LAO Analysis of the 1995-96 Budget Bill
Transportation, Part II

Department of Transportation (continued)

Mass Transportation

Budget Alignment Reasonable, But PY Reduction Questionable

We recommend that the department provide, prior to budget hearings, workload detail to justify the reduction of 296 PYs.

The 1995 Budget Act scheduled Caltrans' expenditures for individual program elements in the Highway Program. This action effectively limits Caltrans' flexibility to redirect funds among various program elements without notifying the Legislature.

Prior to 1995-96, funding for the support of the Highway Program was provided without limitations by program elements. This allowed Caltrans to redirect funds among elements of the program, for instance from maintenance to operations, in order to cover contingencies and still operate within the total program funding level. However, over the years, Caltrans did not reflect these internal redirections in the Governor's Budget display. As a consequence, the Governor's Budget did not provide a true picture of actual expenditures.

Legislative Action in 1995-96 Necessitates Alignment of 1996-97 Budget Expenditures. In preparing the 1996-97 budget, Caltrans aligned its expenditures as displayed in the Governor's Budget with its internal expenditure allocations. This is expected to enable the department to eliminate discrepancies and report more accurately the expenditure pattern of each program.

Our review indicates that this process is reasonable. For the past several years, Caltrans' support budget had an ongoing shortfall in the funding for personal services. As a result, the department reduced operating and equipment expenses and redirected those funds to personal services.

Reduction in PYs Not Justified. While aligning expenditures in the Governor's Budget display to more accurately reflect the department's true expenditure pattern is reasonable, we question why the department unilaterally reduced staffing by 296 PYs. Specifically, the department did not submit a budget change proposal for the deletion and was not able to provide workload detail to justify the reduction of staff. We believe that this information is essential in order to assess the validity of the alignment of expenditures. Accordingly, we recommend that the department provide workload detail to justify the reduction of 296 PYs prior to budget hearings.

Technical Adjustment

We recommend a reduction of $3,050,000 in order to correct a technical budgeting error. (Reduce Item 2660-001-0890 by $3,050,000)

For 1995-96, the Legislature directed Caltrans to restore the Local Planning program with $3 million in federal funds. For 1996-97, the budget reflects the restoration of $3 million in planning but also inadvertently reflects the same increase under the rail capital transit program. As a result, we recommend that this latter amount be deleted.

Department of the
California Highway Patrol (2720)

The California Highway Patrol (CHP) is responsible for ensuring the safe, lawful, and efficient transportation of persons and goods along the state's highway system and to provide protective services and security for state employees and property. To carry out its responsibilities, the department administers four programs to assist the motoring public and to protect state employees and property: (1) Traffic Management, (2) Regulation and Inspection, (3) Vehicle Ownership Security, and (4) Protective Services.

The budget requests a total of $791 million to support the CHP in 1996-97. This is approximately $25 million or about 3.3 percent above estimated expenditures in the current year. The increase is primarily the result of the following augmentations: (1) $7.3 million for the third and final year of funding for 180 additional traffic officers, (2) $8.3 million for telecommunications equipment and increases in vehicle replacement costs, (3) $1.9 million to comply with overtime provisions of the Fair Labor Standards Act of 1986, and (4) $2.2 million to staff the new Gilroy inspection facility and to relocate two CHP offices to a new facility.

The budget also proposes to eliminate the California Motorcyclist Safety Program (CMSP) administered by the CHP. Currently, the CHP contracts with a private vendor to provide motorcyclist training and public awareness programs. The budget proposes instead that these services be provided by motorcycle driving schools and driving instructors who would be licensed by the Department of Motor Vehicles (DMV). The current program is funded by a $2 surcharge on motorcycle registration, which will expire December 31, 1997.

In addition, the budget proposes to eliminate the Salvage Vehicle Inspection Program. We discuss this proposal in a later section of this write-up.

Legislature Not Notified of Increased MOU Costs

We recommend a reduction of $1.4 million for increased overtime costs because the administration did not notify the Legislature of these costs when the Legislature approved the recent collective bargaining agreement between the state and the California Highway Patrol officers. (Reduce Item 2740-001-0044 by $1.4 million.)

