Legislative Analyst's Office
Analysis of the 2003-04 Budget Bill
Chapter 787, Statutes of 1972 (SB 1503, Teale), established the state's current data centers to serve computing needs in specific program areas. The Stephen P. Teale Data Center (TDC) and the Health and Human Services Agency Data Center (HHSDC) are the state's two primary data centers, and they provide computer and network services to various departments and local jurisdictions. The two data centers are funded entirely through reimbursements from departments which use their services, and the budget proposes a combined expenditure authority of $219 million for the budget year. In reviewing these data centers, we found two options that could reduce department expenditures, which we discuss below.
The organizational consolidation of the Stephen P. Teale Data Center and Health and Human Services Agency Data Center would provide savings while improving operations. This option would provide annual savings—potentially in the range of $8 million ($4 million General Fund). We recommend the administration report on timeframes, potential problems, and anticipated savings from implementing this option.
Chapter 508, Statutes of 1995 (SB 1, Alquist), directed the administration to conduct a study evaluating the benefits of consolidating the existing data centers. The administration's study released in 1997 specifically examined the benefits of (1) consolidating all mainframe systems into one of the existing data centers, (2) outsourcing one entire data center's operations, and (3) placing an existing data center under private ownership and control. The study, however, did not consider all the options for consolidating state data centers. For example, the study did not consider the "organizational" consolidation of state data centers. This option would consist of creating one organizational structure for two or more existing data centers.
We believe there would be savings (potentially in the range of $8 million all funds, $4 million General Fund) in consolidating HHSDC and TDC into one organization. The current locations of the two data centers would be maintained, and most computer operations would be unaffected. We believe the long-term benefits would outweigh any short-term implementation problems.
We believe savings from organizational consolidation would be realized in a number of areas, as summarized in Figure 1 and discussed in more detail below.
Benefits of Consolidating Health and Human Services Agency Data Center and Stephen P. Teale Data Center
üOne executive and administrative structure.
üImproved use of excess hardware and software.
üReduced hardware and software costs.
üReduced impact of pending retirements.
üIncreased efficiencies in supporting existing computer systems.
One Executive and Administrative Structure. Currently, both data centers have their own executive and administrative supportteams. For the two data centers, these costs total $25 million. An organizational consolidation would (1) merge the executive team and (2) consolidate administrative support functions.
Improved Use of Excess Hardware and Software. Both data centers purchase large volumes of software and computer equipment every year. For example, the budget proposes expenditure authority increases of $13 million combined for HHSDC and TDC for additional hardware, software, and telecommunications equipment and support. (Our evaluation of these proposals can be found in the departments' write-ups.) Because excess capacity existing at one site could potentially be used by the other site, we believe an organizational consolidation could decrease annual purchases. For example, if one site had unused equipment, the other site could use the equipment instead of purchasing new equipment.
Reduced Hardware and Software Costs. In addition, each data center conducts its own hardware and software negotiations. The purchase price for similar hardware and software can vary depending on the negotiation skills of the individual data center. By organizationally consolidating the data centers, the administration could decrease hardware and software costs due to consistent negotiating practices and larger purchase amounts. For example, each year both data centers purchase software maintenance agreements. By combining these purchases, the purchase volume would be higher—thereby providing the state with more negotiating power to lower the price of the software.
Reduced Impact of Pending Retirements. Both state data centers have older workforces with highly specialized skills. For example, 50 percent of HHSDC's workforce and 63 percent of TDC's workforce are over the age of 50. As a result, each data center can anticipate losing half of its skilled workforce to retirements in the near future. When the state lacks expertise in technical areas, it has to either recruit new staff or use contractors that often cost more than state staff. By consolidating the data centers, the impacts of the pending retirements could be somewhat mitigated—through sharing remaining staff between sites or consolidating specialized activities at one site.
Increased Efficiencies in Supporting Existing Computer Systems. Both data centers support similar computer systems such as mainframes, servers, and large telecommunications networks. Thus, the same activities to support these systems occur within each data center. Consolidating the data centers would allow efficiencies to occur in how data centers support similar systems. For example, one site could support departments' E-mail systems while another site supports Internet services.
