The budget proposes $85.5 million from the TDC Revolving Fund for support of the center's operations in 1997-98. This is an increase of $5.6 million, or 7 percent, over estimated current-year expenditures. The primary reason for the increase is the addition of computing capacity to meet customer demand.
Data Center Wants to Relocate. The TDC has been interested for several years in relocating from its current Sacramento site where it has been situated for approximately 18 years. Reasons cited by the TDC include the potential for flood damage, inadequacies of the current facility, and the need for a better power supply. Several attempts by the data center to secure authority to relocate the facility were not successful, including an effort to secure approval through legislation. Finally, in 1996, the administration agreed to allow the TDC to relocate to a new leased facility under the Department of General Services' (DGS) general authority to enter into leases on behalf of state agencies.
Administration Proposes Lease. The Government Code requires that the DGS notify the Legislature in writing of any proposed lease of five years or longer and costing more than $10,000 annually. The administration selected a 20-year lease for the new TDC facility with the ability of the state to terminate the lease after 4.5 years at a lump-sum termination cost of $24.5 million. By setting the firm term of the lease at 4.5 years, the administration was not required to follow the statutory notification requirement to the Legislature. Nevertheless, the DGS did advise some Members of the Legislature and our office on a verbal basis, of the pending lease.
In response, the Chair of the Joint Legislative Budget Committee (JLBC), wrote the Director of the DGS on July 16, 1996 that "The proposed 4.5-year lease is a blatant disregard for the Legislature's authority for oversight and review of the proposal . . . " and advised the Director of the DGS to not proceed with the proposed lease. The Chair of the JLBC also noted in his letter that the Legislature had appropriated funds in the 1996-97 Budget Act to examine consolidation of the state's data centers, and that it would therefore be premature to consider any proposal to relocate the TDC until the completion of the study. The consolidation study is required by Chapter 508, Statutes of 1995 (SB 1, Alquist).
On August 16, 1996, the DGS notified the JLBC in writing of its intention to enter into the planned lease, not sooner than 30 days from the receipt of the notification.
Administration Puts Planned Lease on Hold. On September 16, 1996, the Chair of the JLBC responded in writing to the DGS' notification disagreeing with the proposed lease. In his letter, the Chair advised the administration that it should instead complete the data center consolidation study and prepare a plan, consistent with that study, addressing the state's long-term data center needs in the most cost-effective manner. The Chair stated that the plan should be submitted to the Legislature for consideration, preferably through the budget process.
On November 26. 1996, the DGS advised the Chair that it would defer action on the proposed lease pending completion of the consolidation study.
Relocation Is Premature in Absence of Consolidation Plan. The budget bill includes a provision which would authorize the DGS to enter into a lease-purchase, or lease with option to purchase, for a new TDC facility. Based on our analysis, we conclude that relocating the data center is premature in absence of the consolidation report. At the time this analysis was prepared, no such plan has been submitted, and it was not clear when one would be.
Relocation of the Data Center Should Be Supported by an Approved Feasibility Study. We believe that any proposal to relocate the data center should be supported by an approved feasibility study prepared in accordance with the State Administrative Manual (SAM). This should be done because relocating the data center would be a costly and complex endeavor, with service and rate implications for the TDC's customer departments, and with possible budgetary implications as well. Such a feasibility study would describe the problems with the current facility and identify alternative solutions to resolve these problems, along with associated costs and benefits.
Analyst's Recommendation. The Legislature has, through Chapter 508, provided specific direction to the administration to assess the feasibility of consolidating the state's information technology activities, including those conducted by the TDC. Moreover, the Chair of the JLBC has advised the DGS that any proposal to relocate the TDC should follow the completion of the consolidation study to be conducted under the auspices of the DOIT. Furthermore, any relocation proposal should be consistent with a state plan addressing the long-term needs of the data center, and the plan should be reviewed by the Legislature. Because this has not occurred, the proposed authorization is premature. Consequently, we recommend deletion of proposed budget bill language allowing the DGS to enter into a lease on behalf of the TDC.
Increase in Expenditures for Legal Services Has Been Dramatic. In 1992-93 the data center spent $16,233 for legal services provided by the Department of Justice (DOJ). No funds were expended in that year for external legal service contracts, nor, according to the data center, were any funds expended in 1993-94 or 1994-95 for external services. In 1995-96, however, the data center spent $101,235 for DOJ services, and also spent $263,933 for external legal services provided by two private law firms.
