The Board of Equalization is one of California's major tax collection agencies.
The board (1) collects state and local sales and use taxes and a variety of
business and excise taxes and fees, including those levied on gasoline, diesel
fuel, cigarettes, and hazardous wastes; (2) is responsible for allocating tax
proceeds to the appropriate local jurisdiction; (3) over-sees the administration
of the property tax by county assessors; and
(4) assesses property owned by public utilities. The board is also the final administrative appellate body for personal income and bank and corporation taxes. The department is governed by a five-member board--four members elected by district and the State Controller.
The 2000-01 Governor's Budget proposes approximately $306 million ($194 million General Fund) and 4,077 positions in support of the board's operations. The total proposed budget expenditures are 3.5 percent above estimated current-year expenditures.
We recommend the Legislature delete $1.4 million (various funds) requested for an increase in the board's master rental agreement for information technology components because the board initially planned to absorb this cost and has not provided any justification as to why it cannot absorb the increase. We further withhold recommendation on $3.7 million (various funds) requested for increased costs for the board's computer system operations and data storage needs at the Teale Data Center because the board should implement internal procedures to monitor data processing and storage use in order to control costs. (Reduce various items by $1,388,000.)
The Governor's budget proposes $5.1 million ($3.9 million from the General Fund) to offset a price increase in the master rental agreement between the board and the Department of General Services (DGS) and also for increased costs for services provided by the Teale Data Center.
Master Rental Agreement. The DGS maintains a master rental agreement for a variety of information technology hardware components-- such as terminals, controllers, and printers. Other agencies and departments can use the agreement to rent hardware. In 1997, the DGS negotiated a new agreement that resulted in increased rental costs. The board initially planned to absorb the cost increase within its existing budget. It has not provided any information to indicate why this cost cannot be absorbed as originally planned. The augmentation also appears to be contrary to the Department of Finance's (DOF) budget instructions regarding price increases. Please see our analysis of the DOF budget in this chapter of the Analysis. Consequently, we recommend the $1.4 million requested for the increase in the master rental agreement be deleted.
Teale Data Center Costs Increase. The board recently (May 1999) implemented its Integrated Revenue Information System (IRIS) project, which shifts all mainframe processing from the board to the Teale Data Center. The Teale Data Center charges user agencies certain rates for its services. These services include mainframe processing time and data storage. The board indicates that processing time and data storage costs will increase in the budget year.
Our understanding is that these increased costs stem primarily from the simulated testing environments that the board uses when it updates the IRIS system. It is important for a department to conduct sufficient testing and maintain a sufficient number of testing environments when operating a system like IRIS. However, it is also important that a department diligently monitor its use of data center resources. We have three concerns with this request:
IRIS operation does not support the requested expenditure level.
We believe the board should provide the Legislature with updated estimates of the operating time and data storage it requires from the Teale Data Center. Second, the board should also inform the Legislature of what internal controls can be put in place to monitor data center usage to avoid incurring budget shortfalls in the future. Finally, these estimates should be developed in conjunction with the Department of Information Technology and Teale. We withhold recommendation on the requested augmentation, pending receipt and review of this information.
We recommend the Legislature delete the requested $393,000 ($314,000 from the General Fund) to extend the Field Office Automation Pilot Project to two additional field districts because the augmentation is not necessary to gather additional information. (Reduce various items by $393,000.)
Pilot Project. In 1997-98 the board received an augmentation totaling $475,000 ($349,000 General Fund) to provide local area network (LAN) capabilities at two district offices--San Jose and Ventura. Essentially the LAN allows field auditors to interact electronically with the district office, with headquarters staff, and also link into the board's information technology systems located at the Teale Data Center. The increased electronic interaction was proposed to result in audit staff spending less time traveling from the audit location to the district or headquarters office for meetings, audit conferences, etc. Thus, auditors could complete the audits in a more timely manner.
After the LAN was established, the board compared data from the San Jose and Ventura districts with the same information from two "control" districts--San Diego and Oakland. These data included:
The results of the comparison between districts were summarized and sent to the Legislature in September 1999. Based on the report, it appears that the automation resulted in increased efficiency and audit assessments. In addition, the board was able to reduce four support staff positions, but it reclassified two of those positions to the pilot districts to serve as LAN coordinators. The board estimates that the automation project costs approximately $400,000 annually and results in approximately $2.5 million in additional annual revenues.
Budget-Year Proposal. The Governor's budget proposes $393,000 ($314,000 from the General Fund) to expand the field automation project to an additional two districts--Torrance and Van Nuys--for the purpose of further studying the benefits of the project. The board currently has over two years of data from the initial pilot project. These data have permitted the board to analyze several different aspects of the project--administrative functions, auditor trips to and from the district office, audit management and supervision, and many others. If the board believes it needs to obtain more data to evaluate the pilot project, it can continue to obtain (and refine, if necessary) data from the two offices currently in the pilot program and compare the results to all the other district offices. Thus, it is not necessary to expand the pilot program to two additional offices to obtain additional information. Consequently, we recommend the Legislature delete the requested $393,000 to expand the pilot program.
As mentioned above, however, based on the September 1999 evaluation report
the pilot program appears to be cost-effective. The September report did not
indicate that there were insufficient data for evaluating the pilot program.
In view of this, the board should report to the Legislature prior to budget
hearings on any additional data needed to fully evaluate the program. Depending
on the board's response, the Legislature may want to consider making the field
automation program a permanent program and expanding it beyond the two offices
proposed in the budget. As discussed above, however, there is no need to expand
the pilot program.
The Franchise Tax Board (FTB) is one of the state's major tax collecting agencies.
The board's primary responsibility is to administer California's Personal Income
Tax and Bank and Corporation Tax laws. The board also administers the Homeowners'
and Renters' Assistance programs and the Political Reform Act audit program.
In addition, the board administers several nontax programs, including collection
(1) child support, student loan, and motor vehicle registration delinquencies; and (2) court ordered payments. A three-member board--the Director of Finance, the Chair of the State Board of Equalization, and the State Controller--oversees the department. A board-appointed executive officer is charged with administering the day-to-day operations.
The 2000-01 Governor's Budget proposes $412 million ($371 million General Fund) and 5,752 positions in support of the FTB's operations. The total amount is $6.4 million and 54 positions more than the current year. The main changes are (1) nearly off-setting increases and decreases for multiyear information technology projects, (2) an increase in the child support collections program, and (3) an increase for the child support case management automation project.
We withhold recommendation on the board's request for $5.5 million ($1.9 million General Fund and $3.6 million reimbursements) to expand its child support collections program. The board's program is one piece of a larger overhaul of the child support collections and management system for the state. The board needs to submit a complete proposal, coordinated with the new Department of Child Support Services, detailing how the board will fulfill its new responsibilities under this program.
The Governor's budget proposes $5.5 million and 34 positions for the board to expand its child support collections activities per the 1999 mandates of Chapter 478 (AB 196, Kuehl) and Chapter 480 (SB 542, Burton).
