Crosscutting Issues

General Government

Evaluating Information

Technology Projects

The state has become increasingly reliant on information technology. Each year, the Legislature is asked to approve information technology projects and provide large sums of money to support projects. In this piece, we provide the Legislature with a "checklist" to use when reviewing these proposals.

In recent years, state government has come to rely more and more on information technology (IT) to accomplish its objectives. According to the Department of Information Technology (DOIT), the state spends over $2 billion annually for IT. State IT is used in almost every facet of government--from processing of licenses, to keeping records, to determining who is eligible for services and benefits, to providing communication among state workers and the public.

As a consequence of this reliance, the Legislature is asked each year to approve requests from the administration to develop new IT projects or modify existing projects. Almost all include requests for an appropriation of funds. In addition, the Legislature will frequently be called upon to provide additional funding in the years following initial approval since most projects stretch over multiple years.

Even though both houses of the Legislature have established committees that play a role in the oversight of state IT, review and approval of requests is often dispersed throughout the Legislature. Project and funding requests come to each of the individual budget subcommittees for inclusion in the annual budget act, and sometimes to policy and appropriations committees for those projects that seek approval and funding outside the budget process.

In this piece, we provide a short guide to the Legislature that it can use when reviewing IT requests, both for initial project approval and funding and for subsequent funding at later stages of the project. We outline criteria and questions that the Legislature can use in the review process. These questions are not meant to be all-inclusive but rather examples of the types of questions that might be asked.

What About the Role of the Executive Branch? The IT project requests that come to the Legislature have already been approved by the management of the department bringing the request. Most projects will also have been reviewed and approved by DOIT, the state agency that oversees IT (most, but not all, entities of state government are subject to DOIT's oversight). In addition, the Department of Finance (DOF) and its Technology Investment Review Unit (TIRU) will have reviewed and approved the project from a financial standpoint. The Department of General Services (DGS), which is responsible for state procurement (including IT procurement) and telecommunications, may also play an oversight role.

Although many of the issues we outline will have already been considered by these oversight agencies, our experience indicates that sometimes the oversight agencies have a different perspective than the Legislature about the relative importance of a particular issue. In addition, experience has shown that projects are sometimes approved by the executive branch agencies despite apparent problems and warning signs.

The Legislature should not "micromanage" IT, but it has the general responsibility of overseeing the operations of the executive branch, including its IT projects. There is no guarantee that additional oversight will prevent failure of projects. However, given the number of troubled projects that the state has encountered in recent years, we believe that oversight by the Legislatures can only help and is more important than ever.

What Questions Should The Legislature Ask?

Figure 1 (see page 16) outlines the most important questions that we believe the Legislature should ask when reviewing an IT project proposal or obtaining a status report on a project that is being implemented. The questions are based on our assessment of what it takes to implement a successful IT project and are borrowed heavily from "best practices" used in the private sector to procure and deploy IT. These best practices are strategies derived from experienced industry experts who have, through trial and error, discovered methods for design, development, and operation of computer systems which increase the chances of success and decrease risk (for more information on best practices in IT, see our recent report State Should Employ "Best Practices" On Information Technology Projects) We discuss several of the questions in more detail below.

Clearly Identified "Business" Problem. An IT project request must clearly state the problem that needs to be solved, such as tracking an inmate's time in state prison in order to determine his release date. Resolution of the particular problem should be the driving force for an information technology project. If it is not, the department may be automating for automation's sake.

Additionally, the project plan should demonstrate how the proposed project fits in and is consistent with the department's strategic information technology plan, which establishes the direction for IT within the department. Finally, the state has too often made its automation decisions (particularly in social services programs) based on attempts to maximize the receipt of federal funds or reduce the chances of incurring financial penalties from the federal government. We believe that IT decisions should be based on the merits of the project and the clearly defined problems they will solve, not simply as a way of maximizing receipt of federal funds.

Measurable Project Goals. Once the overall business goal is articulated, the department must be able to quantify the specific goals it has for the project. These could include reducing administrative costs, enabling personnel to be more productive, and increasing administrative efficiencies.

Development of Project Management Methodology. Every project should include a project management methodology, which is an agreed upon set of processes which guide the department in managing the project. The methodology should include components such as:

Figure 1
What Should the Legislature Ask

When Reviewing Information Technology Proposals?