In 1996-97, the data center extended through June 30, 1997 the contracts with the two law firms hired in 1995-96, and in addition entered into contracts with two new law firms. The total amount of legal services available through the four contracts in the current year totals $558,000. The data center also plans to expend approximately $100,000 each year in the current and budget years for DOJ services. Moreover, the data center advises that in the last three years, the data center has also made expenditures of approximately $230,000 in the form of settlements and awards as the result of legal actions taken against the center. Adding these amounts to the expenditures for DOJ services and outside counsel, and amounts the data center anticipates spending for legal services through the end of the current fiscal year, the data center's expenses for legal services, settlements, and awards will total approximately $875,000 from 1994-95 through 1996-97.
Reasons for Increase Not Fully Known. The TDC has provided only a partial explanation as to why its legal costs have soared in recent years. The data center states that it is unable to provide a complete explanation because the DOJ has advised the TDC that cases in active litigation are considered confidential, and that as a consequence the specific details cannot be discussed.
How Much Is the Data Center Likely to Spend for External Legal Services in the Budget Year? Although the data center advises that it has not budgeted any funds for external legal services for 1997-98, this does not mean that such expenses will not be incurred, because several of the current contracts with outside law firms have been amended more than once to extend the contract period or increase the amount of the contract, or both. For example, a contract with one law firm, which began with an initial contract maximum of $15,000, has been amended several times to extend the contract term and increase the maximum amount to a current total of $400,000.
Runup in Legal Expense Is Not Typical of State Data Centers. In the absence of sufficient detail with which to understand the substantial increase in the TDC's legal expenditures, we contacted the HWDC and the DOJ's Hawkins Data Center to determine whether other major data centers have experienced similar recent increases in legal expenditures. We thought this might be possible because data center acquisitions occur often and involve millions of dollars worth of equipment. Legal protests by bidders are not uncommon. However, neither of the two other data centers reported any significant outlays for legal services. The HWDC established a staff counsel position a few years ago, which it has used for contract management and contract negotiation. Consequently, the increased cost of legal services at the TDC does not appear to be related to the nature of managing a major state data center.
Use of External Counsel Is Costly. The DOJ currently charges $98 per hour for attorney services, and the budget proposes to increase the rate to $100 per hour effective July 1, 1997. According to information provided by the data center, it will pay from $130 to $175 per hour for outside counsel. Therefore, in using outside counsel, it is paying from 30 percent to 75 percent more than the cost of state attorney services provided by the DOJ.
Analyst's Recommendation. The TDC has not provided an adequate explanation as to why its legal expenses have recently become a significant annual expenditure, nor why it must acquire the services of four external law firms in addition to spending $100,000 annually for services provided by the DOJ. For these reasons, we recommend that the data center and the DOJ advise the Legislature, during budget hearings, as to the reasons for recent substantial increases in legal expenses, the rationale for employing costly outside counsel, and measures taken by the data center to reduce its exposure to litigation.
Background. The Human Resources Information System (HRIS) was developed by the TDC to provide leave accounting and other personnel-related services to client agencies. Over the past two years we have expressed concern about the viability of the HRIS, noting consistent annual net losses from this service. In this regard, we noted that the California Leave Accounting System (CLAS), developed by the State Controller and offering some of the same services as the HRIS, is becoming the state's predominant leave-accounting system. In each of the two years when we questioned the viability of the HRIS, the TDC has provided projections showing that anticipated new customers would enable the service to break even. Generally, however, the projections proved optimistic, and HRIS continued to lose money. During budget hearings last year, the TDC committed to charging its customers fees sufficient to ensure that the HRIS breaks even.
Losses Continue Despite Retroactive Adjustments. Information provided by the TDC indicates that as of December 31, 1996 the HRIS was losing about $180,000 annually. We believe the actual loss could be significantly higher, because in 1996 the data center adjusted the HRIS budget, retroactively deleting personnel costs which had traditionally been charged to its budget. The effect of these adjustments was to reduce the "official" cost to support the HRIS. The data center is projecting a break-even situation based on anticipated expansion of its customer base in 1997; however, the accuracy of past estimates of customer growth does not warrant confidence in the most recent estimates.
Analyst's Recommendation. The data center has been unable to make the HRIS self-supporting. One method of ensuring that the TDC recovers the cost to provide the HRIS service is to designate the cost as a separate reimbursement. However, because of the retroactive adjustments, it is unclear as to the data center's real cost to support the HRIS. We believe that the real cost is likely to be about $410,000 annually which is the cost identified by the data center prior to its retroactive adjustments. Therefore, we recommend that $410,000 be scheduled as a separate reimbursement in order to ensure that the data center recovers the full cost of providing services to clients using the HRIS, and that the appropriation be reduced by a like amount.