Program History. In 1993, the board began a child support delinquency collection pilot project with six counties. Two years later in 1995, the collection program was expanded to include all counties. The board was responsible for collecting child support payments that were delinquent by 90 days or more. County district attorneys also could choose to have the board collect payments that were delinquent for 30 days or more as well as current support payments.
The board's role was to locate assets and collect owed amounts. The board relied on the county to submit necessary and accurate data in order to begin the collections process. It collected on about 6 percent of all cases referred to the board. For 1998-99 the board collected almost $68 million in child support delinquent payments from over 526,000 cases referred to it. Since the program began in 1993, the board has collected over $287 million.
As a collection agent for the counties, the board forwarded all monies collected to the referring district attorney, and the county distributed the collections to custodial parents. The board's costs for the collections activity are paid by federal reimbursements and the General Fund.
Restructured Child Support Program. The recent legislation fundamentally changed and expanded the state's child support system and the responsibilities of the board for child support collections. (A discussion of the new child support system is in the Health and Social Services chapter of this Analysis.) Figure 1 (see next page) highlights the changed and additional responsibilities for the board. The board has three years (ending December 31, 2002) to phase in the additional responsibilities.
Expected Results. The board expects to collect an additional $70 mil-lion annually in child support payments, starting in 2003-04, through the expanded program. Further, the board estimates program costs will approximately double.
Questions for the Legislature. There are several unanswered questions regarding the board's plan to implement its new responsibilities:
|Franchise Tax Board Responsibilities Under New Child Support
the board greater discretion in researching and pursuing child support debt. Our understanding is the board plans to create a centralized database of collections information and make that database available to county child support staff. The board needs to explain how the integrity of the database and any private information, such as social security numbers, will be maintained in the interconnected system.
Analyst's Recommendation. In view of the many issues surrounding the restructured child support program, it is important that the board submit a complete proposal (coordinated with the Department of Child Support Services [DCSS]) on how the board will fulfill its responsibilities under Chapter 478 and Chapter 480. Pending receipt and review of such a coordinated proposal, we withhold recommendation on the $5.5 mil-lion ($1.9 million General Fund) and 34 positions requested to expand the board's collections programs.
We withhold recommendation on the proposed $14.1 million ($4.8 million General Fund and $9.3 million reimbursements) proposed for the child support automation project because the new state Department of Child Support Services has not yet identified its direction for the system and the Franchise Tax Board has indicated that a new, more complete proposal will be provided during budget hearings on the 2000-01 Budget Bill. We further recommend that the Director of Child Support Services report at budget hearings as to the state's direction for the procurement of the new child support automation system.
The Governor's budget proposes $14.1 million ($4.8 million General Fund and $9.3 million reimbursements) to reflect the shift of responsibility for the California Child Support Automation Project from the Health and Human Services Agency Data Center (HHSDC) to the board. As we discuss in the Health and Social Services chapter of this Analysis, recent legislation regarding the future of the state's child support system resulted in a significant change in the board's responsibilities. Specifically, Chapter 479, Statutes of 1999 (AB 150, Aroner), shifted responsibility for the procurement and implementation of the new statewide child support automation system from the agency to the board. However, the board is not the primary entity for developing the public policies for the state's child support system. Rather, the board will act as the "agent" for the newly created DCSS that is responsible for the state's child support program.
Procurement of New Statewide System. Chapter 479 mandated that the board act as the DCSS' agent for the procurement, development, implementation, and maintenance of the new single statewide system. This responsibility was given to the board on October 1, 1999. In addition, Chapter 479 appropriated $6.6 million in the current year to fund the board's initial project and transferred $5.7 million from the HHSDC to the board.
Complete Proposal Forthcoming. Because the process of developing the 2000-01 Governor's Budget began prior to the effective date of Chapter 479, the board is still completing work on its full proposal for implementing its new mandates. We have been advised that a complete proposal will be forthcoming during budget hearings on the 2000-01 Budget Bill. That proposal should reflect the board's understanding of its full responsibilities and activities during 2000-01.
Coordination With Newly Created DCSS. At the time this analysis was prepared, the DCSS had not yet begun operations. Thus, DCSS had not yet specified its needs for the new automation system to be provided by the board. As we mentioned above, DCSS is the agency responsible for the state's child support program and the board is the DCSS's agent. Thus, we recommend that the new director of DCSS report at budget hearings as to the state's direction for development and procurement for the new statewide system. For these reasons, we withhold recommendation on the $14.1 million included in the Governor's budget for the child support automation system.
In 1998, the FTB contracted with an independent auditor to conduct a performance audit of the board. The audit results indicated that the board should be able to realize significant budget savings based on increases in electronic filing. The auditor further recommended phasing in these reductions in equal increments over five years to coordinate with the increases in alternative filing. In the 1999-00 Budget Act the Legislature reduced the board's budget by 18 personnel-years and $513,000 (General Fund) to realize the first-year's increment of savings from reducing staff. In addition, the Legislature reduced the board's 1999-00 budget by $567,000 (General Fund) to realize the first-year's increment of savings the board has when it ceases to mail tax booklets to taxpayers who filed either electronically or used a tax preparer to submit their return in the previous year. The Governor's budget does not fully account for the second-year savings increments for these two activities. These issues are discussed below.
We recommend the Legislature delete $366,000 (General Fund) to fully reflect the second-year savings resulting from a reduction in filing staff. (Reduce Item 1730-001-0001 by $366,000.)
The board's budget-year proposal includes a reduction of 18 personnel- years and $147,000 related to the second-year savings associated with the filing staff reduction. This reduction, however, does not reflect the full $513,000 in scheduled savings. Instead, the board proposes to leave $106,000 in the budget and redirect $260,000 to increase marketing efforts to encourage more taxpayers to use electronic filing methods. The board indicates that this increased marketing effort will ensure that it meets its increased electronic filing goals. The board, however, already successfully markets these filing methods through a current marketing campaign and publicizes the availability of these filing methods on its Web site and in all its tax booklets.
In fact, between tax years 1996 and 1998, there was a large increase (over 170 percent) in electronic filing and telephone filing, and the board is projecting a 30 percent increase in these filings for the 1999 tax year. The board has not provided evidence that increasing the marketing of these efforts is needed.
Consequently, we recommend that the Legislature delete $366,000 to reflect the full, second-year savings related to reduced filing workload.
We recommend the Legislature delete $567,000 (General Fund) from the board's budget to reflect the reduction in mailing tax booklets related to the increasing number of taxpayers that file either electronically or use a tax preparer. (Reduce Item 1730-001-0001 by $567,000.)
In 1999-00 the Legislature reduced the board's budget by $567,000 (General Fund) to realize the savings the board has when it ceases to mail tax booklets to taxpayers who either filed electronically or used a tax preparer to submit their return in the previous year. This reduction was the first of the five-year scheduled reduction mentioned above. The Governor's budget, however, does not include the second-year savings related to the increasing number of taxpayers who file electronically or file through a tax preparer. Thus, we recommend the Legislature delete $567,000 from the board's 2000-01 budget to reflect the second year of scheduled five-year reduction.
