State government has embarked on a major effort to ensure its computer systems accommodate the year 2000 (Y2K) change. The Department of Information Technology (DOIT) estimates that it will cost the state at least $240 million over several years to address the problem, but we believe that this estimate is understated.
We have identified a number of issues with the state's Y2K efforts, including optimistic time lines, lack of contingency planning, and insufficient oversight resources.
We recommend that the Legislature require departments to report at budget hearings on the status of their Y2K efforts, delay funding for new projects in departments which have not completed Y2K modifications, approve DOIT's budget to provide additional resources for oversight and assistance to departments, and establish a reserve fund for yet-to-be identified Y2K efforts by departments (see page G-11 to G-21).
Implementation of Enhanced Smog Check Program Is Problematic
The Department of Consumer Affairs is unclear on how it plans to implement various aspects of the Smog Check program.
We recommend the Legislature not approve funding for these programs until the Department of Consumer Affairs reports to the Legislature on how these programs will be implemented (see page G-23).
Health and Welfare Agency Data Center Should Identify Tools it Needs
In 1995, the administration transferred three of the nation's largest information technology projects to the Health and Welfare Agency Data Center (HWDC)--projects to automate welfare, child support, and child welfare services. The projects were all experiencing difficulty at the time. Since then one project has been cancelled after the state spent $100 million, and others have had significant cost increases and delays.
Currently, the data center is responsible for a total of ten projects, with total costs exceeding $1.2 billion.
The additional responsibility given to HWDC occurred without any review of whether it had the appropriate tools for developing and deploying information technology projects of this magnitude.
Given the major tasks it faces in managing these projects, we recommend that HWDC report to the Legislature during budget hearings on its suggested strategies for developing the additional tools and resources it needs to successfully deploy the projects (see page G-76 to G-93).
Trade and Commerce Agency Augmentations for Economic Development
The Trade and Commerce Agency has requested a $7.8 million augmentation for a series of activities for economic development.
The agency's budget has increase by over 150 percent since it was created in 1992 even though when it was created the expectation was that there would be economies and overall savings in the operations of this agency.
We recommend that the agency reevaluate the need for these increases by setting priorities within existing resources and identify the specific expected outcomes from spending any additional funds (see page G-120).
The General Government section of the budget contains a variety of programs and departments with a wide range of responsibilities and functions. These programs and departments provide financial assistance to local governments, protect consumers, promote business development, provide services to state agencies, ensure fair employment practices, and collect revenue to fund state operations. The 1998-99 Governor's Budgetproposes $10.2 billion to fund these functions, not including federal funds. The proposed budget year funding is $414 million less than estimated 1997-98 expenditures.
We describe these program areas below and Figure 1 shows the estimated 1997-98 and proposed 1998-99 budget expenditures by program area.
|General Government Spending
By Program Area
|1997-98 and 1998-99
|Local government financing||165.9||112.7||-53.2|
|Tax collections programs||562.2||573.3||11.1|
|State administration programs||993.3||967.3||-26.0|
|Retirement and employment||3,703.0||3,001.6||-701.4|
The renters' credit provides a refundable tax credit to Californians who rent their principal place of residence. The renters' credit program was suspended from 1993 through 1997 as one of many spending reductions enacted to address the state's budgetary problems. The Governor's budget proposes eliminating this program in 1998. The estimated cost of this program in 1998-99, if it were not altered or discontinued, would be approximately $540 million.
Total proposed expenditures for all regulatory activities in the budget year are $1.3 billion. This includes approximately $1 billion from various special funds and $247 million from the General Fund. Total expenditures in this category are $201 million, or 19 percent, more than the estimated current-year expenditures. The four largest agencies in terms of overall proposed budget expenditures are the Department of Consumer Affairs, $331 million ($1.7 million General Fund); the Energy Commission, $226 million (all special funds); the Department of Industrial Relations, $190 million ($147 million General Fund); and the Department of Food and Agriculture, $181 million ($67.1 million General Fund).
These regulatory agencies protect the consumer and promote business development while regulating various aspects of licensee, business, and employment practices. The groups regulated range from individual licensees to large corporations.
Revenues. The estimated combined General Fund collections by both boards is projected to be almost $55 billion in 1998-99. This is an increase of nearly $3 billion over estimated current-year revenues. Slightly more than half of all General Fund revenues ($28 billion) comes from personal income taxes.
The budget proposes a total of $967 million to support these functions in 1998-99. This is a decrease of $26 million, or 2.6 percent, from current-year expenditures. The most significant budget-year decrease is in the OES and is a result of reductions in estimated amounts budgeted for disaster assistance.
Public Employees' Retirement System. The Public Employees' Retirement System (PERS) is the retirement system for most state employees. The budget projects General Fund expenditures of $982 million for PERS in 1998-99. Under the provisions of Chapter 71, Statutes of 1993 (SB 240, Committee on Budget and Fiscal Review), General Fund contributions were made two fiscal years in arrears until the current year. As a result of a lawsuit filed by the PERS, the Superior Court in Sacramento County ordered the state to pay all deferred payments plus interest and to resume sending state funds to the PERS on a current, rather than a deferred, basis. The state paid the $1.2 billion in deferred contributions in the current year. The budget proposes to make the related interest payment of $310 million in 1998-99 (this amount is included in the amount shown in Figure 2).
|General Fund Costs
For Retirement Programsa
|Public Employees' Retirement||$982|
|State Teachers' Retirement||731|
|Social Security and Medicareb||300|
|Health and Dental Benefits for Annuitants||302|
|aExcludes costs for University of California employees.|
|bLegislative Analyst's Office estimate based on 1997 costs.|
State Teachers' Retirement System. The State Teachers' Retirement System (STRS) is the retirement system for teachers in public K-12 schools and community colleges. The STRS receives contributions from teachers and their employers. These contributions, however, are insufficient to provide for the cost of basic retirement benefits, the protection of retirees' purchasing power, and to cover past unfunded liabilities. These shortfalls are covered by annual transfers from the General Fund. In the budget year, the shortfalls are expected to total nearly $1.1 billion--about $100 million higher than the current year. The increase is due to an expected increase in teacher payrolls resulting from a combination of more teachers under class size reduction as well as salary increases. In the budget year, the General Fund transfer for these shortfalls will only be $731 million. This is because under Chapter 939, Statutes of 1997 (SB 1026, Schiff), the funds the state will receive from the sale of the Elk Hills Naval Petroleum Reserve in Kern County (under the provisions of a settlement with the federal government) is to be used to offset the required General Fund transfers in the budget year. The Elk Hills property has been sold and the state's share of the sale proceeds is $320 million. This is a one-time reduction in General Fund costs.
Health and Dental Premiums. The budget also includes $302 million from the General Fund to pay the state share of health and dental insurance premiums for retired state employees and their qualifying beneficiaries. This is $23.6 million more than estimated current-year expenditures, which reflects an increase in the number of retirees. The PERS is currently negotiating the health and dental premiums rates for the second half of the budget year. These negotiations may result in a change in the estimated General Fund cost for the budget year. There also may be an adjustment because the number of annuitants covered under this program may be overstated.
The budget includes $279 million as an augmentation for employee compensation. This amount is equivalent to a 3 percent salary increase for state employees other than those in higher education (salary increases for these employees are provided in the budgets for the segments of higher education). The Governor's budget indicates that the amount ultimately needed for this purpose is dependent on reaching agreement with the employee bargaining units through the collective bargaining process.