The proposed budget includes $4.6 million to upgrade mainframe computing systems and $325,000 to increase the capacity of disk storage systems in order to meet anticipated increases in customer workload. Budget documents provided by the data center indicate that a significant portion of the anticipated workload will come from a Board of Equalization (BOE) project--the Integrated Revenue Information System (IRIS).
The data center's budget assumes that the IRIS project will require additional mainframe and disk storage capacities in the budget year; however, the BOE has been engaged in a dispute with the contractor hired to develop and implement the IRIS, and the project schedule has been pushed back as a result. Based on discussions with BOE managers, we believe it is possible that the project could slip even further, going beyond the current target date of January 1, 1998 for completing the project.
The BOE and the contractor are involved in an effort to resolve their differences. Thus, it is possible that a firm schedule will be developed between now and the time the budget is heard. Therefore, we withhold recommendation on $4.9 million requested to increase mainframe computing capacity and electronic storage media pending a determination as to the likelihood that anticipated workload necessitating the upgrade will materialize.
The data center is requesting $2.5 million and two positions to increase its telecommunications service capabilities in order to satisfy increased demand from its customer departments. According to the data center, an electronic commerce pilot project managed by the Department of General Services (DGS) is one of the significant components of the anticipated workload upon which this budget request is based. The data center's budget assumes that the DGS pilot project workload will have to be accommodated by July 1, 1997. The DGS, however, advises that it has not provided the data center with a firm date for when the project will require TDC resources, but had targeted the fourth quarter of 1997. This target date is subject to change because the DGS project has experienced delay from the schedule identified in its feasibility study report, and as of January 1997, did not have an updated schedule.
For these reasons, we withhold recommendation on $2.5 million requested to increase telecommunications services capacity pending the data center's redetermination of its budget requirements based on its likely workload requirements from customer departments.
The data center has for several years maintained a contract with a private sector firm to provide backup services to the data center in the event a disaster affected the ability of the TDC to process critical state computer applications. The backup facility is located in another state, and the data center and those customer departments using the service periodically test the backup system to ensure that it will operate properly in the event of a disaster.
The data center is requesting an additional $500,000 to: (1) accommodate anticipated new workload from various customer departments, (2) contract for personnel to backup TDC personnel who may be unable to travel to the remote backup facility in the event of a disaster, and (3) acquire consulting services to help TDC customers plan for operational recovery in the event critical information systems become inoperable due to a disaster. The budget documents do not provide a sufficient breakdown of the costs associated with these factors, however, and supporting information provided by the data center conflicts with the original budget documents. As a result, we withhold recommendation on the requested $500,000 pending the resolution of discrepancies among budget-related documents provided by the data center to support the augmentation.
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 $520,000, are as follows:
$210,000 because the data center has understated the amount which will be likely saved as the result of budgeted positions not being filled for a full 12 months (increase salary savings $210,000).
$310,000 budgeted for general expenses and out-of-state travel expenditures, because the data center could provide no basis on which to support the budgeted amount (reduce general expenses $270,000, and reduce out-of-state travel $40,000).
The budget proposes $208 million for support of the center's operations in 1997-98, which is a decrease of $81.8 million, or 28 percent, below estimated current-year expenditures. The reduction results primarily from payments made in the current year to contractors for work completed on major information technology projects being managed by the HWDC on behalf of the Department of Social Services (DSS).
Background. The data center's budget includes $55.4 million to continue support for the Statewide Automated Welfare System (SAWS). The purpose of SAWS is to provide improved and uniform information technology capability to county welfare operations, through a state partnership with four consortia comprised of the 58 counties in the state. The four consortia were authorized by the Legislature in the 1995-96 Budget Act. They are comprised of the:
Interim Statewide Automated Welfare System (ISAWS).
Los Angeles Eligibility Automated Determination, Evaluation and Reporting System (LEADER).
Welfare Case Data System (WCDS) Consortium.
Consortium IV (C-IV).
Implementation Status. The ISAWS project, being managed by the HWDC, is currently operational in 18 counties, and will, when completed in 1998, encompass a total of 35 counties, primarily small caseload counties. The LEADER system is being implemented by Los Angeles County and is currently under development. The WCDS Consortium, consisting of 18 counties, and the C-IV Consortium, consisting of four counties, are in the planning phase. According to the HWDC, a request for proposal to secure a contractor to develop and implement a solution for the WCDS Consortium was anticipated to be delivered in late January 1997 to state and federal authorities for their review. According to recent planning documents, the WCDS Consortium is requesting approval of its project at a total multiyear cost of $278 million for development and implementation. The C-IV Consortium has requested approval of $3.1 million for just the planning phase. The HWDC budget includes $12.6 million for support of the WCDS and C-IV Consortium projects in 1997-98.