We recommend the Legislature delete $69,000 to administer the Business Tax Reporting program because when the mandate for this program was repealed in the current year, the board retained the associated administrative funds and position. (Reduce Item 1730-001-0001 by $69,000 and one position.)
Prior to the current fiscal year, every city in California that assessed a business tax and maintained a computerized record keeping system was required to annually furnish specific information to the board. The board then used this information to identify self-employed individuals for tax enforcement. Cities could file a claim to have certain costs--administrative and operational--associated with providing the data to the board reimbursed by the state. This mandate was repealed, per the board's proposal, in the current year. The board indicated that, in the aggregate, the information was not yielding sufficient returns for the costs incurred. The board believed that it would be more efficient to repeal the mandate and contract with those cities whose business tax information yielded the greatest revenue returns.
The budget-year proposal consists of $1 million (General Fund) to purchase the business tax information from specific cities and $69,000 (General Fund) for one position to administer the program.
When the mandate was repealed, the board's workload associated with the city
tax information ceased. However, the board did not take a corresponding reduction
in its budget. Consequently, the board should now be able to absorb the workload
associated with purchasing the tax information from the cities within existing
resources. Therefore, we recommend the Legislature delete the $69,000 and one
position requested for administration of the program.
The Department of Information Technology (DOIT) is responsible for planning and overseeing the state's uses of information technology (IT). The department is responsible for ensuring that appropriate plans, policies, and procedures are in place to assure successful implementation of IT projects.
The budget proposes $9.7 million ($8.9 million from the General Fund and $750,000 from reimbursements) for support of the department's operations in 2000-01, a decrease of $18.4 million, or 64 percent, below estimated current-year expenditures. The budget reduction results prima-rily from the completion of the state's year 2000 (Y2K) remediation activities. The budget proposes 44 personnel-years for the department in the budget year.
In addition, the budget proposes $10 million from the General Fund in Item 9905 to fund IT innovation. Although these monies are not included in the DOIT budget, the department will play a central role in the disbursement of these monies. We discuss this proposal below.
We recommend that the Legislature reject the request to create a $10 million information technology innovation fund because the proposal contains a number of serious flaws. (Delete budget bill Item 9905-001-0001.)
The budget proposes $10 million from the General Fund to support "innovative information technology activities." The funds would be appropriated in budget bill Item 9905, which contains provisions that specify the process for distribution of the monies. According to the Governor's budget summary, the funds would be used to ". . . take quick advantage of creative new technology applications in state government . . ." According to the administration, the request is based on the model established by the Legislature and the administration in the 1999-00 Budget Act to fund unexpected Y2K activities.
Proposal. Under the proposal, monies in the item would be allocated by a new Information Technology Innovation Council. The council would be composed of two representatives of the Governor's Office, two cabinet level agency secretaries or their designees, the State Chief Information Officer (the Director of DOIT) or his designee, and the Director of the Department of Finance (DOF) or his designee.
The request states that, based on policies and guidelines to be developed and published by the Council, departments would submit proposals to DOIT for review and evaluation. Final selection for funding would be made by the council. After the council has made its selection, the Legislature will receive notification 30 days prior to DOF allocating money from the item.
Departments would have up to three years (2000-01 through 2002-03) to expend the allocated funds. Projects needing additional funds above the initial allocation would address their funding needs through the annual budget process.
It is also our understanding that the administration will propose trailer bill language to support this proposal. The specific trailer bill language has not been provided, however, it is our understanding that the language will not be substantially different from the proposed budget bill language.
We have a number of concerns with this proposal.
Lack of Defined Selection Criteria. Although the proposal indicates that the council will develop policies, procedures, and criteria for use of the funds, none of that information was available at the time this analysis was prepared. Thus, it is unclear what kind of proposals will be considered "innovative," how the proposals will be evaluated, and how the selection process will occur.
Council Composition Is Narrow. The composition of the council that will set the criteria for the use and distribution of the monies is too narrow in that it is composed entirely of administration representatives.
Will Only General Fund Departments Be Eligible? Because the budget proposes to use only General Fund monies to support innovative IT activities, it is unclear whether non-General Fund supported departments could receive funding. If such departments are not eligible for funding, this would exclude a number of major state agencies that are supported by special funds or federal funds, such as the Departments of Motor Vehicles, Employment Development, and Caltrans. If the administration had intended to use this fund for a broad range of services, provisions for the use of special and nongovernmental funds sources should have been included.
The DOIT's Resources May Be Diverted From Its Original Mission.
The administration advises that DOIT will evaluate each of the proposals for funding with the final selection being made by the council. This means that DOIT will be taking on another responsibility before it has completed the tasks that were originally assigned to it by the Legislature, such as publishing policies and ensuring that IT projects are being successfully implemented. We believe that this additional task of evaluating proposals will divert its existing resources from its original mission and is, therefore, not appropriate at this time.
Use of the Y2K Fund Model Has Limitations. According to the administration, a model similar to one used for funding Y2K remediation activities will be adopted. In our view, however, the Y2K process was far different because Y2K remediation was limited to a single set of activities that were well-known beforehand. The innovation fund appears to be much broader and may address many different goals depending on the individual proposal.
In addition, we believe the Y2K funding process, whereby total funding was appropriated and the Legislature received 30-day notification of proposed expenditures, was not always used appropriately by the administration. Many of the Y2K funding requests to the Legislature over the past nine months were to back-fill funds that had already been expended without prior legislative authorization. Thus, we have concerns about establishing another funding mechanism that provides the administration virtual control over appropriated funds with very limited legislative review and oversight.
What Is the Real Problem? Finally, it appears that the administration is using this proposal to address a more fundamental problem facing state IT: the processes by which IT projects are funded. State IT project development, procurement, and implementation does not easily fit with the state's budget process. This is because project development and implementation activities frequently do not coincide with the appropriations process. We believe that, while the administration's proposed innovation fund attempts to get around that problem, what is really needed is a new funding model for state IT projects. Such a model should recognize the multiyear planning and procurement phases of such projects with adequate provision for legislative oversight and review.
Analyst's Recommendation. For these reasons, we recommend that the Legislature reject the request for a General Fund savings of $10 mil-lion. We suggest that the administration reexamine the funding and procurement model used for state IT projects, and if necessary, return to the Legislature with requests for legislative changes.
The Department of Information Technology (DOIT) indicates that it will provide the Legislature with a proposal for a new organizational structure and a new model for ensuring the success of state information technology projects. We recommend that the Legislature not act on the proposals until DOIT adequately demonstrates how the proposals will assist the department to achieve its legislatively-mandated responsibilities.
With Y2K activities successfully completed, DOIT has indicated that it will spend the next few months developing a proposal to present to the Legislature supporting a new organizational structure for the department. In order to assist its review, we provide the Legislature with a brief update on DOIT's current legislation, DOIT's major accomplishments to date, and identify DOIT's unmet legislative mandates.