On September 8, 1995, the Department of Personnel Administration (DPA) changed various state pay rules to comply with overtime provisions in the federal Fair Labor Standards Act (FLSA). Specifically, the DPA determined that compliance with the federal law would require the following changes: (1) overtime payments to sergeants and traffic officers and (2) inclusion of "premium pay" in the base rate for overtime calculations. (Premium pay represents pay increases to provide incentives for officers to acquire certain attributes such as additional education or physical training.) The CHP estimates that these changes will increase its overtime costs by $1.4 million in the current year and $1.9 million in 1996-97. The department is absorbing the current-year increase but is requesting additional funding of $1.9 million in 1996-97

Administration Fails to Inform Legislature. At the same time that the DPA communicated these new rule changes to the CHP and other departments, the DPA and the CHP were seeking legislative approval of the memorandum of understanding (MOU) negotiated with the Unit 5 representatives of CHP traffic officers. The proposed MOU included significant new premium pay provisions, including various educational incentive payments, that would boost the cost of complying with the new FLSA overtime rules. The interaction of the MOU provisions and new overtime rules accounts for $1.4 million of the $1.9 million increase in overtime costs in the budget-year request by the CHP.

The state's collective bargaining law requires legislative ratification of any MOU provision requiring the expenditure of state funds before the provision may take effect. The administration-sponsored legislation to ratify the MOU (SB 544, Dills) was heard in two committees after the DPA had promulgated the new overtime rules. (The legislation was subsequently enacted as Ch 768/95.) During these hearings and other deliberations, the administration did not inform the Legislature of the cost impact of the interaction of the new rules with the MOU's new premium pay provisions.

Failure to Inform Undermines Legislative Review. The administration's failure to inform the Legislature of these costs at the appropriate time--during consideration of the MOU--undermines meaningful legislative review and defeats the purpose of the law requiring legislative approval of MOU provisions that will require future state expenditures. (This is not the first instance we have identified where meaningful legislative review of MOUs has been impaired. See the Analysis of the 1995-96 Budget Bill, page H-30.) In view of this failure, and in order to improve the accountability of the administration in the process of legislative review of MOUs, we recommend that the Legislature reduce the request by the amount attributable to the MOU--$1.4 million. We believe that the department can in part accommodate this reduction by reducing overtime costs through better management of overtime assignments. To the extent that additional overtime costs remain as a result of the MOU and the new rules, these costs should continue to be absorbed as the department has done for 1995-96.

Consolidation Will Cost More Than Projected

We recommend that the California Highway Patrol explain at budget hearings why costs are projected to be higher than originally anticipated as a result of consolidating the California State Police with the California Highway Patrol.

In 1995-96, the California State Police (CSP) consolidated with the CHP pursuant to the Governor's Reorganization Plan Number 1. The consolidation was anticipated to save $835,000 in 1995-96 due to efficiencies and economies of scale. While most of the savings in facilities and equipment expenses, including the sale of an aircraft, were anticipated to occur immediately upon consolidation, other savings such as savings in personnel costs resulting from better workload coordination and streamlining were anticipated over several years.

However, more recent estimates provided by the CHP indicate that the consolidation may only achieve about $400,000 in savings in 1995-96. This is because the cost of providing protective services (formerly provided by the CSP) in 1995-96 are now estimated to be $300,000 higher than originally anticipated. Figure 19 (see next page) compares the projected costs of providing protective services in 1995-96 with more recent cost estimates. As the figure shows, the CHP now estimates that personnel costs--for salaries and benefits--will be lower than initially projected by $2.1 million in 1995-96. However, operating and equipment expenses will be higher by $2.4 million. The higher costs are primarily due to unplanned purchases of vehicles ($442,000), higher telecommunications costs ($1.2 million), and higher costs of facilities operations ($800,000). In addition to higher costs, the department, thus far, has not proceeded with its plan to sell two airplanes which it estimated would generate $75,000 in revenues.

