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2010

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Reconsidering the Approach to Los Angeles Welfare Automation

The Los Angeles Eligibility, Automated Determination, Evaluation and Reporting (LEADER) system is one of four county-led consortia that make up the statewide automated welfare system (SAWS). The LEADER system is near the end of its useful life and the administration is procuring a vendor to build a replacement system. Estimated costs for the new system are about $530 million (from all fund sources), and the estimated start date for system development is January 2011. Given the state’s difficult financial condition, this is a key moment for the Legislature to consider whether the state can afford a new system and the merits of reducing the number of consortia systems in order to minimize immediate and future costs to the state. We discuss these issues below.

Background

CountyConsortia. The four county consortia support eligibility and benefit determination, case maintenance, and statistical reporting, among other functions for various health and social service programs. The Legislature originally approved the development of four consortia systems in the 1995-96 Budget Act after the state had attempted for several years to design and build a single statewide system. In 2006, the Legislature expressed a preference for reducing the number of consortia when it decided to migrate 35 counties from an older system called ISAWS to an existing system called Consortia IV (commonly known as C-IV) rather than replace ISAWS. This migration project will be completed in June 2010. At that time, the state will have three consortia systems— C-IV (serving 39 counties), CalWIN (serving 18 counties), and LEADER (serving Los Angeles County).

Each consortium cost several hundred million dollars to develop and the annual maintenance and operations cost of the four consortia is currently about $150 million from all fund sources (about $80 million General Fund). See Figure 1 for further details.

LEADER. As stated above, LEADER is one of the four consortia systems. It is currently near the end of a procurement for a replacement system. The Legislature originally approved a new LEADER replacement system in the 2007-08 Budget Act after Los Angeles County declared that the existing systems would not meet their program and business needs. However, in the 2009-10 Budget Act, the Legislature delayed the LEADER replacement project by six months (from January 2010 to July 2010) due to the state’s financial condition. The administration has proposed delaying the project another six months to further defer costs.

To date, $5 million (all funds) has been spent on planning and procurement activities for the LEADER replacement project. The total LEADER replacement project is estimated to cost $530 million (all funds) over five years.

Four bid proposals from vendors were received during the procurement process. Upon scoring these proposals, project managers selected one vendor and planned to award a contract to begin development work in January 2010. Due to proposed delays noted above, contract signing is planned for spring 2010 with vendor work beginning in January 2011.

A significant portion of the proposed information technology (IT) solution for LEADER would rely on the same computer code now being used for the C-IV system. Coincidentally, the winning vendor for LEADER is also the vendor who developed and is now maintaining the C-IV system. This means that the business rules for the two systems would be similar. These similarities are a strength of the proposed approach to developing LEADER. Because the selected vendor for LEADER would not have to create an entirely new system, it would reduce the risks that are often inherent in building a new automation system. It would also potentially allow the two systems to communicate with one another in the future. 

Centralized Eligibility. Budget legislation for 2009-10, specifically Chapter 7, Statutes of 2009 (AB X4 7, Evans), directed the Department of Health Care Services (DHCS) and the Department of Social Services (DSS) to implement a statewide eligibility and enrollment determination process for the California Work Opportunity and Responsibility to Kids (CalWORKs), Food Stamp, and Medi-Cal programs. Recognizing that the eligibility determination process for these programs involved multiple automation systems, one goal of Chapter 7 included minimizing the total number of technology systems.

Governor’s Budget Proposal

2010-11 Budget Request. The Governor’s 2010-11 budget includes a total of $45 million ($23 million General Fund)to continue with the LEADER replacement project. Additionally, the administration proposes delaying the replacement project by yet another six months to defer some of the development costs out of the budget year. This essentially cut the 2010-11 budget request in half compared to a full year of development.

New LEADER System Costs Will Be Significant. Currently, the LEADER project is in the relatively early planning stages. However, once the selected vendor begins building the system in early 2011, there will be significant costs, estimated to begin at $50 million (all funds) in the first year of development, followed by four years at about $100 million per year. Total project development costs, as noted earlier, are currently estimated to be $530 million. Once the system is completed, annual maintenance costs are estimated to be about $70 million (all funds).

Issues for Legislative Consideration

A decision to commence vendor work on the new LEADER system represents a pivotal moment for the project, in that the costs to the state will rise dramatically for several years as a result of such a commitment. As such, this also marks a key decision-making point for the Legislature as it considers how best to contain costs not only for LEADER but for the entire welfare consortia as well.  Below, we discuss some of the fiscal and policy questions now facing the Legislature relating to these matters.

The Proposed Cost of the New LEADER System. One important question before the Legislature is whether the state is getting a good deal on the proposed LEADER system. If the new system is largely modeled on an existing system already owned by the state, what accounts for the high costs? Are there certain functionalities included in the proposed system that are not essential to program delivery that can be eliminated to reduce costs? We are currently investigating the justification behind these estimated costs with project managers and county staff to better understand what the state will receive in enhanced program delivery and efficiency in exchange for such a large investment in a replacement system.

In the meantime, the Legislature may also want to consider what alternatives exist to procuring a new system. Does it make sense to migrate Los Angeles County to an existing consortia? The migration of 35 counties to C-IV is under way at an estimated cost of bout $250 million. Such an approach could result in substantial savings depending on Los Angeles County’s specific needs for interfaces.