The DOIT's Enabling Legislation. In 1995, the Legislature enacted major reform legislation relating to the planning, implementation, and over-sight of the state's IT activities. This legislation--Chapter 508, Statutes of 1995 (SB 1, Alquist)--was the result of several legislative hearings and various reports by our office, the Bureau of State Audits, and the Governor's Task Force on Government Technology and Procurement. The Legislature determined that major reform was necessary in order to address multiple serious problems affecting the state's IT activities. California state government spends more than $2 billion annually on these activities.
The centerpiece of this reform was the establishment of a new department (DOIT), reporting directly to the Governor. The department was assigned many specific responsibilities which, if accomplished, would improve the state's ability to apply IT in a cost-effective manner and improve the Legislature's confidence in major IT initiatives. This legislation also included a sunset date of July 1, 2000.
Sunset Extended Until 2002. The Legislature enacted Chapter 873, Statutes of 1999 (AB 1686, Dutra) to extend DOIT's sunset to July 1, 2002. Chapter 873 essentially reiterated the provisions of Chapter 508. Figure 1 shows the major responsibilities assigned to DOIT by Chapter 873.
The DOIT's Accomplishments to Date. In our view, DOIT has on balance added value to the state's IT program. It has:
|Department of Information Technology Major Responsibilities Under Chapter 873, Statutes of 1999 (AB 1686, Dutra)|
What Still Needs to Be Done? Even though DOIT has accomplished a number of major activities, we believe that it has not met all of the Legislature's expectations. Figure 2 summarizes the activities that we believe DOIT was legislatively mandated to either implement or complete but has yet to accomplish fully.
Overall, we believe DOIT has had difficulty in achieving its three primary objectives: (1) providing the strategic vision and planning for the use and management of the state's IT, (2) developing and issuing policies and guidelines, and (3) enforcing compliance with those policies.
Strategic Plan and Vision Needs to Be Formulated. When it was created, the Legislature envisioned that DOIT would provide the strategic vision for the state's approach to using and implementing IT in state government. It was also envisioned that DOIT would formulate a plan on how to achieve that vision. Unfortunately, that has not materialized. As DOIT presents its proposal for a new organizational structure, we believe that the key elements to ensuring the success of the state's IT will be DOIT's commitment to providing a consistent vision and workable plan on how to meet the challenges that face the state's IT.
Mandated Policies Not Completed. One of the key components in DOIT's enabling legislation, after planning, is the development of policies and guidelines to direct the state's IT program. The DOIT has issued some policies and attempted some reforms. However, as Figure 2 shows, there are a number of significant policies that have not been completed.
Over the past three years, the Legislature, through the budget and the supplemental report, has specifically directed DOIT to issue policies related to project oversight, project management training, procurement alternatives, project sizing, and project delegations. Most of these policies have not been issued. We believe that the forthcoming DOIT proposal must provide a plan on how DOIT will accomplish the objective of policy development and issuance, outline what specific policies will be developed and issued, and identify when this will occur.
The DOIT Has Had Difficulties in Enforcing Its Policies. For the few policies that it has issued, DOIT continues to have difficulties in enforcing its own policies and is apparently reluctant to intercede in depart-mentsto undertake those enforcement activities. As we note in our analysis of the Department of Motor Vehicles (DMV) (in the Transportation chapter), DMV continues to struggle in implementing its IT projects, however, DOIT continues to approve new DMV projects. In addition, departments continue to pursue procurement practices that are contrary to DOIT's published policies. Although DOIT has increased the amount and level of independent oversight that is now required on almost all IT projects, it still continues to have difficulties in effectively monitoring and overseeing a number of the state's major IT projects. Any forthcoming proposal will need to address how DOIT will ensure that departments are complying with state policies, what actions DOIT will take when compliance has not been achieved, and how DOIT will increase the success of state IT projects.How Should the Legislature Review DOIT's Upcoming Proposal? Even though the Legislature has provided direction to DOIT through both its enabling legislation and subsequent legislative actions, we believe it has not met all of the Legislature's objectives. When the new proposal is presented this spring, we recommend that the Legislature evaluate the extent to which the proposal answers the following questions:
|Department of Information Technology's Legislatively-Mandated Activities Not Fully Met a|
Development of Strategic Plan and Vision
|Development of Policies and Guidelines|
|a As outlined in Chapter 508, Statutes of 1995 (SB 1, Alquist) and Chapter 873, Statutes of 1999 (AB 1686, Dutra).|
Implementation. Does it contain a work plan, with deliverables and due dates, demonstrating DOIT's commitment to accomplishing its legislatively-mandated objectives of planning, policy development, and enforcement? Is the plan reasonable and achievable in the time frames presented?
We recommend that the Legislature not act on any forthcoming DOIT restructuring
proposal until these questions are adequately answered and the Legislature has
had a reasonable period to evaluate the proposal.
The Health and Human Services Agency Data Center (HHSDC) provides information technology services, including computer and communications network services, to the various departments and other organizational components of the Health and Human Services Agency. The center also provides services to other state entities and various local jurisdictions. The cost of the center's operations is fully paid by its clients.
The budget proposes $293 million for support of the data center in 2000-01, which is an increase of $15.1 million, or 5.4 percent, above estimated current-year expenditures. The budget includes a number of increases for workload, the largest of which is a request for $16.8 million for additional data processing and storage capability and telecommunications equipment. It also includes a number of decreases for completion of various aspects of certain large information technology projects.
We recommend that the Legislature adopt supplemental report language directing the Health and Human Services Agency Data Center to report project expenditures in a manner consistent with information technology project reporting requirements contained in the State Administrative Manual, Budget Letters, and the State Information Management Manual.
The budget contains 18 proposals for HHSDC of which 13 are for information technology projects. The project-related proposals are submitted to the Legislature in order to report changes in estimated expenditures or fund sources for previously approved projects. This information is provided for both the current and budget years. Unfortunately, the information provided is of limited value to the Legislature as we discuss below.
Limited Information on Overall Costs of Projects. Each year HHSDC reports to the Legislature at least twice (in the January Governor's budget and again during the spring) as to budget adjustments for each information technology project. These reports, however, do not clearly indicate what HHSDC's total expenditure authority is for each particular project nor do they provide a clear indication of the estimated total project cost. Instead, the administration requests that the Legislature simply adjust expenditure authority on a year-to-year basis without a full under-standing as to how the requested budget adjustments affect the total costs over the entire duration of the project.
For example, HHSDC is responsible for planning the procurement of the replacement for the In-Home Supportive Services (IHSS)/Case Management Information and Payrolling System (CMIPS). The May Revision proposal for the 1999-00 budget requested an increase of $507,000 in HHSDC's expenditure authority for this project. The proposal stated that the procurement planning would be complete by July 2001. The proposal did not contain information concerning HHSDC's expenditure over the duration of the project nor did it address total project costs. With release of the Governor's 2000-01 budget proposal, HHSDC is requesting an increase of $589,000 in expenditure authority for this project. Because HHSDC only reports its project activities in limited time sequences, the Legislature is never fully informed as to what it is agreeing to over the long term when it makes annual funding changes.