Identification of the "Business"Problem
  • Is the problem clearly stated?
  • Is the project consistent with the department's strategic information technology plan?
Measurable Project Goals
  • Are measurable goals for the project identified?
Project Management Methodology
  • Does the plan indicate the methodology it will employ?
  • Have steps been identified to reduce risk?
  • Have decision points been set to modify or cancel the project?
  • Does the department have managers in place with proper expertise to implement the project?
Cost/Benefit Analysis
  • Does the cost/benefit analysis justify the project?
  • Does the plan include total project costs, including long-term maintenance?
  • Are other factors that could affect the bottom line of the analysis identified?
Departmental Workload
  • Does the department have other high priority projects which will detract resources from this project?
Departmental Track Record
  • Does the department have a track record of success for projects of equivalent size?
Project Priorities
  • Does the plan prioritize budget, schedule, and functionality?
  • Are the department's priorities the same as the Legislature's for the project?
  • If a medium- to high-risk project, has the department hired an independent quality control vendor?
  • Is there sufficient oversight of the project by other state agencies, such as the Department of Information Technology?
  • Does the plan require the vendor to propose the technical solution during procurement?
  • Will the procurement decision be based on "best value" and not simply lowest cost bid?
  • If the project is large, will the department require the vendor to provide the state with a letter of credit?
Executive Level Sponsor
  • Is there an executive level manager sponsoring the project within the department?

Cost/Benefit Analysis. The funding request should include a cost/benefit analysis that provides an understanding of how much the return on investment will be if the project is deployed. The funding request also should identify when these costs and benefits will be incurred. Be aware that the costs are often understated, but real, while the benefits may be less tangible and do not materialize until years to come. The cost/benefit analysis should include an assessment of known factors that may have a positive or negative effect on the bottom line of this analysis.

Evaluation of Departmental Workload. In addition to IT staff, the department will need to dedicate staff who are knowledgeable about the affected program to the project. If these program staff have other primary responsibilities, it may mean that the project will experience delays.

Evaluation of Department's Track Record. In addition to evaluating the department's resources, the Legislature needs to consider the department's track record in deploying projects of similar complexity and size. A record of failure in previous projects should give the Legislature pause in approving a project, unless the department has evaluated reasons for failure and taken specific steps to correct the actions that led to failure. A track record of success is a relatively good indicator, but by no means a guarantee of future success. The absence of a track record should necessitate a careful review of new proposals.

Identification of Project Priorities. Every IT project has three components which often become competing interests during project deployment: the budget, the schedule, and what the system will do (also known as the "functionality" of the project). The department must clearly rank these three components. Such a ranking allows a project manager when faced with a problem in the project to know which of the three components is the highest priority, which is secondary, and which can be the most flexible.

Ensuring Adequate Project Oversight. Medium- and high-risk projects often benefit from additional support in the form of an independent quality control vendor to help mitigate risk. These vendors, known as quality assurance or independent verification and validation vendors, work for the department by assessing the quality of the work of the prime vendor. Projects which should employ an independent quality control vendor include those that are large, critical to the overall mission of the department, or are being deployed in a department with little experience in deploying a project successfully.

In addition, it is important that the Legislature feel confident that the state oversight agencies, such as DOIT, will provide adequate review and attention to the project. For projects that the Legislature is particularly concerned about, it would be advantageous to request representatives from DOIT to appear at legislative hearings to present their perspectives on the project and to provide an outside assessment of progress.

Procurement Approaches. During the procurement process, the department should not prescribe the technical solution, but request vendors to provide their best thinking. In other words, the department should state what and why it wants to deploy a project and let the vendor community propose how it is to be accomplished. The advantage of such an approach is that it places the burden of success on the vendor which contractually agreed that its solution could resolve the business problem. When the state proposes the solution, the vendor may be able to deliver the solution, but if it does not work, it becomes the state's responsibility to make it work.

In addition, when evaluating bids for projects, we think that the state is better served by evaluating bids based on "best value" rather than simply using the lowest cost bid. "Best value" procurements enable a department to evaluate a bid not just on costs but also on other important considerations, such as the vendor's technological solution, experience in a particular problem area, financial strength of the company, and experience of the vendor's staff.