Recent Changes to Project Cost Estimates. The HWDC is requesting an additional $14.4 million in 1997-98 for the SAWS project. The data center maintains that some of the cost increases do not reflect a cost overrun, but reflect instead the normal progression of the project from one phase to another. Other increases, however, appear to be the result of insufficient allowances made for normal project activities, such as making necessary changes to computer programs to meet the needs of the counties. After the budget was submitted, the HWDC provided information revising previous cost information for specific project activities. At the time this analysis was prepared, we had not been able to fully review this revision. We believe that further review of the justification for the proposed $14.4 million budget increase is warranted based on unresolved questions about budget details and the recent revised cost estimates.
Impact of Welfare Reform on System Requirements. Of the four consortia authorized by the Legislature, two (LEADER AND ISAWS) are already in the process of implementing specific systems based on requirements which were ts wblished prior to August 1996 when Congress and the President enacted federal welfare reform. As noted in our recent policy brief, Welfare Reform in California: A Welfare-to-Work Approach, welfare reform is one of the most important policy issues facing the Legislature and Governor this year. And, we note that welfare reform can be implemented through many different models. Until the Legislature and the administration agree on a specific model, the specifications for the information systems to be developed for the WCDS and C-IV consortia cannot be fully defined. Consequently, we believe that the administration may have to reconsider its plans for these two consortia in order to avoid subsequent costly retrofitting of systems.
Analyst's Recommendation. Of the $55.4 million budgeted for SAWS, $12.6 million will be allocated for expansion of the projects in the budget year, including consortia planning, management and development, and reprogramming of SAWS. Consequently, we withhold recommendation on these proposed funds for expansion, pending further review of documentation supporting the budget.
Background. The Statewide Automated Child Support System (SACSS) is a federal and state-mandated computer-based system to provide a statewide child support enforcement tracking and monitoring capability through the offices of county district attorneys. In 1995, the administration transferred the responsibility to manage this project from the DSS to the HWDC in order to resolve serious implementation problems. The proposed budget includes $37.9 million to continue project development in 1997-98, including an increase of $11.1 million.
Project Remains on a Costly Rocky Road. The ten-year project cost of the SACSS was estimated to be $152 million when the Legislature approved the budget for 1995-96. It was reestimated at $260 million after the HWDC assumed responsibility for the project, and reestimated again at $313 million in a January 1997 special project report (SPR). Some of the project's increased costs have resulted from including related costs which were planned but not included in earlier estimates; for example, the cost to the DSS for the centralized distribution of child support collection information to custodial parents. Other increases are the result of the renegotiation of the original contract and normal system development activities which should have been included in previous estimates but were not. It now appears that the project is facing the potential for even more increases in cost and further schedule delays as the result of performance problems in counties where the new system has been installed (22 counties were operating with SACSS as of December 31, 1996).
At the time the HWDC was given responsibility for management of the SACSS project, the project was essentially at a stalemate between the state and the contractor hired to design and implement the system. Under HWDC management, the contract was renegotiated and progress was made in renewing project development and ultimately installing the new system in several counties, generally ones with small caseloads and limited information technology capability.
As reported in last year's Analysis, serious problems were encountered when the state attempted to install SACSS in Fresno County, which has a medium-sized caseload and is a relatively sophisticated user of information technology. These problems forced a reassessment of the project, which resulted in the need to alter schedules. Now, one year later, SACSS has yet to perform satisfactorily in Fresno County. Other counties where SACSS has been installed have also experienced problems. Consequently, the project is undergoing another assessment. According to the HWDC, an SPR will be submitted to the administration and the Legislature no later than the first week of March 1997.
Will the Federal Government Again Extend the Deadline for System Completion? The federal government has provided funding for 90 percent of the SACSS implementation cost. Last year, the federal government extended this enhanced funding level until October 1, 1997, at which time the funding level will drop to 66 percent. According to the HWDC, it and the DSS plan to meet with federal representatives in Washington D.C. in early February 1997 to discuss further extension of enhanced federal funding of the project. The HWDC further advises that many other states concerned with meeting the October 1997 deadline have also questioned the federal government regarding the possibility of another extension of the higher federal funding. If federal financial participation for implementation costs reverts to 66 percent in October 1997, and state implementation goes beyond this date, then the state would incur additional costs of $3 million in 1997-98, based on the Governor's budget.
Analyst's Recommendation. The estimated cost of SACSS has increased more than 100 percent from the amount approved by the Legislature when it enacted the budget for 1995-96, including a 30 percent increase in the past year alone. The extent to which continued serious problems with system performance will affect budget requirements for the SACSS project will not be known by the HWDC until this spring.