Short-Term Cost Increases Versus "Tip of the Iceberg". At this time, it is not clear whether the unanticipated cost increases, specifically in telecommunications and operating facilities, are short-term increases due to first-year implementation of the reorganization, or if they represent the "tip of the iceberg" of higher ongoing costs in ensuing years resulting from the consolidation. Protective services are provided through reimbursements by client agencies that receive the services. To the extent that the costs of these services are higher, especially on an ongoing basis, costs paid by client agencies will also be higher.

Because the primary rationale for the consolidation of the CHP with the CSP was to provide better coordinated services at lower costs, we believe that the department should provide an explanation as to why the costs--in particular, telecommunications and facilities operations costs--have increased. The higher telecommunications costs are of particular concern. This is because federal regulation of telecommunications is likely to be changed in the next few years, potentially necessitating modifications in the department's telecommunications systems. Thus, how the department configures its telecommunications systems now, to accommodate departmental workload demands, could have potentially significant cost implications over the long run.

Figure 19
Protective Services Division
Projected Versus Estimated Costs
(In Millions)        
Personal services $24.7 $22.6 -$2.1
Operating expenses 2.9 4.7 1.8
Equipment 0.2 0.8 0.6


$27.8 $28.1 $0.3

Accordingly, we recommend the department explain, at budget hearings, (1) why telecommunications and facilities operations costs for protective services have been significantly higher than anticipated, and whether these costs will be ongoing, (2) why the unplanned vehicle purchase was needed, and (3) why it has not proceeded with its plan to sell two airplanes.

Workload for Salvage Vehicle Inspection Program
Grossly Underestimated

We recommend that the California Highway Patrol report at budget hearings on the estimated workload necessary to conduct inspections of salvage vehicles during the first half of 1996-97, and how it plans to fund that workload.

Chapter 1008, Statutes of 1994 (SB 1833, Torres) established the Salvage Vehicle Inspection Program, and required the CHP, beginning July 1, 1995, to initiate a program to inspect all salvage vehicles. In addition, Chapter 1008 required the CHP to verify the identity of each salvage vehicle and to ensure that the component parts installed in the vehicle were not stolen before the DMV registered the vehicle to a new owner.

Workload Grossly Underestimated. For 1995-96, the CHP underestimated the number of salvage vehicles needing inspection by at least 100 percent. Early on in the implementation of the program, the CHP was overwhelmed with inspection workload and by October could not continue to perform inspections on a timely basis, given the funding and staffing level of the program. In response, Ch 684/95 (SB 549, Alquist) suspended the program as originally designed until January 1, 1997. After January 1, 1997, the program would be reactivated.

Chapter 684 Places Temporary Moratorium on the Program, But Inspections Will Continue. While Chapter 684 suspended the requirement that the CHP inspect all salvage vehicles, it did not eliminate all inspections. Instead, the measure authorizes the DMV to either inspect salvage vehicles applying for registration or request that the CHP inspect such vehicles. In addition, Chapter 684 authorizes the CHP to inspect these vehicles on a random basis.

The CHP is currently developing legislation for a modified program of random inspections. However, until January 1, 1997 or when a modified program is in place, the CHP is likely to incur some workload costs to conduct random inspections and inspections requested by the DMV. Because no funds are included in the CHP's 1996-97 budget request, we recommend that the CHP report at budget hearings on the estimated workload necessary to conduct these inspections and how it plans to fund that workload.

Department of Motor Vehicles (2740)

The Department of Motor Vehicles (DMV) is responsible for protecting the public interest in vehicle ownership by registering vehicles and for promoting public safety on California's roads and highways by issuing driver licenses. Additionally, the department licenses and regulates vehicle-related businesses such as automobile dealers and driver training schools, and also provides revenue collection services for state and local agencies.

The budget proposes total expenditures of $531 million for support of the DMV in 1996-97. This is an increase of $11 million, or 2 percent, above estimated current-year expenditures. This proposed increase is primarily due to the costs to implement new legislation and to a proposal to initiate planning and analysis for a reengineering of the department's business practices and information systems. The budget estimates that most of the costs of implementing new legislation will be offset by increased revenue from existing or new fees.

