or no indication of the task objectives, expected outcomes and schedules needed to comply with Chapter 508, and was unclear in some instances as to the DOIT's specific role.
The second required report, a plan for implementing the recommendations contained in a September 1994 report to the Governor by his Task Force on Government Technology Policy and Procurement, was both late and fell short of fulfilling the statutory requirement. The report was required to address each of the 21 specific recommendation made by the task force. The report, however, responded to only seven recommendations, two of which had been accomplished through Chapter 508. According to the DOIT, it elected to focus on what it perceived to be the seven most important recommendations; however, this is not consistent with the direction in Chapter 508.The status of other important recommendations is unclear, thereby depriving the Legislature of the information it sought through the reporting requirement.
A third required report, concerning DOIT's progress in implementing the provisions of Chapter 508, was due on December 1, 1996, but had not been released at the time this Analysis was prepared. Finally, a fourth report, addressing the issue of public electronic access to non-confidential public records, was due on January 1, 1997, but had not been issued at the time this Analysis was prepared.
Required Notification to the Legislature Also Falls Short of the Mark.In approving the 1996-97 Budget Act for the DOIT, the Legislature included, at the department's request, $500,000 for a consultant study of the consolidation of the state's data centers, and the development of an implementation plan. The funding was made available contingent upon a 30-day notification to the Legislature explaining the objective and scope of the consultant study. In accordance with this condition, the DOIT advised the Legislature on September 27, 1996, of its intention to begin the project. In response, the Chair of the Joint Legislative Budget Committee advised the Director of the DOIT that his letter did not provide sufficient information to determine what the consultant would be asked to do or what were the expected deliverables. The DOIT subsequently selected a consulting firm to conduct the consolidation study.
Strategic Plan for State Telecommunications. The 1996-97 Budget Actrequired the DOIT and the Department of General Services to submit a plan to the Legislature by October 31, 1996, for resolving several specific state telecommunications issues, including annual losses resulting from the operation of the California Network System (CALNET) and the potential for consolidating telecommunications networks. In response, the departments submitted on December 20, 1996, the California Integrated Information Network (CIIN) strategic plan, which recommends the consolidation and divestiture of the state-owned telecommunications infrastructure. We have the following concerns with the report.
It is difficult to determine from the plan for consolidation and divestiture whether it is feasible and can be accomplished within the time frames it establishes. First, we disagree with one of the plan's fundamental premises, that in all instances the operation of telecommunications networks are neither "core competencies nor core responsibilities" of the state and therefore should be divested. While we have raised serious questions regarding CALNET, we are unaware of any analysis which indicates that the California Law Enforcement Telecommunications System (CLETS) operated by the Department of Justice, or the extensive telecommunications networks operated by the HWDC and the Teale Data Center, do not represent core competencies and responsibilities.
However, even if the premise were assumed to be valid, the plan's feasibility is uncertain because important details have yet to be disclosed, such as exactly what components of state telecommunications networks would be consolidated. Moreover, discussions with departmental managers indicate that there has been minimal consultation with the state agencies which operate and rely on state telecommunications networks. Failure to adequately involve key state departments carries with it a risk that the business needs of state agencies, and therefore, their ability to carry out important state programs effectively, will take second priority in a rush to divestiture.
We believe that the plan's schedule--to award by January 1, 1998 a contract to the private sector to provide state telecommunications services--is unrealistic for a number of reasons including the relative newness of the DOIT, and therefore the lack of a track record which would warrant confidence in its ability to meet the January 1, 1998 date. Moreover, the Department of General Services, the DOIT's partner in this endeavor, has a spotty record in terms of meeting schedules for the awarding of technology contracts. In addition, the competitive bid process itself entails many opportunities for delay, and the state's track record in technology procurement is generally one of repeated rescheduling.
Finally, one of the plan's goals is to raise the technical telecommunications expertise of state employees to a level " . . . commensurate with the expertise found in the most prestigious consulting and technical firms in the private sector." While we agree with this goal, we think that this is unlikely to occur because telecommunications expertise is highly sought after, with the best experts commanding salaries which the state cannot match. Moreover, the plan does not propose a salary structure which would make the goal attainable.