For these reasons, we withhold recommendation on $37.9 million budgeted to continue implementation of the SACSS, pending the receipt and review of an SPR detailing project changes needed to address continued system performance problems.
Background. Chapter 1294, Statutes of 1989 (SB 370, Presley), requires the implementation of a single statewide Child Welfare Services Case Management System (CWS/CMS). The primary goal of this system is to provide a statewide database, case management tools, and reporting system for the child welfare services program. By 1995, the project was in serious trouble, with counties balking at acceptance of the detailed system design. In April 1995, the administration transferred responsibility for project management from the DSS to the HWDC in an effort to improve the project's prospects for success. The HWDC's proposed budget includes $24.8 million to continue support of the CWS/CMS project in 1997-98.
Proposed Upgrade of Software Provides No Benefit to State. The Governor's budget proposes to transfer to county ownership 5,549 personal computers and 488 printers which were (or will have been) acquired by the state for the CWS/CMS project, and which are currently owned by the state. The HWDC is proposing the transfer of ownership based on several factors. The key rationale, according to budget documents, is that doing so is consistent with the Governor's initiative to make government more competitive by not hiring additional state staff. According to the administration, transferring ownership of the personal computers will avoid the need to hire an additional state position to manage the equipment inventory, thereby realizing an annual cost avoidance of $84,000.
In addition to transferring the personal computers to the counties, the HWDC is proposing to spend $2 million in the current year and $5 million in 1997-98 to upgrade the software on these same personal computers. According to information provided by the data center, this upgrade is not required in order to make CWS/CMS operate properly. The CWS/CMS is performing in counties according to system specifications, using the personal computer software the HWDC is proposing to replace. Our analysis indicates that while the current software will eventually need to be upgraded, there is no operational need to do so now.
Inadequate Justification for Amount Requested for System Changes. The budget also includes $5 million to make unspecified changes and upgrades to the CWS/CMS. The HWDC cites "industry standards" as support for an annual investment in system changes of up to 20 percent of the cost of developing a system. According to information provided by the HWDC, $5 million represents about 10 percent of the cost to develop the CWS/CMS.
According to the HWDC, the CWS/CMS performs in accordance with specifications approved by the counties, and would continue to be maintained to perform properly even if this funding request were not approved. According to the HWDC, the counties now want changes to make the system easier for them to use, and the HWDC believes that it is essential to keep counties satisfied with the CWS/CMS in order to avoid failure. However, the HWDC was unable to provide an example of an instance where a properly maintained system, which performed according to approved specifications, nevertheless failed.
Analyst's Recommendation. Approval of the request to expend $5 million in the budget year to upgrade personal computer software would have little or no benefit to the state and is not necessary to enable CWS/CMS to function properly. Similarly, a request for $5 million to make unspecified system changes is not justified based on a lack of information provided by the HWDC. Consequently, we recommend a reduction of $10 million out of $24.8 million proposed in the budget for local assistance for the CWS/CMS.
Background. The 1995-96 Budget Act assigned to the HWDC the responsibility for implementing the Statewide Fingerprint Imaging System (SFIS). The system, modeled after one implemented in Los Angeles County in 1994, is intended to reduce the cost of fraud associated with state welfare programs. The HWDC budget documents indicate that, based on estimates of annual savings in Los Angeles County of $32 million, substantial savings would be realized if a statewide system was in place in all 58 counties. The budget includes $6 million in 1997-98 to implement the SFIS.
Schedules for Information Technology Projects Tend to Slip. State policy requires the development and approval of a feasibility study report (FSR) before an information technology project can proceed. Cost, schedule, and benefit estimates are key components of an FSR. These estimates are often refined as a result of bids submitted by interested contractors. Consequently, a proposed project's cost, benefits and schedule are corroborated only when a contract is awarded. Thus, the current estimates must be considered as tentative when made prior to a contract award.
The data center's schedule for SFIS indicates that an FSR will be provided to the Department of Finance and the Department of Information Technology in April 1997. Contract award, to be made based on a competitive process, is scheduled to occur in June 1997. Full system operation is slated to occur in July 1998.
It is not unusual for information technology project schedules to undergo frequent extensions. In fact, three of the four major projects discussed in this review of the HWDC have all experienced schedule delays, including the SFIS. Project delays frequently result because of the procurement process, which can experience setbacks for various reasons including protests filed by competing bidders. These delays are important because they often result in added costs.