We believe the full organizational consolidation of HHSDC and TDC could take more than one fiscal year to complete. The savings would depend on what the administration could consolidate in each fiscal year. For this reason, we recommend that the administration examine this consolidation option and report back by spring subcommittee hearings on (1) the timeframes needed to complete administrative consolidation, (2) any potential problems (with potential solutions), and (3) estimates of anticipated savings by fiscal year. At that point, the Legislature would be in a better position to decide whether to pursue consolidation.
The state supports thousands of computer servers that are located at state data centers or in departments. Servers located within departments may not be as secure and fully supported as those located at a data center. In addition, state data centers are able to support more systems at a lower cost than most departments. By transferring 2 percent or more of the current servers located in departments to state data centers, we believe a total annual ongoing savings of $6 million ($3 million General Fund) could be realized. We recommend the administration report on timeframes and anticipated savings from implementing this option.
Technology has dramatically changed since the establishment of the data centers in 1972. At that time, mainframes were the only computers available for processing large volumes of data. Now, "servers" (computer systems supporting multiple users using E-mail, office software, Internet, and customized software systems) provide computing power on par with earlier mainframes. Since 1997, both data centers and departments have experienced tremendous growth in these servers. For example, both HHSDC and TDC have experienced a 400 percent growth in servers.
Administration's Policy to Locate Servers in Data Centers Was Not Enforced. One of the recommendations from the administration's 1997 data center consolidation study was to locate servers at a state data center. State policy was further clarified in 1998 when the administration issued a policy requiring certain types of new servers to be located at the state data centers.
The administration, however, did not strictly enforce this policy because the (1) data centers were unprepared to support the new systems and (2) departments had some expertise in supporting these systems. Since 1998, the Legislature has approved over $20 million in budget requests to increase the capacity of HHSDC and TDC to support these systems—so the data centers should now have that expertise to do so.
Many Servers Still Located in Departments. Even though HHSDC and TDC now have the capacity to support servers, departments have been allowed to purchase these systems and locate them at departmental sites. Many of these systems provide support to business functions critical to departments' missions. For example, the Employment Development Department uses servers to support employer tax return and payment processing functions.
Servers Located in Departments May Not Be Secure. One of the problems with servers is that these systems are vulnerable to "hacking" (an unauthorized access into the system).State data centers have established security systems and procedures which help to protect servers. It is unclear if departments provide this same level of security.
Servers Located in Departments May Not Be Fully Supported. On a periodic basis, all computer systems should be routinely backed up (software and data is copied onto a disk or tape). In addition, computer systems should be able to recover from hardware or software failures. When computer systems are located at a data center, backup and recovery procedures are included in the overall service. When computer systems are located in departments, backup and recovery procedures vary depending on the department's internal information technology (IT) policies and procedures and staff's technical skills. Thus, at some departments, critical data may be at risk.
Cost Efficiencies Not Realized for Department Servers. Data centers are able to support more servers with fewer staff because the data centers can (1) purchase specialized hardware and software designed to support large numbers of systems, (2) locate all servers in their computer rooms, and (3) hire staff with more advanced technical skills. In general, departments do not support as many systems so they are unable to purchase the same specialized hardware and software. In addition, departments tend to locate servers throughout their sites. It can, therefore, become time consuming and difficult to fully support these systems. Finally, most departments are unable to obtain IT staff positions of the same quality as state data centers. As a result of these factors, data centers are significantly more efficient as departments in supporting these types of systems.
In 1999, in preparation for the state's Year 2000 efforts, the administration estimated the number of servers located in departments to be in the tens of thousands. These servers perform several different functions. Due to telecommunication limitations though, only some of these servers are appropriate for transfer at this time. We believe about 2 percent of these systems could be supported by the data centers in the near term. Based on the efficiencies discussed above, transferring these systems to state data centers could result in annual savings of $6 million ($3 million General Fund). In addition to the savings, we believe this option provides several other improvements, such as greater security and more fully supported computer systems.
As with the previous option, implementation may take more than one fiscal year to complete. The savings would depend on how many systems the administration could consolidate in each fiscal year. For this reason, we recommend the administration examine this option and report back by spring subcommittee hearings on the (1) timeframes needed to consolidate at least 2 percent of departmental servers at the data centers and (2) estimates of anticipated savings by fiscal year.