In summary, we believe that it is questionable as to whether the plan in its current form provides a sound basis on which to proceed to dismantle a critical underpinning of the state's information technology infrastructure.
Documents From Departments in Support of Major Information Technology Projects Often Poorly Prepared. In general, state departments are required to advise the Legislature as to (1) proposed new information technology projects and (2) significant changes in cost, benefits, or schedules to previously approved projects. State departments fulfill this requirement by notifying the Legislature in writing concerning proposed new projects, and providing a special project report when significant changes occur to existing projects, and a post-implementation evaluation report when a project is completed.
In many cases, the documents provided to the Legislature are difficult to understand because they are poorly prepared and do not contain important summary information. To correct at least a part of this problem, Chapter 508 required that these documents contain specific summary information at the front of the document. The DOIT, which is required by Chapter 508 to establish policies and procedures (including the format for information technology documents) has yet to do so. Consequently, many of the documents sent to the Legislature to apprise it of major information technology projects continue to be obscure.
DOIT Decision Is Inconsistent With Legislative Intent. The Legislature has, at various hearings, expressed its intent that state departments define their needs, rather than technical solutions, and allow the vendor community to propose its solutions through a competitive process. Contrary to this intent, the DOIT approved a Department of Consumer Affairs (DCA) project to implement an Integrated Consumer Protection System, but allowed the department to specify the solution after the DCA rejected vendor proposals on the basis that they were too costly. The project approved by the DOIT not only allowed the DCA to stipulate the technical solution to be employed, but also involved a sole-source contract award which we believe is generally contrary to both Legislative and Executive Branch policies governing competitive acquisition.
What Should the Legislature Do? As discussed above, the DOIT's performance has been mixed, and on balance has not been as responsive to Chapter 508 as the Legislature intended. A number of major information technology issues remain unresolved, and it is not at all clear whether, or when, the DOIT will succeed in its efforts to fulfill its statutory charter.
In our judgement, close monitoring of the DOIT is warranted given its performance to date and the state's substantial dependency on information technology. We recommend that the proposed budget for the DOIT be approved, and that the Legislature ensure, through legislative oversight hearings, that the DOIT complies with the requirements and directions of Chapter 508.
In the individual departmental writeups of this Analysis, we identify several major information technology projects where costs have increased significantly above the original or updated estimates. The problem of inaccurate project estimates is not new. As a result, the Legislature continues to be asked to approve budgets for information technology projects which are based on cost estimates which are likely to increase. Schedules are often unrealistic as well. Whether benefit estimates experience the same inaccuracies is more difficult to determine, as few projects are ever completed to the extent that a post-Implementation evaluation report is prepared, which would address the extent to which estimated benefits were in fact achieved.
Given this situation, we believe that feasibility study report (FSR) transmittal letters and special project reports (SPRs) for information technology projects should address the probability that cost, benefit, and schedule estimates are likely to be accurate, including any qualifications regarding those estimates. To help improve the meaningfulness of budget requests based on estimates contained in information technology project-related documents, we recommend the following supplemental report language:
The Department of Information Technology shall adopt a policy requiring that feasibility study report transmittal letters and special project reports address the sensitivity to change of the cost, benefit, and schedule estimates contained in these reports.
Under current state policy, departments are required to notify the Legislature whenever they transmit an FSR to the DOIT for review. Departments are also required to provide the Legislature copies of any SPR issued relative to a project which has required the review of the DOIT. Although this policy results in the Legislature being notified annually of several major information technology projects, many are not reported because state policy allows the DOIT to delegate to departments the authority to approve their own projects, in which case they are not required to report projects to the Legislature. When the DOIT delegates approval authority, it generally establishes a cost threshold which, if exceeded, requires DOIT review.
Given unresolved problems in the state's information technology infrastructure, we believe that the Legislature should be notified of allmajor projects, and receive the documentation it would normally receive were such projects required to receive the approval of the DOIT. For this reason, we recommend the following supplemental report language:
The Department of Information Technology shall adopt a policy requiring that the Legislature receive notification of any feasibility study report approved under delegated authority, where the estimated project cost is $1 million or more, and requiring further that the Legislature receive a copy of any special project report issued relating to any project about which it has been notified.