Analyst's Recommendation. We believe that the Legislature does not have sufficient information about this project to warrant approving the funds which have been requested, given that (1) the FSR has neither been completed nor approved; (2) cost, benefits, and schedule for implementing the SFIS will not be known until a bid is awarded; and (3) further schedule slippage is not unlikely. However, the project has been a high priority for both the Legislature and the administration, and could result in substantial statewide welfare savings costs. For these reasons, we believe that the budget should provide a means to fund continuation of the project once funding requirements can be confirmed. Placing funding authority in a separate provision of the budget bill will help to ensure that expenditures for the SFIS will be based on better estimates than are now available. Therefore, we recommend that $6 million budgeted for acquisition and operation of the SFIS be deleted from the budget, and that authorization for expenditure of up to an equivalent amount be placed in a separate provision of the budget bill. Adopting this recommendation will not delay the project, but rather ensure that it goes forward after the FSR is completed and the cost of acquisition and operation of the new system is determined once a bid has been awarded.
Specifically, we recommend that the Legislature adopt the following budget bill language:
In augmentation of the funds appropriated by this item, an additional sum up to $6 million is
hereby appropriated for continued development and implementation of the Statewide Fingerprint
Imaging System (SFIS), subject to the review and approval of the Department of Finance and the
Department of Information Technology of a feasibility study report prepared in accordance with
the State Administrative Manual, and the award of a contract for implementation of the SFIS. In
the event that a contract award is not made prior to July 1, 1997, the funds appropriated by this
subdivision shall be made available consistent with the amount approved by the Department of
Finance based on its review of the feasibility study report. In the event that a feasibility study
report is not approved prior to July 1, 1997, the funds appropriated in this subdivision shall be
made available by the Department of Finance in an amount sufficient to ensure completion of a
feasibility study report, and in an amount consistent with a subsequent contract award.
The budget proposes $567 million in total expenditures in 1997-98. This is an increase of $4.1 million, or less than one percent, over estimated current-year expenditures. The budget does not include funds to pay for state expenses and local assistance arising from the recent statewide floods.
Support Budget. Of the OES' total $567 million budget, $75.7 million is for direct support of the office. This includes $29.6 million from the General Fund, $38.1 million from federal funds, and the remainder ($8 million) from various other funds and reimbursements. The amount proposed for support is $2.1 million, or 2.7 percent, less than estimated current-year expenditures.
Local Assistance Budget. In addition to support costs, the budget includes $492 million for local assistance to pay claims from previous disasters. This is $6.2 million, or 1.3 percent, more than estimated current-year expenditures for local assistance. The proposed local assistance expenditures for the budget year include $420 million from federal funds, $59.2 million from the General Fund, $10.2 million from the Disaster Relief Fund, and $1.8 million from the Nuclear Planning Assessment Special Account.
For a number of reasons, OES' annual budget proposal, and the amounts subsequently approved by the Legislature, have often borne little resemblance to actual expenditures. This has generally occurred as the result of unanticipated disasters resulting in increased costs. Other factors include the rate at which claims for disaster recovery funds submitted by local government agencies are processed by the OES and the Federal Emergency Management Agency (FEMA).
The budget does not include funds to pay for the January floods and related damage. Thus, OES' funding needs for the current and budget years will likely be substantially revised by the administration. Thus, the level of funding requested for the OES should be viewed as a very rough estimate which may bear little resemblance to what the OES will actually spend in 1997-98.
In an effort to obtain better financial information from the OES, the Legislature adopted supplemental report language in 1996 requiring the OES to provide the Legislature with the office's plan for expending the amounts appropriated for payment of local disaster relief claims. This plan was due to the Legislature within 90 days of the enactment of the 1996-97 Budget Act. The plan is required to identify the specific projects for which claims are anticipated to be paid in the current year. In addition, OES was required to report quarterly on its progress toward fulfilling its expenditure plan, updating the plan as necessary, and explaining significant changes reflected in the updated plan.
To date, OES has failed to provide either the original or the required quarterly reports. Consequently, the Legislature has not received the information it had sought in order to obtain a better understanding as to how funds it appropriates for local assistance are actually paid out.
Background. The Legislature adopted supplemental report language in 1995 requiring that the Bureau of State Audits (BSA) conduct a comprehensive fiscal and performance audit of the OES. The purpose of the audit was to develop recommendations which, if implemented, would improve the OES' administrative operations and information technology infrastructure so as to enable the OES to operate more effectively in addressing recent and future disasters.
The audit report, issued in January 1996, found that while the OES met most of its emergency coordination responsibilities, it did so in the face of serious administrative problems. According to the BSA, inefficient administrative practices had resulted in an "administrative crisis" in which the OES used more resources than necessary and therefore incurred additional state costs. The audit report recommended specific actions to address and resolve the administrative problems identified in the report, and the OES committed to implementing the recommendations.