Data Center Allowed to Not Follow Existing State Policies. We believe this problem could be remedied if HHSDC were required to report project costs consistent with the State Information Management Manual (SIMM). The SIMM requires departments to provide detailed project costs broken down by specific categories for the life of the project. These specific categories include, for example, the total number of state personnel-years (PYs), and total costs for those PYs. The SIMM also describes what proposed expenditures should be in each of the categories. This categorization provides consistency of expenditure reporting for all state information technology projects. In addition, this detail allows both the control agencies and the Legislature to understand from a consistent fiscal perspective what is necessary to successfully implement a project. Because the majority of the funding for HHSDC projects is provided from federal funds, the state's control agencies (Department of Information Technology [DOIT] and Department of Finance [DOF]) have not required HHSDC to report project costs consistent with SIMM project expenditure reporting.
Analyst's Recommendation. Given the large number of information technology projects, the length of time it takes to develop and implement them, and the escalating costs of projects, we believe that it is appropriate for the administration to provide detailed information on the total costs of projects so that the Legislature can perform its oversight responsibilities.
Thus, we recommend that HHSDC be directed to report project costs in accordance with DOIT and DOF information technology project expenditure reporting policies and guidelines. In addition, we recommend that the Legislature direct HHSDC to include in its annual budget proposals current HHSDC expenditure authority over the duration of the project, approved project costs, and the proposed annual changes in expenditures for the project. This can be accomplished with the following supplemental report language:
It is the intent of the Legislature that the Health and Human Services Agency Data Center (HHSDC) report project costs, project expenditures, and budget requests in a manner consistent with information technology project reporting requirements and budget change proposal requirements as stated in the State Administrative Manual, Department of Finance Budget Letters, and the State Information Management Manual. The HHSDC budget change proposals which support information technology projects and are provided to the Legislature shall indicate HHSDC's total current expenditure authority for the project, total proposed expenditure authority adjustments for the project, the number of years for the project, and the project's total approved cost.
We recommend changes in the proposed Health and Human Services Agency Data Center budget control language to clarify legislative intent and to ensure consistency between the state's two major data centers.
Provision 1 of HHSDC's budget control language allows the Director of Finance, upon a 30-day notification to the Legislature, to authorize the data center to spend funds in excess of its budgeted appropriation. This provision, which has been part of the annual budget act for several years, was originally adopted by the Legislature in order to allow HHSDC to respond quickly to unanticipated workload growth occurring in its client departments.
We are concerned that the Provision 1 language is overly broad and has allowed the administration to adjust HHSDC's expenditure authority for workload that could have been anticipated and, therefore, should have been presented to the Legislature during the budget hearing process. For example, in the current year, the Director utilized Provision 1 authority to propose an increase in expenditures to support some administrative functions that were not tied to new or unanticipated workload growth.
We think that the Legislature should clarify this language to ensure that this provision is used in accordance with legislative intent--to respond to unanticipated workload growth. We recommend the Legislature amend Provision 1 as follows (modified language is in italics):
Notwithstanding any other provision of law, the Director of Finance may authorize expenditures for unanticipated workload resulting from services provided to client departments for the Health and Human Services Agency Data Center in excess of the amount appropriated no sooner than 30 days after providing notification in writing to the chairperson of the fiscal committee of each house of the Legislature and the Chairperson of the Joint Legislative Budget Committee, or no sooner than such lesser time as the Chairperson of the committee, or his or her designee, may in each instance determine.
Consistency Needed in the Data Centers' Budget Control Language.
The 2000-01 Budget Bill proposes a new provision for the state's other major data center, the Stephen P. Teale Data Center (TDC), which would specify that TDC cannot use expenditure authority approved for one project to fund activities of another project. The proposed budget language provides clear direction that authorized expenditure authority must be used solely for the project for which it was approved and not for some other project.
The budget does not propose similar language for HHSDC. We believe that proposed budget language for TDC is consistent with legislative intent as to how a data center's expenditure authority should be used. Therefore, we recommend that the Legislature adopt the following budget control language in the HHSDC budget:
Expenditure authority provided in this item to support data center infrastructure projects may not be utilized for items outside the approved project scope.
We withhold recommendation on $788,000 proposed for electrical generators and upgrades to the center's power supply system, pending receipt and review of additional information. We recommend that the Legislature consider the proposal a capital outlay project, rather than part of the center's support budget.
The budget proposes $788,000 to purchase electrical generators and upgrade the power supply system at the data center's facilities on Alhambra Boulevard in Sacramento. According to the center, this is the first of a five-year request for funding that would total about $3.9 mil-lion, with ongoing costs of $265,000 annually thereafter.
Proposal Raises Questions. Our review of this proposal raises a number of questions. First, the proposal itself is not clear as to the nature of the problem that the center is trying to address nor what the state would be "buying" with the requested funds. Second, it is not clear how this proposal takes the center's existing power backup system, which includes both generators and service from the local utility company, into account when considering the center's overall power supply needs. Third, it appears that the project may be inappropriately budgeted in the center's support budget, but should instead be considered a capital outlay project. Finally, this proposal is not complete because it indicates that the center will submit another budget request in the spring for funding to correct potential points of failure in the existing power system.
Clarification Needed. Normally, given this amount of uncertainty, we would recommend that the Legislature reject the proposal. However, given the importance of addressing potential power supply problems at the center, we think that the administration should have the opportunity to submit additional information to clarify the proposal.
Thus, we withhold recommendation, pending receipt and review of additional information. At the time the Legislature reviews the additional information and is ready to take action on the proposal, however, we recommend that the Legislature consider it a capital outlay project, rather than in the center's support budget.
Last year, the Legislature directed the Health and Human Services Agency Data Center to report by April 2000 on potential alternatives for the placement of various Department of Social Services projects. We recommend that the Legislature take no action on the budgets for these projects until it reviews the findings of that report.
In 1995, the Department of Social Services (DSS) transferred to HHSDC responsibility for three of the state's largest information technology projects. The projects were to automate the Aid to Families with Dependent Children (AFDC) program (subsequently, the California Work Opportunity and Responsibility to Kids [CalWORKs] program), child welfare services, and child support. The projects were transferred due to the difficulties DSS was experiencing in developing the projects. Since that time, HHSDC has been given responsibility for developing several other social services-related projects such as the Electronic Benefit Transfer Project and IHSS/CMIPS.
The budget proposes an additional $1.7 million and 37 PYs for HHSDC to support these automation projects in the budget year.
Transition Report Forthcoming. In the Supplemental Report of the 1999 Budget Act, the Legislature requested that HHSDC assess whether the projects should continue to be the responsibility of the center. The Legislature directed the data center to provide a project transition plan to assess potential alternatives for the placement of the DSS projects currently administered by HHSDC. The report is to include:
A methodology describing how this transition could be accomplished including strategies, time schedules, and the receiving department's capacity and readiness to assume responsibility which would ensure continued project success.
Clear definitions of which organizations will have responsibility for the ongoing support, operation, and maintenance of the systems (i.e., including state and county entities).