DMV Initiating New Computer Improvement Project

The DMV is preparing to undertake a computer renovation project, following recommendations made by an independent consultant, and requests $1.9 million in 1996-97. The overall effort may take six years or more and is likely to cost well over $100 million. We recommend that the DMV, the Department of Information Technology, and the Technology Investment Review Unit (within the Department of Finance) report to the Legislature on measures to ensure that the project is executed successfully.

Following the costly failure of the DMV's attempted database modernization project, the department hired an independent consultant (the Warner Group) to analyze the need for the department to improve and modernize its information technology systems and to recommend an achievable implementation plan (see our 1994-95 Analysis and Supplemental Analysis and our 1995-96 Analysis, page A-61). The consultant submitted its final report in early 1995, and the DMV is now proposing to implement the report's recommendations and requests $1.9 million in 1996-97.

Report Urges Improvements. The Warner Group found that improvements to the DMV's information technology systems are necessary in order to reduce the risk of system failure and maintenance backlog and to enable the department to redesign outdated business practices. The inflexibility of the DMV's information systems, the report indicates, prevents the department from implementing more efficient business practices and limits its ability to assume new responsibilities. However, the report cautioned that the DMV is not well equipped at present to successfully transition to modern information systems. The report identified a lack of project management skills and modern software development methods as well as insufficient high-level leadership for information technology.

Consultant Recommends Phased Implementation Plan. In its report, the Warner Group recommended a phased implementation plan that would begin immediately and continue for six years. Figure 20 (see next page) summarizes the 14 major components of the recommended implementation plan. To address the shortcomings in the DMV's ability to successfully manage and execute complex information technology projects, the implementation plan begins with five immediate actions to improve project management and technical skills and to strengthen leadership.

In addition, the report identified five activities to begin immediately and continue for up to four years. Central among these is Business Process Reengineering (BPR)--the effort to radically redesign business practices to achieve improvements in performance and efficiency. The Warner Group concluded that redesigning the department's business practices must precede any attempt to design and implement new information systems. In addition to BPR, the report identified four other activities that should begin immediately in order to stabilize the current system and ease the eventual transition to modern systems.

Finally, the Warner Group recommended four implementation steps that could begin in late 1996 and 1997, but only after substantial progress or completion of the activities discussed above. These final stages would entail the technical definition of new information systems, and their development, procurement, and installation.

Total Project Cost and Benefits Unknown. In the phased project approach recommended by the Warner Group, specific improvements to DMV information systems will be developed later, based upon reengineered business practices. The Warner Group suggests that total project costs could range from $180 million to $370 million. This amount would constitute about 6 to 12 percent of the DMV's total budget over the six-year implementation period. However, because specific system improvements will not be determined until after the BPR, the total costs of redesigning the DMV's information system are unknown.

Furthermore, the benefits of the project, in terms of reduced costs and improved customer service, are unknown.

Figure 20
Department of Motor Vehicles
Warner Group Information Technology Study (1995)
Recommended Implementation Plan
Recommendation DMV Status
Immediate actions--improve leadership and skills
Appoint DMV Chief Information Officer
  • Pending
Appoint manager for Business Process Reengineering
  • Completed
Develop and acquire skills in project
management and software development
  • FSR approved to improve software

    development--$0.8 million requested for 1996-97

  • Other actions pending
Restructure internal DMV information technology committees
  • Pending
Develop strategic technology partnerships
  • Pending
Multiyear tasks to begin immediately--stabilize systems
Initiate Business Process Reengineering
  • Consultant bids being evaluated
  • $1.1 million requested for 1996-97
Document and reengineer mission-critical software applications
  • FSR under review
Convert databases to industry standard environment
  • FSR under review
Develop contingency plan for field office computer replacement
  • Underway using DMV staff
Explore data communication opportunities for improvement
  • Pending proposal from Teale Data Center
Future years--design and implement new information systems
Install replacement field office computers
  • Pending
Define target design for DMV databases and applications
  • Pending
Upgrade DMV databases using target design
  • Pending
Develop and install new application programs using target design
  • Pending

The DMV Requests $1.9 Million. For 1996-97, the DMV requests $1.9 million, including $1.1 million for the first year of BPR and $0.8 million to improve the department's software development skills and tools. Both BPR and skills development are key components of the recommended implementation plan, and the DMV's first-year BPR request falls within the Warner Group's cost estimate (the report did not provide a cost estimate for improving and acquiring skills). However, neither project will directly produce quantifiable fiscal benefits. Rather, the Warner Group believes that BPR and skills training, along with other preliminary activities, will lay the groundwork for subsequent steps to redesign and implement new information systems. Thus, the cost-effectiveness of the DMV's current request cannot be evaluated outside of the context of the overall project; however, the overall project is not yet fully defined.