Despite efforts by the OES to improve its administrative operations, legislative concern with the manner in which the OES was managing certain operations resulted in the adoption of budget act language in 1996 requiring another audit by the BSA. The new audit was to examine the disaster claims processing and hazard mitigation grant programs managed by the OES. Specifically, the BSA was asked to (1) identify specific opportunities for improving these programs in order to develop a more efficient, cost-effective, and equitable process for resolving claims and grant applications; and (2) assess whether the claims processing and hazard mitigation grant operations of the OES can be best performed by OES, another state agency, contracted out, or whether claimants and grant applicants should deal directly with the FEMA.
Audit Findings. The BSA released its second audit report on January 30, 1997, finding that OES' effectiveness continues to be hampered by shortcomings in managing its disaster recovery efforts. These shortcomings include:
Not balancing management attention and resource commitments to OES' varied responsibilities, thereby negatively affecting recovery from past disasters.
A lack of adequate planning for many functions central to recovery efforts.
Performing activities which exceeded OES' administrative responsibilities, thereby resulting in added annual costs of at least $800,000.
The BSA recommended that the claims processing and hazard mitigation grant programs remain with the OES. The audit report however, did not fully address whether these operations could be performed more effectively by placing them with another state agency or contracting them out. As a result, we believe that the question is still open as to whether moving the claims processing and hazard mitigation grant operations to another entity would improve these operations.
Lack of Progress in Applying Information Technology Is Troubling.The BSA also found that the OES was falling behind in implementing key information technology initiatives designed to improve its operations. For example, it is generally acknowledged that OES' difficulties in the claims processing area are due to operating a manual document processing system. Yet, according to the BSA, the OES is at least 15 months behind in its schedule to create an automated system for handling the large volume of documents generated by the disaster assistance and hazard mitigation grant programs. The OES does not expect to complete the system until 2001. The audit report also notes that an OES effort to automate its management of damage survey reports--the reports on which claims are based--was abandoned after the new system in which the OES had invested over $5 million failed to operate properly. Although the OES is attempting to salvage portions of the system which it abandoned, the BSA notes that, of the seven short-term information technology projects scheduled for completion in 1996, two were finished on time, two were late, and three remain to be completed.
The OES Was Unable to Provide Information as to its Progress in Reducing the Claims Backlog. In reviewing the budget proposal, we asked the OES to provide data indicating its progress in resolving the backlog of claims from local governments for payments related to various disasters. We made this request in mid-January. At the time this Analysis was prepared at the end of January, the OES advised us that it was in the process of developing the information requested. We believe that the inability of the office to respond to a relatively short period of time to a request for such basic information illustrates the problem the OES is experiencing in managing its nonemergency operations.
What Should the Legislature Do? The Legislature has in recent years attempted to provide additional policy direction to the OES in order to make it a more effective organization, as well as to respond to the legitimate informational needs of the Legislature. So far, the results have been mixed. Although the OES has committed to implementing recommendations made by the BSA, significant progress in improving the office's administrative operations has been slow. Similarly, various legislative requests for information concerning disasters, including payments, have not been responded to adequately. This puts the Legislature in an awkward position, because the programs the OES administers are essential. At the same time, the persistence of administrative problems in the OES, as noted by the BSA, results in the inefficient use of resources, and thereby added state cost. Moreover, these problems affect local agencies which must rely on the OES in order to receive disaster assistance funds to which they are entitled.
Given the difficulty the OES is having in terms of resolving its administrative difficulties, we believe that the Legislature was on the right track when it directed the recent audit to determine whether two key administrative operations--claims processing and hazard mitigation grants--should remain at the OES or be placed elsewhere in order to operate more effectively. As noted above, we believe that the BSA's report leaves the question unanswered. Consequently, the Legislature could make its own determination to move these operations to a state entity or a contracting agent which has demonstrated the ability to apply information technology effectively to claims processing functions. In the same vein, the Legislature may wish to consider a wider reorganization of the OES, in order to allow it to focus on what it does best--coordinating the state's response to emergencies--and divest it of nonemergency operations which it does not perform well or which are not essential to its core responsibility.
As discussed above, the Legislature's efforts to obtain better information concerning disaster expenditures from the OES have been generally unsuccessful. It is not clear when this situation will be resolved. We believe that one way to move the OES in the direction of satisfying the Legislature's needs is to separately identify in the Governor's budget document the local assistance expenditures for each declared disaster for each of the three years. Currently, other than for the 1989 Loma Prieta earthquake, there is no way to discern from the Governor's budget document or the budget bill just how the OES anticipates allocating its annual local assistance budget. Yet, in developing its annual budget request, the OES must anticipate the amounts it will likely pay out for the disasters for which claims are still being processed.
