The Stephen P. Teale Data Center (TDC) is one of the state's two general purpose data centers (the other is the Health and Welfare Agency Data Center). It provides a variety of information technology services to over 200 state agencies. The cost of the center's operation is reimbursed by these client agencies.
The budget proposes $78.2 million from the TDC Revolving Fund for support of the center's operations in 1995-96. This is an increase of $1 million, or 1.3 percent, over estimated current-year expenditures.
We recommend that the Legislature adopt supplemental report language requiring the data center to adopt and submit a plan to reduce customer dependence on costly mainframe solutions and increase the use of less costly "open" systems.
In the current year, both the Health and Welfare Agency Data Center (HWDC) and the TDC, the state's largest general purpose data centers, received approval from the Department of Finance (DOF) to acquire additional and very expensive "mainframe" computer capacity. This capacity will be acquired to meet a variety of needs, including increased demand for mainframe services and improved system operation. Both data centers plan to acquire similar computers--two at the HWDC at a total estimated cost of $29.3 million, and one at the TDC at an estimated cost of $13 million.
Given workload demands, we have no basis for recommending against this increase in mainframe capacity. However, we note that the cost of these computers is substantially higher than the cost of alternative hardware. For example, networked personal computers and other computers designed to operate with what are referred to as "open" systems, such as the UNIX operating system, are much less costly. ("Open" systems can run on a wide variety of hardware platforms and are therefore more "open" than proprietary software which may run on only one brand of computer.) Although both data centers offer such open system support, neither has a comprehensive plan to assist customers to reduce their dependence on mainframes. Moreover, the current level of investment in each data center for low-cost alternatives is relatively small in comparison to the growing investment in mainframe support.
Cost Differential Is Substantial. Although there are many factors which need to be considered in determining which technological approach is the most appropriate and cost-effective to meet a specific departmental need, the major differences in hardware costs alone invite further analysis. For example, the type of mainframe computers being acquired by both data centers are several times the cost of a comparable UNIX computer, based on a comparison of processing power. Moreover, there are also very significant differences between the cost of system software, maintenance, and support personnel between the traditional mainframe and the so-called "open" systems.
Trend Is Away From Mainframe Domination. Because of the cost differences, and other reasons relating to customers' computer application requirements, the clear trend in information systems development nationally is away from reliance on traditional mainframes. The role of large mainframes is changing dramatically, and most organizations are trying to find ways to avoid adding to mainframe capacity. Many others have adopted strategies under which new applications are specifically developed to run on computers other than mainframes, while a number of organizations have converted applications from mainframes to less costly solutions.
A Plan Is Needed Now. The data center has the technical expertise and ability to develop a plan to shift its emphasis to alternatives which offer both cost savings and improved service to its clients. Without such changes, the data center may become less relevant as customer departments determine that they can obtain better solutions elsewhere.
For this reason, we recommend that the Legislature adopt supplemental report language directing the TDC to adopt a plan to reduce its customers' dependence on traditional mainframe solutions which are not as beneficial to the customers as other alternatives. We further recommend that this plan be submitted to the Legislature by December 1, 1995.
The data center shall adopt a plan for reducing customer dependence on traditional mainframe solutions by (1) assisting customers to develop new computer applications, where feasible, on alternative systems, and (2) moving existing applications off of mainframe computers where doing so would reduce customers' costs. The data center shall submit the plan to the Legislature by December 1, 1995. We have included a similar recommendation in our analysis of the HWDC.
We recommend that the Legislature adopt Budget Bill language directing the data center to cooperate with the State Controller to develop a plan to phase out the Human Resources Information System (HRIS) maintained by the data center and move client agencies to the California Leave Accounting System (CLAS) maintained by the Controller.
Investing in a Dying System. Over the past several years the data center has developed and enhanced the Human Resources Information System (HRIS) to provide leave accounting and related services to client departments. At the time the data center was developing its system, the State Controller was planning a statewide system known as the California Leave Accounting System (CLAS). Since then, the CLAS has become operational. The number of state employees covered by HRIS is shrinking significantly, at the same time that those covered by the CLAS continue to grow. It is estimated that by the end of 1995, the Controller's system will cover 163,000 employees, while the HRIS will handle 18,000 employees. It appears that a significant portion of the covered employees will be moved to CLAS in the near future.
Although HRIS has some features which CLAS does not, CLAS is priced more attractively than HRIS and provides capability which HRIS cannot match. Despite the trend toward CLAS, the data center invested $500,000 in 1993-94 to make necessary modifications to HRIS. According to information provided by the data center, the cost to support HRIS in 1994-95 will exceed anticipated revenue by a factor of three to one ($627,000 in expenses versus $216,000 in revenue).