A determination of the appropriate phase at which the project could transition.
The report is due to the Legislature by April 1, 2000.
Decision on Staffing Increases Should Await Recommendations of Report. Given that the findings of this report could have a significant affect on the amount of money and personnel that would be needed in either HHSDC's or other departments' budgets in 2000-01 and beyond, we recommend that the Legislature take no action on the data center's DSS project proposals until after it has an opportunity to review the report.
Because the new state Department of Child Support Services has not yet identified the direction for its interim child support automation systems, we withhold recommendations on proposed funding for these systems pending the receipt of additional information. We recommend that the Director of Child Support Services report at budget hearings on the state's direction for support, maintenance, and operation of the interim automation systems supporting the counties' child support enforcement services.
Changes in HHSDC's Responsibilities. As we describe in our recently released report (Child Support Enforcement: Implementing the Legislative Reforms of 1999), recent legislation has made significant changes in the state's child support system. These changes have important implications for HHSDC. Specifically, Chapter 479, Statutes of 1999 (AB 150, Aroner), shifted responsibility for the procurement and implementation of the new statewide child support automation system from HHSDC to the Franchise Tax Board.
The budget proposal reflects this change by decreasing HHSDC's expenditure authority by $5.4 million and 5.7 PYs in the current year and $6.6 million and 7.6 PYs in the budget year.
The HHSDC Maintains Interim Systems. Chapter 479 mandated that the state assume an active role in overseeing the maintenance and operation of the interim systems--those systems that the counties must operate until a new statewide system is operational. This responsibility was assigned to the new Department of Child Support Services (DCSS), in consultation with HHSDC.
Interim System Support Proposal Premature. The budget proposes expenditures of $15.5 million for HHSDC to support the interim systems. The proposal includes funds to continue data conversion tasks, support for the historical data base, and consulting services for county interim systems evaluations. We believe that this proposal is premature because the new department administering the child support program has not yet determined the direction of the interim automation system for this program, as we discuss below.
New Department to Specify Interim Systems Needs. At the time this analysis was prepared, the new DCSS was not yet up and running. Thus, DCSS had not been able to specify its needs for the new interim system provided by HHSDC. Because a more detailed proposal should be forthcoming identifying the interim system needs as specified by DCSS, we withhold recommendation on HHSDC's expenditure authority for the interim child support systems.
In addition, as we said in our recent child support report, we believe that DCSS, which is the agency responsible for the state's child support program, should be the lead agency for the child support program and the department responsible for the automation system's operation should be viewed as DCSS's agent. For this reason, we recommend that the new director of DCSS report at budget hearings as to the state's direction for support, maintenance, and operation of the automation systems supporting the counties' child support enforcement services.
Because the report due to the Legislature concerning the placement of various social services automation projects (including Child Welfare Services/Case Management System [CWS/CMS]) has not been provided and the new maintenance and operations contract for CWS/CMS has not been awarded, we recommend that the Legislature deny the Health and Human Services Agency Data Center's request to convert consulting services dollars into funding for an additional 23 permanent positions.
The CWS/CMS provides a statewide database, case management tools, and reporting system for the state's CWS program. The project has completed development and the system is in operation in all 58 counties. The project has now moved into the maintenance and operation (M&O) phase.
Procurement for New Maintenance Contract Underway. As directed by DOIT, DOF, and the federal government, HHSDC developed a Request for Proposal (RFP) to competitively procure an M&O contract for the ongoing support and maintenance of the CWS/CMS system. The state released the RFP in June 1999. The administration has not provided a schedule as to when the new M&O contract is expected to be awarded.
We understand that the current M&O contract is set to expire in July 2000, and will need to be amended to provide ongoing support until the procurement of the new contract is complete. The costs of the contract amendment is not known at this time.
The budget requests to convert $1.7 million currently budgeted for consulting services to personal services to establish 23 permanent positions to support the CWS/CMS system.
Request for Additional Positions Is Premature. We believe that this request is premature for several reasons. First, the M&O contract is not in place and the specifics of the contract could make a difference as to the level of state funding necessary. Second, as we mentioned earlier, the project transition report describing which department should be responsible for various automation projects is still forthcoming. Consequently, it is not known what the plan will propose with regard to the future of the system.
Finally, DSS has indicated that it is currently reevaluating how to better support the counties and the state using the CWS/CMS system. We believe that such a reevaluation is appropriate. This is because the project has completed its development and implementation stages and is in fact no longer a project but rather an operational system. The manner in which a department supports an operational system is much different than the manner in which a department supports a project. The CWS/CMS is a good case in point. The processes and structures that were designed to support the CWS/CMS project may no longer have relevance for a fully operational CWS/CMS system.
For these reasons, we recommend that the Legislature not approve the request to establish permanent positions, but rather maintain the funds in HHSDC's consulting services budget. We believe that this approach would give DSS the maximum flexibility to restructure its policies and strategies to support an operational system such as CWS/CMS. We suggest that once DSS has developed its policies and strategies for supporting CWS/CMS and the new M&O contract has been awarded, DSS should provide a more comprehensive proposal to the Legislature to adequately support a fully operational CWS/CMS system that will meet the business needs of California's CWS program.
We recommend a reduction of $5.1 million proposed for Child Welfare Services/Case Management System maintenance and operation activities because the request is premature. (Reduce Item 4130-001-0632 by $5.1 million.)
Five-Year M&O Plan. In addition to being directed to procure a new M&O contract, HHSDC was directed by DOIT and DOF to prepare a five-year M&O plan. This plan is to describe the replacement schedule for CWS/CMS hardware and software and the budget changes necessary to meet these schedules. The CWS/CMS M&O plan prepared by HHSDC contains three major funding components:
The budget requests a total of $20.3 million for these replacements and activities in the budget year.
Scheduled Equipment Replacements Make Good Sense. The CWS/ CMS M&O plan provides replacement schedules for the equipment-related system components for each of the five years of the plan. The budget for 2000-01 includes $15.2 million to replace 10,500 personal computers and 242 laptop computers. We concur with this request in that it is consistent with prudent replacement schedules.
Changes to the CWS/CMS Software. The CWS/CMS M&O plan also includes $5.1 million for the two other components related to maintaining and enhancing the CWS/CMS application. First, the annual software maintenance component consists of making changes to the software to either fix known problems or enhance the ability of the existing system to carry out more functions. In addition, there are other activities consisting of consulting services provided by the current M&O vendor for planning, project management, and local technical support.
Software Changes Must Be Minimized Until New M&O Contract in Place. As we pointed out earlier, HHSDC is in the process of procuring a new M&O contract. We have been informed that the federal government has stated that there should be no enhancements to CWS/CMS until the new M&O contract is in place. Given this direction from the federal government, we think it is premature to request funding for additional changes to the software. We note that the current CWS/CMS budget already contains $6.2 million specifically for software changes which the state can use to request software modifications from the current M&O contractor.
