The State Treasurer’s Office (STO) is a constitutionally established office led by the elected State Treasurer. The office provides various banking services for state and local governments. For example, STO invests state funds, administers the sale of state bonds, and processes various payments. The State Treasurer also serves as chairperson of various state boards, commissions, and authorities (BCAs). The Governor’s budget proposes $35.7 million for support of STO in 2018‑19. This is a decrease of about $6.6 million, or about 16 percent, from current-year estimated expenditures. This decrease is largely because the budget-year costs associated with STO’s ongoing information technology (IT) project, Debt Management System II, are not reflected in the Governor’s budget. (In the past, these costs sometimes have been requested in the spring.) About three-quarters of STO’s support comes from reimbursements, with the remainder coming from the General Fund and special funds.
LAO Bottom Line. The Governor proposes $450,000 in General Fund in 2018‑19 and $400,000 annually thereafter to fund costs associated with providing IT support to STO and the various BCAs. We recommend that the Legislature approve the amount of the requested budget augmentation, but fund it from the various funds that support the STO and the BCAs rather than solely from the General Fund.
STO provides IT support for its own activities as well as various BCAs. Currently, STO has more than 40 staff that support the core IT functions for these entities, as well as recent efforts related to data transparency, such as the launch of a website with information on business incentives. The costs associated with these staff and other related IT expenses—such as hardware and software—generally are spread across the various funds that support STO and the BCAs in rough proportion to the benefits that the various entities receive. The department estimates that it spent about $1.5 million on nonstaff related IT expenses in 2016‑17.
The Governor’s budget proposes an increase $450,000 in 2018‑19 and $400,000 annually thereafter from the General Fund to support costs associated with providing IT support to STO and the various BCAs. This includes ongoing costs associated with additional training and travel for STO’s IT staff, software licenses to support core IT operations, and STO’s data transparency efforts. The proposal includes $50,000 in 2018‑19 for one-time hardware costs, such as replacing servers.
STO and BCAs Benefit From IT Services. STO indicates that both the BCAs and STO will benefit from each of the components included in the proposal. For example, all of these entities receive support from the STO IT staff that will benefit from the additional proposed training, use the servers that will be replaced, and rely on the software licenses that support core operations. Additionally, STO indicates that the BCAs, as well as STO, will benefit from the data transparency efforts because these efforts provide the public with access to their program offerings and award information.
In our view, it is unclear why funding for this augmentation should be treated differently from other IT support costs and borne exclusively by the General Fund. As noted above, STO’s IT costs generally are spread across the various funds that support STO as well as the various BCAs in rough proportion to the benefits the entities receive. STO indicates that its main rationale for deviating from this approach and proposing General Fund support for this proposal is a concern that the various funds that support STO and the BCAs could face funding shortfalls if these additional costs are added. However, based on our preliminary analysis, it appears that these additional costs would generally have small effects on the fund conditions of these entities. Moreover, at the time this analysis was prepared, STO had not identified any specific funds that would face fund condition problems if they bore these additional costs.
Modify Proposal to Spread Costs Across Entities Receiving Benefits. We raise no specific concerns with the proposed activities or the amount of the requested augmentation. However, we recommend that the Legislature modify the proposal to fund the augmentation through the various funds associated with the BCAs and STO rather than exclusively from the General Fund.