Even if it determines that the costs were reasonable, the Legislature should consider whether the state can still afford to pay for a new consortia system right now, particularly given the currently estimated price tag for a LEADER replacement system. Once development work begins, costs will rise significantly and remain high for several years as the state pays for developing a new system and maintaining an old system until the new one is functional.  

What Alternatives Exist? If the Legislature decides a new system is more than the state can afford at this time, it could further delay development of the LEADER system. However, this choice would only defer the inevitable, as the current system does need to be replaced. Further delays could also eventually increase project costs.  An alternative path the Legislature may wish to consider to address Los Angeles County’s need for an updated system would be to migrate Los Angeles County to an existing consortia, most likely C-IV, the more modern of the other two existing systems.

The Future of the Consortia. The current consortia arrangement is costly. Every five to seven years, each vendor contract for the maintenance and operation of each system expires and a new one must be competitively procured. These procurements are expensive and involve a significant amount of time and effort from many staff. When each system nears the end of its useful life, there is the need to build a new system, as is currently the case with LEADER. This requires even more time and is significantly more costly. Additionally, programmatic changes due to federal or state mandates mean that the state must pay for IT system changes to three separate systems.

Reducing the number of consortia systems to two or one would reduce all of these costs. The Legislature’s decision on LEADER could influence the future of the consortia. By June 2010, there will be three consortia systems. Depending on the Legislature’s decision on LEADER, the state could begin a move to two consortia.

LEADER and Chapter 7. The Legislature should also contemplate LEADER’s future in light of Chapter 7, which calls for standardization of eligibility determination processes for various health and social services programs and states the goal of minimizing the number of technological systems involved in the delivery of these programs. A more modern LEADER system could potentially become the technological platform to which one or both of the other consortia systems could migrate in the future should the Legislature decide to reduce the total number of consortia systems. If this were the case, the investment in a new LEADER system could be a sound one. The Legislature would need, however, to ensure that the new system is adaptable enough to eventually handle statewide needs and requirements for multiple programs and counties.

Options for Los Angeles County Automation

As discussed above, we see two primary options for moving ahead with Los Angeles County automation: (1) building a new LEADER system, and (2) a LEADER migration to C-IV. Below we discuss the main advantages and disadvantages of these two approaches.

Option 1: Build a New LEADER System. A new LEADER system would enable Los Angeles County to continue to administer its health and social services programs in a manner to which local officials are accustomed. Though it would be necessary for county staff to learn how to manage health and social services programs using a new system, it would be a system tailored to the county’s specific needs. This means there would be greater buy-in by Los Angeles County to the system, which could mean that staff would be more motivated to use the system as an effective program management tool . Additionally, under this option, a new modern system could serve as the future technological platform to which one or both of the other consortia systems could migrate, eventually leading to a reduction in the total number of consortia and accomplishing an important goal of Chapter 7. On the other hand, proceeding with the system would obligate the state to significant costs during a financially dire time.

Option 2: A LEADER Migration to C-IV. Migrating LEADER to C-IV could potentially be much less costly than building a new system. This option would reduce the number of consortia to two more quickly than the above option, resulting in a more immediate reduction in future development and maintenance costs for the current aged system. In addition, a majority of the state would now utilize the same system which would enable counties to begin standardizing their business practices. The disadvantages of a migration are that Los Angeles would need to adjust to a new system that would be less flexible in regard to handling the county’s existing business processes. Program managers in some cases might have to change their business procedures. Additionally,  LEADER project managers would have to start over with a new procurement process.  This would take time, effort, and money. Nevertheless, a migration process could potentially be completed more quickly at a lower cost than the development of a new LEADER system. Further analysis would be necessary to confirm if this was the case.

Analyst’s Recommendation

Reduce to Two Systems. In our Analysis of the 2008-09 Budget Bill (please see page C-158), we concluded that a reduction in the number of consortia to two systems would reduce system maintenance and support costs as well as avoid future development and procurement costs for new systems. This would also be consistent with the Legislature’s stated intentions in Chapter 7 to move toward fewer technology systems for health and social services programs. We continue to see two or fewer systems as an advantage to the state. In addition to savings and cost avoidance, fewer systems will allow the state to begin standardizing its welfare operations at the county level.

Consolidation does have some drawbacks, as mentioned above. Reducing the number of consortia systems means that some counties would be required to adapt their business practices to a new IT system. Without county buy-in and cooperation, there is the risk that the implementation of a new system could lead to some inefficiencies in the administration of health and social services programs and the disruption of services.

In our view, the advantages outweigh the disadvantages of such a consolidation of consortia. We therefore we continue to recommend that the Legislature set a goal of two or fewer systems. 

Routes to Two Systems. Migrating Los Angeles County to C-IV would be the quickest route to two systems. The second longer-term route would be to build the new LEADER system and require the CalWIN counties to migrate to either LEADER or C-IV when that system’s vendor contract expired. (The CalWIN system’s client/server technology is much less flexible and modern than C-IV’s Web-enabled applications. Therefore, it makes more sense to maintain the C-IV system over CalWIN.) Should the Legislature decide to pursue the second option and proceed with LEADER development, it should first ensure that the new LEADER replacement system will be flexible enough to allow the other systems to seamlessly work and communicate among one another and allow for a relatively easy consolidation of counties in the future. We believe both routes have merit and that the Legislature should choose one of these two routes.