Analyst's Recommendation. With the procurement of the M&O contract still underway and the need to minimize changes to the application during this period, we recommend that the Legislature approve only the request for $15.2 million for scheduled replacements, and deny the $5.1 million related to application maintenance activities.
Four Consortia Approach. The purpose of Statewide Automated Welfare System (SAWS) is to provide improved and uniform information technology capability to county welfare operations. The system is being delivered through a state partnership with the counties, which have chosen to be in one of four consortia. Figure 1 shows the four consortia, the participating counties, and the current status of each consortia.
The SAWS Consortium Planning and Management. The HHSDC provides oversight for the four SAWS consortia. Oversight consists of preparing project documents, procuring Independent Verification and Validation services, reviewing consortia deliverables, and approving and tracking expenditures. The data center's current year expenditure's for the consortia planning and maintenance are $5.3 million with this increasing by $1.3 million in the budget year.
|Statewide Automated Welfare System (SAWS) Consortia|
|Status||Proposed Budget Change|
|Interim SAWS (ISAWS)|
|35 counties: Alpine, Amador, Butte,||Working in all 35 counties.||-$11.8 million|
|Calaveras, Colusa, Del Norte, El Dorado,|
|Glenn, Humboldt, Imperial, Inyo, Kern, Kings,|
|Lake, Lassen, Madera, Marin, Mariposa,|
|Mendocino, Modoc, Mono, Monterey, Napa,|
|Nevada, Plumas, San Benito, San Joaquin,|
|Shasta, Sierra, Siskiyou, Sutter, Tehama,|
|Trinity, Tuolumne, Yuba|
|Los Angeles Eligibility Automated Determination, Evaluation, and Reporting (LEADER) System|
|1 county: Los Angeles||Countywide implementation in progress. Completion scheduled for July 2000.||None|
|Welfare Client Data System (WCDS)|
|18 counties: Alameda, Contra Costa, Fresno,||Software development in progress. Consortium wide implementation to begin 2002.||None|
|Orange, Placer, Sacramento, San Diego,|
|San Francisco, San Luis Obispo, San Mateo,|
|Santa Barbara, Santa Clara, Santa Cruz,|
|Solano, Sonoma, Tulare, Ventura, Yolo|
|Consortium IV (C-IV)|
|4 counties: Merced, Riverside,||Procurement in progress.||None|
|San Bernardino, Stanislaus|
The SAWS Technical Architecture (SAWS-TA) Project Terminated. In addition to the four consortia, HHSDC was also responsible for the SAWSTA Project. This project intended to (1) enable the exchange of data among the four consortia for eligibility, antifraud, and case management purposes; (2) provide an interface for the consortia with other state automation systems; and (3) connect the consortia and state agencies in order to meet state and federal reporting requirements. The project was discontinued in February 1999 due to cost overruns, increases in the project's scope, and the inability to implement the technology that would have connected the consortia systems together.
Welfare Data Tracking Implementation Project (WDTIP) Started. The SAWS-TA Post Implementation Evaluation Review (PIER) recommended that the state undertake two separate projects which would be needed to calculate time-on-aid and connect the four consortia systems together. The first of these projects is WDTIP which will calculate the time-on-aid and then allow this client information to be viewed from the county-based systems. The WDTIP project will include county data conversions, data base implementation, and user training. The budget proposes $930,00 from various funds in the current year for counties to begin the data conversion tasks. For the budget year, a decrease of $5.6 million is proposed to reflect approved federal spending levels.
We recommend that the Legislature direct the Health and Human Services Agency, in conjunction with the Department of Information Technology and Department of Finance, to reexamine the need for a consortia-based approach for welfare automation and report during budget hearings on the costs and benefits of pursuing four separate consortia and potential changes in automation funding responsibilities between the state and the counties. Until this information is provided to the Legislature, we recommend that the Legislature deny any proposed funding changes for Statewide Automated Welfare System-related activities.
The consortium approach was established in 1995 for the purpose of addressing the needs of the counties for locally-based and designed welfare automation systems. At that time, it was unknown as to what would be necessary to implement the consortium approach in terms of time, costs, and technology. Now, five years later, some of that information is known. In addition, two of the four consortia (Interim SAWS [ISAWS] and Consortium IV [C-IV]) are at important junctures in their development.
For these reasons, we believe it is an opportune time for the Legislature and administration to review the lessons the state has learned so far, identify what still needs to be accomplished, and reexamine the current approach in light of our knowledge to date.
What Do We Know So Far? Five years after the state
embarked on the consortia approach to automation, we know that (1) costs are
considerable, (2) substantial work still needs to be accomplished on all of
the consortia, (3) connecting the consortia together will be difficult, and
(4) the current automation financing arrangement does not account for changes in law that occurred after the consortia approach was enacted.
Consortium Costs Are Considerable. When the state undertook the four-consortia approach, little was known about what the approach would cost. It is now clear that the state's costs are considerable. Project costs of the Los Angeles system (Los Angeles Eligibility Automated Determination, Evaluation, and Report [LEADER]) will be $198 million and the total costs of the Welfare Client Data System (WCDS) consortium over ten years are projected to be $483 million. We know that the total costs for ISAWS, including the costs for the original development effort, recent year 2000 equipment replacements, and the infrastructure upgrade, is $331 million. The total project cost for the SAWS-TA Project was $23 mil-lion, and the WDTIP project is currently estimated to be $16 million. The cost for HHSDC's planning and oversight is $52 million.
Together these estimated costs for SAWS automation total about $1.1 billion. When the potential costs for the successors to the SAWS-TA project (approximately $200 million), the C-IV project (in the range of $200 million to $500 million), and a new proposed ISAWS procurement (probably the same range as C-IV) are factored in, the state's total cost for welfare automation could be $2 billion.
Considerable Work Still Ahead on All Consortia. Although each of the four consortia is at a different stage of implementation, all have considerable work still ahead.
The LEADER is expected to be in operation throughout Los Angeles County by July 2000. When countywide implementation is complete, LEADER will go through a period of stabilization--that period after which a system is implemented, when various problems get addressed, and the system is fine-tuned for performance. The LEADER staff have also indicated that the system will need additional enhancements to meet legislative mandates such as an interface with the new Electronic Benefits Transfer (EBT) system and incorporating eligibility for family coverage in the Medi-Cal Program (so-called "1931(b)" eligibility).
The WCDS signed its contract with Electronic Data Systems and UNISYS in October 1999. The next two years will consist of designing, programming, and testing the new system. The pilot is expected to begin in the Spring of 2002. The consortium-wide implementation is expected to be complete in 2003.
The C-IV consortium has completed its procurement and is now awaiting state approval to sign its contract. The administration has not indicated what the expected total project cost may be; however, it is safe to assume that the cost should be somewhere between $200 million and $500 million based on the experiences of the other three consortia. It can also be assumed that the implementation schedule for this project will be similar to the schedules for the other three consortia meaning that consortium-wide implementation would be completed in about three years after the contract is signed.
