Legislative Analyst's Office
Analysis of the 2001-02 Budget Bill
The Secretary of State (SOS), a constitutionally established office, has statutory responsibility for examining and filing financial statements and corporate-related documents for the public record. The Secretary, as the chief elections officer, also administers and enforces election law and campaign disclosure requirements. In addition, the SOS appoints notaries public, registers auctioneers, and manages the state's archival function.
The budget proposes total expenditures of about $78 million for the SOS in 2001-02. This is $7 million, or 8 percent, less than estimated current-year expenditures. Expenditures from the General Fund total about $39 million, a decrease of $7 million, or 15 percent, compared to estimated current-year expenditures.
The lower General Fund expenditures reflect the fact that less money is needed than in 2000-01 to pay for state mandated local programs, particularly those establishing rules regarding elections. In addition to the General Fund reduction, the budget proposal also reflects a decrease in spending from the Business Reinvestment Fund.
On the other hand, legislatively enacted changes in the schedule of business fees are expected to generate additional fee revenue. These additional resources would be combined with previously accumulated fee revenues to finance a proposed information technology project to improve the office's business-related filing operations.
We withhold recommendation on a request by the Secretary of State for $7.3 million to upgrade the office's computerized systems for managing corporate and other public records because the project has not yet been approved by the appropriate state agencies.
The budget proposes $7.3 million from the Business Fees Fund for Phase II of the Business Programs Automation (BPA) project. This would include the development of electronic systems for various business filing programs administered by the SOS.
Business Programs Automation. Significant problems exist in the processing of corporate and other business registration programs for which the SOS is responsible. Those problems include inefficient processing of corporate filings and backlogs of tens of thousands of documents, difficulty in responding to requests for public records and information, and potentially serious mistakes in record keeping. To address these problems in 2000-01, the SOS proposed a two-phase BPA project to allow the department to provide accurate data, standardize and simplify the processing of business and security filings, reduce turnaround time, and file documents electronically. Phase I of the BPA project consists of developing a system which would accomplish these objectives with respect to Uniform Commercial Code filings only, due to the need to comply with recently-enacted legislation. Phase II of the BPA project would extend the system to other filing programs and acquire an integrated information system to support these programs.
The 2000-01 Budget Act provided $8.5 million from the Business Fees and Business Reinvestment Funds for Phase I of the BPA project. This funding was provided under the condition that the Department of Information Technology (DOIT) and the Department of Finance (DOF) approve the appropriate project initiation documents. State administrative rules require these state agencies to review and approve new information technology projects before funds can be budgeted.
Department Does Not Have Approval to Implement Proposal. The DOF has approved Phase I of the BPA project but has not approved Phase II. This is due to the fact that SOS has not demonstrated that substantial business benefits would result from the implementation of Phase II. The SOS intends to submit a Feasibility Study Report for review by DOIT and DOF which will include plans for Phases I and II of the BPA project. Nonetheless, DOF included funding for this project in the proposed budget without reviewing the Feasibility Study Report. Budget bill language, however, indicates that these funds may not be encumbered until a Feasibility Study Report is approved.
Analyst's Recommendation. Without prejudice to the possible merits of this project, we withhold recommendation on the $7.3 million funding request. We believe it is premature to appropriate funds for this project until the appropriate state agencies have agreed upon the scope and timetable for the project and determined the exact funding needed to proceed in the budget year. If those steps are accomplished before the SOS's budget is heard in subcommittee, the Legislature would have the information it needs to decide the merits of the project. If those steps have not been completed by budget hearings, we would recommend that the Legislature not approve Phase II of the project at that time or adopt the following modified language (reflected in italics) with respect to the proposal, in budget bill Item 0890-001-0001:
Of the amount appropriated in this item, $7,275,000 in Program 05, for costs to develop and implement the Business Programs Automation Project, may not be encumbered or expended until the Department of Information Technology and the Department of Finance approve a Feasibility Study Report for Phase II of the Business Programs Automation Project, prepared in accordance with the State Administrative Manual and Statewide Information Management Manual. The funds shall be made available consistent with the amount approved by the Department of Finance, based upon the approved Feasibility Study Report.