Considering these factors, we believe that the state should not continue to invest in improvements to HRIS when CLAS is becoming the statewide system of choice. The data center should freeze HRIS at its current level of customers and capability and work with the Controller to plan for an eventual phase out of HRIS. Accordingly, we recommend that the Legislature adopt the following Budget Bill language:
The Stephen P. Teale Data Center shall cooperate with the State Controller to develop a plan to phase out the Human Resources Information System (HRIS) maintained by the data center and begin to move client agencies to the California Leave Accounting System maintained by the Controller. The plan shall be provided to the Chairpersons of the fiscal committees and the Joint Legislative Budget Committee by December 1, 1996. It is the intent of the Legislature that the data center shall not add new client departments to its subscribers of HRIS services or invest in enhancements.
Several High-Level Technical Managers Do Not Manage. According to the data center's October 20, 1994 organization chart, the center has 36 relatively high-level managers of its technical operations, ranging from the Data Processing Manager II level to Data Processing Manager III. Of this management pool, six managers, or 17 percent, were in special assignments in which they supervised no staff.
Although state policy provides for special situations wherein a manager can be removed from traditional management responsibilities to serve another purpose, the degree to which the data center places high-level managers into nonmanagement roles appears to be excessive. As a comparison, we reviewed the management assignment practices of the HWDC, and found that the HWDC used special assignment of high-level technical managers very sparingly and infrequently.
The Number of High-Level Technical Managers Has Increased. One reason the data center may place many of its high-level technical managers in special assignments is because the number of such managers has increased disproportionately to the increase in technical staffing, thereby decreasing the need for managers to supervise and manage other staff. For example, the number of high- level technical managers at the TDC has increased approximately 60 percent since 1989-90, while during the same period the total number of budgeted technical staff increased only about 4 percent. Overall, total data center staffing during this period actually decreased by approximately 6 percent.
We conclude that the data center needs to establish a more reasonable ratio of managers to technical staff, consistent with the administration's efforts to streamline organizations to increase their efficiency and effectiveness. In this regard, the data center was required by the DOF and the Department of Personnel Administration to develop such a plan; however, the data center's plan, submitted in April 1994, has as yet not resulted in any significant change in the current imbalance of the higher level managers. Therefore, we recommend that the data center explain at budget hearings its efforts to reduce managers.
We recommend that the Legislature adopt Budget Bill language requiring (1) an independent review of the data center's billing and cost recovery practices and (2) a board of directors to oversee specific activities of the data center.
Background. Last year, we recommended an independent review of the data center's billing and cost recovery practices to ensure that all clients paid fully for the services received. We made this recommendation because the data center had made special arrangements with some clients where services were provided at significantly below cost--or not billed at all--which resulted in all other clients, in effect, making up the loss through the fees they paid the data center.
In addition, we also recommended the creation of a board of directors to oversee certain activities of the data center, primarily the review of the annual budget, proposed rate changes, and other proposed actions which had significant fiscal implications. As we pointed out last year, the concept of a governing body to oversee data center operations is not new. In fact the HWDC has had such a body since its inception.
The Legislature adopted supplemental report language requiring an independent review of the data center's billing and cost recovery practices to be conducted under the direction of the DOF. The Legislature also adopted supplemental report language requiring the DOF to administratively establish a board of directors.
Requirements Have Not Been Met. Contrary to the Legislature's direction, an independent review has not been conducted and there are no apparent plans to conduct one; nor has a board of directors been established. Given the failure to comply with the Legislature's intent as expressed in supplemental report language, we recommend that the requirements be stated again, and that the Legislature adopt the following Budget Bill language in Item 2780-001-683:
1. There shall be an independent review of the data center's billing and cost recovery practices to (a) identify practices inconsistent with the state's policy governing cost recovery and (b) recommend changes to bring practices in line with the policy. This review shall be conducted by the Bureau of State Audits under the direction of the State Auditor. The State Auditor shall submit the audit report to the Legislature not later than January 5, 1996. The data center shall reimburse the bureau for the full cost of the review, including any administrative costs. The data center shall implement in an expeditious manner those recommendations contained in the State Auditor's report with which the data center agrees, and advise the Legislature in writing, not later than February 9, 1996, as to which recommendations will be implemented, and when, and the data center's position on those recommendations it believes it should not implement.