The DMV and the Department of Information Technology Should Report to Legislature. The Warner Group's implementation plan is complex and aggressive. Furthermore, the plan is demanding of both managerial and technical skills, because the DMV must make many crucial decisions in subsequent years.

While our review indicates that the DMV is substantially adhering to the Warner Group's recommendations, the DMV has not yet addressed some recommendations. For example, the department lacks a Chief Information Officer and has yet to finalize the recommended strategic partnerships and skills improvement. We believe that the Warner Group's recommendations will assist the DMV; however, we note that the department has no history of successfully executing a project of comparable scope or difficulty.

Given the uncertain costs and benefits, the complexity of the Warner Group plan, and the DMV's unproven record, we believe that it is essential that the DMV and the administration clearly accept the responsibility and demonstrate the ability to ensure, through comprehensive planning, analysis, and oversight, that the project will be successfully executed and yield benefits that justify its cost. We believe that, prior to the Legislature's appropriation of funds for the DMV's project, the DMV and the administration's technology oversight agencies--the Department of Information Technology (DOIT) and the Department of Finance's Technology Investment Review Unit (TIRU)--should certify that the DMV and the administration will ensure that the DMV's project is ultimately successful.

We therefore recommend that, prior to budget hearings, the DOIT and the TIRU provide to the Legislature a report that assesses the DMV plan and clarifies respective planning and oversight responsibilities. We further recommend that the DMV provide a report indicating its response and concurrence. The reports should address, at a minimum, the following issues:

Customer Wait Times Increasing

Customer wait times in the DMV field offices are below targets set in statute, but have risen in recent years. We recommend that the DMV report at budget hearings on the target wait times for 1996-97 that the department can achieve with proposed resources.

Current law states the Legislature's intent that customer wait times in DMV field offices not exceed 30 minutes. Our review of DMV data indicates that while the DMV is in compliance with this requirement, customer wait times have increased substantially in recent years.

Figure 21 illustrates the average of the maximum wait times recorded in each DMV field office. The figure reveals that wait times have risen consistently through the first half of 1995, peaking at 26 minutes, and declining slightly in the second half of 1995 to 25 minutes. Because these data are based upon maximum wait times, they reflect worse case wait times, and the DMV serves most customers more quickly than is shown here. However, our analysis indicates that overall average wait times have increased along with maximum wait times. For instance, the average wait time for vehicle registration has risen from 11 minutes in 1993 to 20 minutes in 1995.


DMV Actions to Reduce Wait Times. The DMV indicates that it recently began filling 95 field office positions that it had held vacant, and as a result it expects wait times to continue the decline that began in the second half of 1995. In addition, the DMV notes that for customers that use the appointment service, the department generally provides service within five or six minutes of scheduled appointment times.

Recommend DMV Establish Targets for 1996-97. We recognize that customer wait times are partially determined by approved budget levels and new responsibilities imposed on the department. For example, the DMV reports that its field office workload was increased by recent legislation such as that requiring the verification of legal presence of applicants for driver licenses (Ch 820/93 [SB 976, Alquist]) and the Safe Streets Act (Ch 1133/94 [AB 3148, Katz]) which greatly increased penalties for driving with a suspended or revoked license. These additional workload requirements contributed to higher wait times in 1994 and 1995. However, it is not clear how the department will bring about a continued reduction in wait time in 1996-97, given the increased workload demand. Additionally, the DMV proposes to eliminate 174 personnel-years (PYs) in 1996-97 in order to free up funds for general salary increase costs. The department has not indicated where it will make the staff reductions or the impact on customer service that will result. We therefore recommend that the DMV report, at budget hearings, on customer wait time targets for 1996-97 that the DMV can achieve with the proposed resources. This information will allow the Legislature to better assess the proposed budget and will increase departmental accountability.