Finally, for larger projects, we believe that a contract should require the vendor to provide the state with a letter of credit in order to best protect the state's financial interests. A letter of credit may add cost to the project since it will require the vendor to make additional capital available. However, on larger projects, the state's risk is larger and a letter of credit increases its ability to recover potential loses.

Executive Level Sponsor. An executive level manager must support the project and be its advocate within the department and before the Legislature. Executive level support of a project ensures that the project receives the resources and priority within the department that the project will require. Additionally, the executive level sponsor is ultimately responsible for the project and should be held accountable for its progress and outcome.


There is no single reason why IT projects fail. However, we believe that if the state employs the best practices from industry, asks the right questions and acts on those answers, and ensures that the documents are consistent with the answers provided, the chances of success will be significantly increased. For larger, more complex projects, in particular, it will be important for the Legislature to continue to exercise its oversight responsibilities after approving the project by requiring regular updates on the status of the project during fiscal and policy committee hearings.

Evaluating the

Housing Task Force's Agenda


As part of his budget proposal, the Governor announced the creation of a Housing Task Force to develop a plan for increasing housing affordability in California. Among other issues, the Governor specifically charged the task force with making recommendations regarding: (1) the potential loss of federal affordable housing contracts, (2) the use of redevelopment housing funds, and (3) the relationship between housing and land use. Among the task force's members are the Lieutenant Governor; Treasurer; and Secretary of the Business, Transportation, and Housing Agency. To finance the operation of the task force, the Governor has set aside $2.5 million from the General Fund in the Department of Housing and Community Development's (HCD) budget.

Federal housing contracts and local redevelopment agencies provide two of the largest sources of funding for affordable housing in California. In addition, land use decisions made by local governments play a major role in determining the extent to which affordable housing is provided. This piece, therefore, provides background and key considerations in these areas to assist the Legislature in evaluating forthcoming proposals from the task force.

Federal Housing Contracts

Housing analysts typically recommend that households spend no more than 30 percent of their income on housing. Spending more than this amount can leave households without sufficient resources for their other day-to-day financial needs. However, without some form of assistance, many low-income households are unable to find suitable housing within this spending standard.

During the 1970s, the federal Department of Housing and Urban Development (HUD) developed a mechanism for ensuring that eligible households could meet this spending standard. The HUD signed long-term "Section 8" contracts with apartment owners to set aside a number of units for HUD-sponsored tenants. In exchange for agreeing to provide affordable units for a period of at least two decades, private landlords and developers received the guarantee of tenants. A household living in one of these units pays 30 percent of their income, and HUD contributes the necessary amount to increase the total payment to the agreed-upon rent.

There are more than 110,000 housing units covered by Section 8 contracts across the state. These contracts represent about 3 percent of the state's entire multifamily stock of four million units.

Congress has recently changed its approach to the expiration of these contracts in order to (1) subsidize individual tenants rather than specific units and (2) reduce annual housing expenditures. As contracts expire today, private landlords are generally under no obligation to renew their relationship with HUD. Based on their project's circumstances and the local housing market, owners can choose to convert their units to unsubsidized rents. Since 1996, an estimated 9,000 units have elected to convert to unsubsidized units. Up to 40,000 additional units (concentrated in the state's urban centers) could convert to unsubsidized rents by the end of federal fiscal year 2000.

Some Key Considerations Regarding the Loss of Federal Contracts

Uncertainty Surrounds Conversions. Since the decision to convert to private rents through opt-out or prepayment rests with the private housing owner, it is impossible to predict precisely how many units will convert in the coming years. Moreover, HUD now renews contracts on a year-to-year basis only, therefore, any unit that renews its contract in one year will once again be eligible for conversion in the following year.

For tenants living in units converting to the private market, HUD typically provides a voucher entitling them to an equivalent level of rent or to a rent deemed suitable for the area. However, there is no certainty as to how long these vouchers will be provided. The provision of both vouchers and contract renewals is subject to annual congressional appropriations.

Potential Delayed Impact. While many units will convert to unsubsidized rents in the next few years, current HUD tenants likely will continue to be subsidized in some capacity in the short term. The greatest impact for California residents would occur in the long term if the vouchers are also phased out, the lost affordable units were never replaced, and no alternative approach to providing affordable housing was developed. The replacement of affordable units is greatly confined by (1) limited subsidy funds to make projects viable, (2) community resistance to new affordable projects, and (3) the limited financial incentive for local governments to encourage new affordable housing.