2. The Director of the data center shall establish, within 60 days of the enactment of the 1995-96 Budget Act, a board of directors to review specific activities of the Stephen P. Teale Data Center. These activities shall include the review of (a) the data center's annual budget, (b) any proposed project, contract, or inter-agency agreement which has significant fiscal implications to the data center, and (c) changes to the data center's rates. The board shall make recommendations to the Director based on its review of such activities. The board may establish additional oversight responsibilities relating to the review of other data center activities. The board will consist of seven members, and shall include large, medium, and small clients of the data center. Board members will be selected by election, with each of the data center's client agencies having one vote. Those elected by the board will serve a one-year term. The chair of the board will be designated by the board members. The Legislature intends that the board be established and conduct its business within existing state appropriations.
We recommend that the Legislature adopt Budget Bill language restoring the requirement that the data center notify the Legislature in advance regarding certain computer projects.
Beginning with the 1992 Budget Act, the Legislature has enacted Budget Act language each year requiring the data center to notify the Legislature, in advance, of certain procurements where the fiscal obligation would carry over into subsequent fiscal years. The 1995 Budget Bill, as introduced, does not contain the notification requirement. Given the potentially significant costs of multi-year procurements, we believe that such notification is important in keeping the Legislature informed as to significant data center procurements. For that reason, we recommend that the Legislature adopt the following Budget Bill language in Item 2780-001-683:
The Director of the Teale Data Center shall not commit the data center to any fiscal obligation which would require an expenditure exceeding $250,000 for computer projects about which the Legislature has not been specifically informed in writing. The Director of Finance may authorize such an obligation to proceed no sooner than 30 days after notification in writing of the necessity therefore is provided to the chairpersons of the fiscal committees and the chairperson of the Joint Legislative Budget Committee, or not sooner than whatever lesser time the chairperson of the joint committee, or his or her designee, may in each instance determine.
We recommend that the data center advise the Legislature, at the budget hearings, as to the status and final outcome of its efforts to renegotiate the contract with the Department of Motor Vehicles (DMV) for the provision of network services.
Background. In 1993, the DMV sought bids for network services to replace an aging computer-based system used to handle electronic queries of the DMV databases. The TDC and two large private sector information technology firms were in contention for the bid. Shortly before bids were due, the DMV advised potential bidders that it would consider no bid which exceeded $18.8 million. On August 30, 1993, the TDC submitted a bid of $6.5 million. Neither of the private sector firms submitted a bid. The DMV determined that the TDC bid contained an error, and as a result the contract awarded to the TDC was for $5.5 million.
When Will Renegotiation Be Completed? The 1994 Budget Act directed the TDC to renegotiate its contract with the DMV to ensure that the DMV pays the data center the full cost of services provided. At the time this Analysis was being prepared, the data center advised that renegotiations had not been completed. We expect the result of these negotiations to be a reallocation of the data center's costs. Consequently, we recommend that the data center advise the Legislature, at the time of budget hearings, as to the status and final outcome of the contract and how its costs for the network services are being reallocated.
We withhold recommendation on $1.7 million requested to support a computing system for the DMV pending review of a consultant's report which will address the necessity for the computing system.
The budget proposes $1.7 million to maintain and support a computer system purchased by the DMV for a DMV database redevelopment project which was put on hold in 1994. When the project was active, the TDC was selected to house and maintain the computer system to be used. Although the computer system is not being used as intended, it is being maintained until the DMV makes a decision as to what to do with it. In that regard, a report, anticipated in April 1995 from a consultant hired by the DMV to assess and advise it regarding the database redevelopment project, will address whether the computer system can be used or should be sold. If it is sold or relocated to another state agency, the TDC will not require funds to support the computer in 1995-96. On that basis, we withhold recommendation on $1.7 million budgeted in support of the system, pending review of the consultant's report.
We recommend a reduction of $5.4 million due to overbudgeting. (Reduce Item 2780-001-683.)
Our review of the data center's proposed budget indicates that some items have been overbudgeted and should be reduced. The specific reductions, which total $5.4 million, are as follows:
Data Center Drops Out of Performance Budgeting Pilot Project
The TDC is no longer a participant in the Performance Budgeting Pilot Project.
The TDC was one of the four original departments selected by the Department of Finance to participate in the Governor's performance budgeting pilot program. In adopting the 1994-95 budget, the Legislature indicated in supplemental report language that it was not prepared to support the data center's proposals for performance budgeting at that time, but encouraged the data center to provide an updated proposal for 1995-96. The administration advises that the data center is no longer a participant in the pilot program.
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