Expansion of New Driver License Road Test Is Premature

We recommend that $305,000 requested for an expansion of a new driver license road test be rejected because the department has not completed an evaluation that will compare the validity of the new road test to that of the current test. (Reduce Item 2740-001-0044 by $305,000 and 7.5 PYs.)

Based upon concerns that driving in California has been made more challenging by higher traffic density and increased driving on freeways, the DMV identified a need to improve its driver licensing road test. With legislative approval, the department initiated a two-year pilot test to develop and evaluate an improved road test, known as the Driver Performance Evaluation (DPE). The DMV has completed the two-year project, and now requests $305,000 and 7.5 PYs in order to expand implementation of the test to 23 new field offices, in addition to the current 33 field offices.

DPE Longer, More Costly. The DPE differs from the current road test primarily in that (1) the test route is designed to have uniform scoring features (number of stops, lane changes, etc.) at every DMV field office and (2) the test includes a brief freeway driving segment. In order to accommodate the freeway driving segment and to ensure uniform scoring features on all test routes, the DMV indicates that the DPE takes an average of 11 minutes longer than the current test. Because of its greater length, the DPE requires additional examiners to administer the test and is therefore more costly than the current road test. We estimate additional annual costs of $2 million to $3 million, including training, to implement the test statewide.

Evaluation Partially Confirms Validity of the DPE. The department's pilot evaluation finds that the DPE has a higher failure rate and also produces more consistent scores than does the current driver test, indicating that exam scores are less likely to be influenced by the particular examiner that administers the test. Additionally, the DMV believes that the DPE is a valid test of driving skill, because inexperienced drivers and drivers that have physical or mental limitations performed worse on the exam.

However, due to the limited sample of drivers, the department was unable to conclusively link actual driving ability (measured by the number of recent accidents) to DPE test scores. Furthermore, beyond attempting to show that the DPE is a valid test of driving skill, the department did not investigate whether it is a more valid test than the current test. Therefore, we do not believe that the department has proven whether, or to what extent, the DPE will improve driver testing compared to the current exam.

The DMV Proposes Expansion, Further Evaluation. The DMV proposes to continue evaluating the DPE by comparing the driving history of drivers that have already been tested under the current test and the DPE. This will allow the DMV to better determine the relative validity of the two tests.

In addition, the department proposes to expand implementation of the DPE to include all field offices in Los Angeles, Orange, San Diego, Riverside, and San Bernardino Counties. The DMV indicates that this expansion, however, is unrelated to its ongoing evaluation, and the department has not provided a justification for partially expanding the program.

Expansion Unjustified at This Time. The DMV has shown that in some respects--higher failure rate, and more consistent scoring--the DPE is superior to the current driver exam. However, we believe that the most important measure should be the exam's ability to accurately measure driving ability and predict a driver's future driving record. Because the DMV has not yet determined whether the DPE is superior to the current exam in this respect, we believe that expansion of the test is not justified at this time. We therefore recommend that the Legislature reject the expansion request and reduce the DMV's budget by $305,000 (7.5 PYs). The DMV indicates that it plans continued evaluation that will compare the validity of the DPE to that of the current drive test. We recommend that, if and when more conclusive results are available, the DMV present to the Legislature a new proposal to expand implementation of the DPE.

License Production Costs Overbudgeted

We recommend a reduction of $1,034,000 due to lower costs of producing driver licenses and identification cards. (Reduce Item 2740-001-0044 by $1,034,000.)

The DMV estimates that in 1996-97 it will spend $6.3 million to produce 7.9 million driver licenses and identification cards. Our review indicates that the department based its cost estimate upon current-year production costs and did not account for lower per-card costs under a new contract. Because the new contract will be phased in during 1996-97, we estimate half-year savings of $1,034,000 in 1996-97 and full-year savings in subsequent years of $2,071,000.

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