Analysis of the 2007-08 Budget Bill: General Government

Secretary of State (0890)

The Secretary of State (SOS), a constitutionally established office, has statutory responsibility for managing the filing of financial statements and corporate-related documents for the public record. The SOS, as the chief elections officer, also administers and enforces election law and campaign disclosure requirements. In addition, SOS appoints notaries public, registers auctioneers, and manages the state’s archives.

The budget proposes total expenditures of $93 million for SOS in 2007-08. The two primary ongoing sources of funding are the General Fund ($36 million) and the Business Fees Fund ($37 million). In addition, the budget proposes spending $11 million in federal funds for the implementation of the Help America Vote Act (HAVA) of 2002. We discuss the implementation of HAVA below.

Continued HAVA Implementation

Background

HAVA Requirements. In October 2002, Congress passed and the President signed HAVA. As the state’s chief elections officer, the SOS is charged with administering the state’s compliance with HAVA. Recent federal budgets have provided California with more than $350 million to implement HAVA requirements. The HAVA contains a number of specific requirements for states and counties related to election procedures. Among these requirements are:

• Replacement of Punch-Card Machines. Counties were required to replace their punch-card voting machines in favor of more modern technology in time for the June 2006 primary election.

• Statewide Voter Registration Database. The state was required to have in place by January 1, 2006, a computerized statewide database of voter registrations. Each voter must have a unique identification number. The database must be accessible to county election officials. In addition, the database must coordinate with three state agencies—the Department of Motor Vehicles (registrations from drivers’ license applications), the Department of Health Services (death records), and the Department of Corrections and Rehabilitation (felons’ voting status).

• Disabled Access. All precincts must have at least one voting machine that is accessible to the disabled.

• Voter Identification. Beginning in 2004, first-time voters who register by mail have to provide identification at some point in the voting process (either when registering or voting).

• Other Requirements. The HAVA also imposed new requirements relating to the handling of voters whose eligibility cannot immediately be determined (provisional ballots), voting by members of the military and overseas citizens, the handling of complaints, and the education of voters and poll workers. Generally, these requirements came into effect in 2004.

Audit Repayments

As a result of a federal audit of prior HAVA activities, the federal Elections Assistance Commission determined that the state misspent $2.9 million in HAVA funds. Of this amount, $536,000 was repaid directly to the federal government in 2006-07. Consistent with the audit findings, the Governor’s budget proposes repaying the remaining $2.4 million in 2007-08 from the General Fund to the state’s federal HAVA account (for additional elections-related spending).

HAVA Spending

Prior Spending. As shown in Figure 1, the state has received HAVA resources totaling $371 million (including interest earned and repayments based on audit findings). In 2005-06 and earlier years, the state committed most of this amount—about $276 million. While most HAVA funding can be spent on a variety of HAVA-related activities, two pots of money were provided by the federal government for specific purposes—the replacement of punchcard voting machines and improving disabled access. These earmarked funds have been allocated to counties. The vast majority of the discretionary funds were also used to provide funding to counties. The largest such commitment was $195 million in grants to counties for the purchase of voting machines and associated education and training. (Although mostly encumbered by contracts with counties in 2005-06, actual payments to counties for allowable expenses has totaled about $63 million to date.)

2006-07 Spending Plan. On April 11, 2006, the SOS submitted a spending plan for the remaining funds available at that time. The Legislature approved that plan as part of the 2006-07 Budget Act and added authorization for $760,000 for the review of the source code associated with electronic voting machines. A total of $6.3 million was appropriated for expenditure in the 2006-07 Budget Act, with an additional $8.2 million in current-year spending pending at the time this analysis was prepared (primarily related to the rolling over of funds originally scheduled to be spent in 2005-06).

2007-08 Revised Spending Plan. Under the April spending plan, the continued implementation of the statewide database was the only scheduled activity for 2007-08. The SOS has proposed a number of additional activities to occur in the budget year. Under the revised plan, as shown in Figure 2, the following activities would be funded in 2007-08 at a total cost of $10.7 million.

• Statewide Database. The state’s approach for a statewide database was approved in a memorandum of agreement with the United States Department of Justice. That agreement required the state to make interim upgrades to the state’s existing CalVoter database while working towards a new system. The interim upgrades are nearly complete, and the SOS is currently developing a proposal to seek vendors to implement the new database. The approved schedule calls for that proposal to be released soon. About $7 million will have been spent on the project (including the interim upgrades) by the start of the budget year, and an additional $7 million is proposed to be spent in 2007-08. Most of the project costs, however, will occur in future years once a primary vendor is selected. Costs beyond 2007-08 are currently estimated at $60 million. This amount is scheduled to cover the project through its first year of operations, but the General Fund will likely be required to cover the $10 million in annual operating costs beginning in 2011-12.

• Administrative Costs. The SOS requests $2 million for its HAVA staff and associated administrative expenses. In prior years, administrative costs have been funded at $1.7 million annually.

• Voter Education. The plan allocates $500,000 for 2007-08 to educate voters regarding HAVA requirements through the SOS Web site, newspaper advertisements, and pamphlets. Similar activities are also funded in the current-year budget.

• Disabled Access. The state has received an additional $1.1 million in restricted grant funds from the federal government to improve disabled access at polling places. The SOS proposes to distribute these funds to counties through competitive grant applications.

As shown in Figure 2, the spending plan reserves $8.7 million for future uses. In particular, the reserve was established to help defray any database cost overruns.

Progress Report on Source Code Review

We recommend that the Secretary of State’s office present an update at budget hearings on the $760,000 in source code review funds. The prior administration did not spend any of the funds in the current year.

Source Code Review Was Legislative Priority. As noted above, the Legislature amended the April 2006 spending plan to include $760,000 for SOS to perform reviews of electronic voting machines’ underlying code. With these funds, the Legislature intended to conduct additional testing to ensure that the machines accurately record voters’ choices. As of January 16, 2007, the department reports that no HAVA funds were spent for source code review under the prior SOS administration this year.

Recommend Update. We recommend that the new SOS administration provide an update during spring budget hearings on the funds. Specifically, the SOS should specify how it intends to undertake source code review and whether the funds will be spent in the current year.

Begin Ramping Down Administration Costs

We recommend a reduction of $308,000 in administrative expenses to reflect the reduction in Help America Vote Act-related activities in the budget year. (Reduce Item 0890-001-0890 by $308,000).

Most HAVA Requirements Implemented. The revised spending plan proposes the continuation of the 10 personnel-years (PYs) provided in the current year. As described above, most HAVA requirements were implemented in time for the 2004 or 2006 elections. The two major tasks remaining for 2007-08 are implementing the statewide database and closing out the grants to counties. The database budget contains additional administrative and staff costs necessary for the implementation of the system.

Recommend Reduced Administrative Costs. We recognize that there are still some HAVA issues that will need to be resolved in 2007-08. The majority of the work, however, will have been completed by the start of the new fiscal year. Accordingly, we recommend that the Legislature reduce the HAVA administrative budget to reflect the slowing down of workload. Specifically, we recommend a reduction of 2.5 PYs concentrated in legal, media, and contract preparation work—for a savings of $308,000. The other 7.5 PYs should be sufficient to close out the remaining workload other than the ongoing database project. As a result, there should be no need for any administrative positions in 2008-09. Our recommended reduction would increase the HAVA reserve by a commensurate amount—making it available for any database cost increases or future operating costs.

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