Although ISAWS is operating in all counties that are part of the consortium, the budget proposes $400,000 for the consortium to begin planning for a new procurement which could have significant policy and fiscal implications. From a policy perspective, the proposal states that ISAWS will consider whether to continue its current system, consolidate with another consortium, or procure a new system. The budget proposal is the first step towards pursuing an activity that could result in another procurement and development project with costs in the range of $200 mil-lion to $500 million.
Connecting the Consortium Systems Together Will Be Challenging.
One of the major objectives of the SAW-TA Project was to connect the separate consortium systems together. One of the reasons that the project was terminated was that the state was unable to implement a technology to make these connections. With the information derived from the SAWSTA PIER, it is clear that connecting the consortium systems is going to be a difficult task. The technical solution necessary for establishing the connection and providing value to county business practices will be complex. As the number of systems increases, the complexity for connecting them will also increase. The costs associated with making these connections are unknown since the level of complexity is unknown, the technical solution is unknown, and some of the consortia are not even developed.
Welfare Reform Has Changed the Fiscal Responsibilities for Auto-mation. With the 1996 welfare reform and block grants, the funding structure for state and county activities dramatically shifted. Specifically, the federal welfare reform legislation ended the state/federal matching system that existed in the former AFDC program. Instead, California receives a federal Temporary Assistance for Needy Families (TANF) block grant. Under the federal block grant approach, all marginal costs, including those for welfare automation, become state and local costs from the federal perspective.
Chapter 270, Statutes of 1997 (AB 1542, Ducheny) created the CalWORKs program (California's version of TANF). Among many significant changes, this legislation fixed the counties total costs for CalWORKs and food stamps administration at their 1996-97 levels. Thus, all marginal program costs, including those for automation, are state costs.
Because counties have no marginal program costs, their fiscal incentives to consider the cost side of the cost-effectiveness equation for auto-mation approaches in their consortia have been diminished. Finally, we note that Chapter 270 created a county performance incentive system whereby the savings achieved from client exits due to employment and grant reductions due to recipient earnings are transferred to the counties. By the end of 1999-00, counties will have received approximately $1 bil-lion in these performance incentive funds.
Where Should the State Go From Here? Based on the lessons learned from the previous SAWS experiences and the tasks still needing to be accomplished, we suggest that there are several issues that the Legislature needs to consider as it reviews the SAWS-related budget proposals, both now and in the future, including whether (1) to allow the ISAWS consortium to develop a new system and (2) whether to modify the existing four consortia approach.
Another New System for ISAWS. We are concerned about the ISAWS consortium starting another planning effort given the estimated additional costs of a new system. The initial legislative direction was based on pre-welfare reform mandates. It is our belief that the Legislature did not envision the consortia procuring more than one system with a potential cost of hundreds of millions of dollars.
Time to Reconsider Four-Consortia Approach. Finally, with welfare reform changes implemented, two large procurements completed, a better picture of potential costs revealed, and a technical architecture project that proved unsuccessful, we believe that it is time to review the state's current approach and ask whether the consortium approach continues to be a cost-effective solution that makes good technological and fiscal sense for the state.
We believe that there are two areas that should be reconsidered regarding the SAWS automation effort. First, we believe that the number of consortia needs to be considered. It may be possible to reduce the number of consortia from four to either two or three, which would (1) reduce the state's costs considerably and (2) make the technical solution for connecting the consortia together much easier.
Second, if there is a genuine business need at the county level for four separate systems, then we believe it is also time to reconsider how the funding for those systems is shared between the state and the counties, especially given the funding changes that occurred in welfare re-form. Currently, counties have no marginal cost for automation, and will have received approximately $1 billion in performance incentives by the end of 1999-00. The Legislature could opt to have the counties pay for certain types of automation enhancements with their performance incentive funds.
Analyst's Recommendation. For these reasons, we recommend that the California Health and Human Services Agency, in cooperation with DOIT and DOF, report during budget hearings on the cost and benefits of pursing the four separate consortia, potential funding shifts between the state and the counties, and if necessary, identify legislative changes that may be necessary to redefine the consortium strategy. Until this information is provided to the Legislature, we recommend that the Legislature reject any proposed funding changes for SAWS-related activities.
The EBT is the electronic transfer of funds to welfare recipients. This includes food stamps and welfare cash benefits for the CalWORKs program. The system uses debit card technology and retailer terminals to automate benefit authorizations, delivery, redemption, and financial settlement, thereby eliminating paperwork. The HHSDC is responsible for planning, developing, and implementing EBT technology statewide for food stamps and CalWORKs.
Multiple-Vendor Approach. Chapter 270, Statues of 1997 (AB 1542, Ducheny), required that the state certify one or more vendors by July 1, 1998, as eligible to contract with counties to develop and implement an EBT system. The HHSDC, working with DSS and the counties, developed a strategy in which the state would contract with and certify EBT processors. The counties, grouped as consortia, would then select and contract with one or more processors to implement EBT in the counties.
Single-Vendor Approach. In response to concerns expressed by the counties, HHSDC changed its strategy from multiple vendors to a single vendor to implement an EBT system statewide. Chapter 329, Statutes 1998 (AB 2779, Aroner), made this change in law to permit this approach. The new approach also required a delay in the procurement by 20 months. The Invitation to Partner was released in October 1999 and the contract is expected to be awarded in September 2000.
The SFIS is a system which will automate the collection, interpretation, and storage of fingerprints for persons applying for public benefits. The purpose of the system is to reduce welfare and food stamp fraud. The HHSDC originally intended to award a contract for the system in late 1997, but a bid protest delayed execution of the contract into 1998. Before the contract could be executed, however, HHSDC canceled the procurement in response to the Governor's March 1998 executive order requiring departments to rebid all state contracts that had not yet been executed. (The executive order was in response to a federal court ruling which found that provisions of state contract law related to participation goals for minority-and women-owned businesses were unlawful.)
Project Status. Due to the Executive Order, the state had to rebid the contract in June 1998. The HHSDC issued its intent to award the contract in March 1999, however, a protest was filed and was not resolved until June 1999. The final contract for $19.9 million was awarded in September 1999.
The Legislature was notified in September that the total project costs for SFIS are now expected to be $46.5 million over eight years. The project is divided into three Phases with each phase representing geographic areas in the state. Phase I consists of implementing Colusa, San Joaquin, Sutter, Yuba, Merced, Sacramento, Stanislaus, and Solano Counties. Phase I implementation is scheduled to begin and be complete this year.
The IHSS program was established in 1973 in DSS as a program to provide in-home supportive services to qualified aged, blind, and disabled persons. In 1979, DSS contracted with Electronic Data Systems for the development and operation of the IHSS/CMIPS system. This contract has been rebid twice and amended several times.
In 1998, DSS was directed by DOIT and DOF to reprocure the contract. In addition, DSS felt that the new system should include functionality which would enable access to all IHSS county workers and their offices. In accordance with Executive Order D-3-99, the procurement was put on hold until completion of the state year 2000 efforts. The project was approved to begin in January 2000. As with other DSS-related projects, HHSDC was assigned responsibilities for the procurement activities.