Placing this information in the annual Governor's budget document should provide the Legislature a much better understanding as to how the administration intends to spend the local assistance funds, recognizing that actual expenditures for a specific disaster may change for a variety of reasons. By listing each open disaster separately for each of the three fiscal years listed in the Governor's Budget, the Legislature will be better able to understand the basis for the annual budget request, and its reliability. Such a display may also have the additional benefit of encouraging the OES to refine its estimates to make them as reliable as possible.
Analyst's Recommendation. For these reasons, we recommend that the Legislature adopt supplemental report language directing the DOF to display budgeted expenditures for local assistance separately in the Governor's budget document for each declared disaster for each of the three fiscal years displayed in that document.
Specifically, we recommend the following supplemental report language:
In the 1998-99 Governor's Budget for the Office of Emergency Services, the Department of Finance shall display expenditures for local assistance for each declared disaster for each of the three fiscal years included in the budget document.
After each major disaster, the OES, in cooperation with the FEMA and local emergency management agencies, produces a report containing specific recommendations intended to mitigate the effects of future disasters. The reports are very detailed and considerable effort goes into their preparation. Most recommendations identify an agency responsible for overseeing implementation of the recommendation, and include an estimate of cost and an indication as to when the recommendation should be implemented.
Given the repetitive nature of natural disasters in California, these reports are viewed as important by OES, FEMA, and local agencies, because they describe what measures ought to be taken in order to reduce the damage from a subsequent disaster. Despite the importance attached to these reports, the OES does not have a system in place to track their implementation status. In the meantime, local emergency management agencies we have talked to are often at a loss to tell whether a recommendation important to them has been implemented. The OES advises that it intends to develop such a capability, but it is not clear as to when that might occur, particularly given difficulties OES is experiencing in developing information technology applications.
The budget requests $481,000 from the General Fund to establish a new state training facility at McClellan Air Force Base in Sacramento to consolidate local, regional, and state urban search and rescue programs. This proposal would also provide a support system for disaster K-9 teams. According to the OES, this training facility is needed to help complete the California Urban Search and Rescue Program, which was implemented in 1990.
We have the following concerns with this proposal.
First, information submitted in support of the proposal does not make a case for this new training program. Specifically, it does not indicate what, if any, problem exists with the state's current urban search and rescue capability. For example, no evidence is provided to demonstrate that the lack of the training facility has hampered urban search and rescue efforts. It is also not clear why the state would implement a program in 1990 and then wait until 1997 to propose funding one of its key components. Moreover, the OES has not made it clear as to why it should create a new training facility, as opposed to assigning this training to existing state training programs, for example, those conducted by the State Fire Marshal in the California Department of Forestry and Fire Protection (CDFFP).
We also question why this function should be placed within the OES. As discussed above, we believe there is merit in removing certain functions from the OES that can be accomplished elsewhere. This would permit the OES to focus its efforts on the coordination of the state's response to emergencies. Finally, we question why the OES would place the training program in the Sacramento area, when it has for years operated the California Specialized Training Institute near San Luis Obispo. The San Luis Obispo training facility provides a variety of emergency-related training to various governmental jurisdictions throughout the state and other jurisdictions.
Analyst's Recommendation. For all these reasons, we withhold recommendation on the $481,000 requested to establish a centralized training facility for an urban search and rescue program, pending the receipt of information from the OES explaining the need for the program, why it should be managed by the OES, and why it is not located at the California Specialized Training Institute which the OES operates near San Luis Obispo.
The budget includes $277,000 from the General Fund to upgrade old fire fighting engines so that they can accommodate foam fire retardant, and purchase communications and safety equipment associated with their operation. According to the OES, the original mission of its fire engines was for civil defense firefighting. Since then, the mission has expanded to include activities such as emergency medical response and "flood fighting." The OES currently owns a fleet of 109 fire engines which are assigned to local government fire agencies who operate them with their own employees.
It is not clear why the management of these fire engines should remain with the OES, as doing so only perpetuates a fragmented approach to the state's management of firefighting equipment. We believe that a case can be made for transferring the responsibility for managing these engines, and the associated support resources, to the CDFFP, which already manages in excess of 1,000 fire engines. Doing so would not only consolidate fire engine management in one department, which should be cost beneficial, but it would be consistent with the objective of removing from the OES those administrative operations that can be performed as well or better elsewhere.
For this reason, we withhold recommendation on $277,000 requested to upgrade firefighting equipment, pending receipt of a report to the Legislature from the OES and CDFFP, prior to budget hearings, on how the OES' firefighting program could be merged with the CDFFP.