Transition to Vouchers Has Tradeoffs. The HUD has promoted the concept that its tenants are better served by the capacity to choose their housing location through the provision of housing vouchers. The vouchers allow tenants to select their housing from among any units within a certain price range, whereas Section 8 contracts tie tenants to particular units. While this can allow tenants to improve their neighborhood, school options, or proximity to work, many voucher holders have reported problems related to finding housing with vouchers:

Subset of Total Need. The households receiving Section 8 assistance--both through site-based assistance and vouchers--are generally some of California's lowest income households. It should be recognized, however, that these households currently receiving federal assistance are not the only households with housing needs. For every low-income household that has received HUD assistance, there are many others in similar financial situations that have received no such aid due to waiting lists and limited funding. Providing any assistance to currently subsidized households merely maintains the status quo--a status quo based partially on the "luck of the draw" whether assistance was originally obtained.

Legislative Options. The state has already taken a number of actions in response to the changes in federal housing policy. Chapter 341, Statutes of 1998 (AB 1701, Alquist), adds additional tenant notice requirements (on top of those required by HUD) when a project owner is opting out of or choosing not to renew a Section 8 contract. In addition, the California Housing Finance Agency has included within its business plan its intention to fund a Preservation Financing Program with a combination of taxable and tax-exempt bond financing totaling more than $100 million annually through 2002-03. The funds will be used in a variety of ways to provide financing for projects to maintain or create new affordability requirements.

Potential options for the Legislature to further address changes in federal housing policy include:

Redevelopment Housing

Redevelopment is a process used by California cities and counties to correct "blighted" conditions in their urban areas. When a community establishes a redevelopment project area, the amount of property taxes flowing to taxing agencies serving the area (city, county, special districts, and school districts) is generally frozen. These taxing agencies continue to receive the same annual dollar amount of property taxes they had received up to that point. Most of the growth in property taxes in the project area, however, is allocated to the redevelopment agency as "tax-increment" revenue.

Since 1976, redevelopment agencies have been required to set aside and dedicate 20 percent of their annual tax-increment revenues for the purpose of developing, rehabilitating, or preserving affordable housing. The funds are deposited into each project area's Low and Moderate Income Housing Fund, and their use is restricted to providing housing for households within specified income ranges.

In 1996-97, redevelopment agencies deposited more than $506 million into their housing funds. In the same year, redevelopment agencies spent $479 million on housing and contributed to the development of more than 5,000 affordable housing units. In addition, agencies rehabilitated or acquired affordability restrictions for an additional 4,500 units. Anecdotal evidence overtime, however, has suggested that many redevelopment agencies do not comply with the spirit or letter of the Community Redevelopment Law.

Some Key Considerations Regarding Redevelopment Housing

Lack of State Oversight. California does not have a formal system for state review of redevelopment agency actions, including the development of affordable housing. Most enforcement of laws and penalties is left to the redevelopment agencies themselves and their governing bodies. The lack of a direct state regulatory agency means that other interested parties often have no other recourse besides lawsuits in order to prevent questionable or illegal redevelopment actions. In addition, those reports that are required to be filed with the state on an annual basis have been troubled by inconsistencies, miscalculations, and a lack of timeliness. Consequently, it is unknown whether there is only a small subset of agencies circumventing the intent of state laws or whether there is a more overarching problem with the process as a whole.

Unspent Housing Funds. The Legislature on a number of occasions has sought to better ensure that the agencies timely spend their required housing amounts. Even after spending $479 million during 1996-97 on housing projects, redevelopment agencies had about half a billion dollars in unencumbered funds that were generally available for spending on affordable housing projects as of June 30, 1997. Redevelopment agencies have a number of years to spend these unencumbered funds. If an agency fails to spend its "excess surplus" within the designated time period, then it is subject to self-administered spending limitations and penalties. In its recent annual reports on redevelopment housing, HCD has reported excess surplus funds totaling tens of millions of dollars each year. However, a recent report by the State Auditor revealed that many redevelopment agency surpluses were overstated, due to both inconsistencies in interpretation of the law and calculation errors. Thus, it remains unclear to what extent agencies not spending their surpluses continues to be a statewide problem.

Efficiency of Expenditures. The "use-it-or-lose-it" approach to the redevelopment housing law aims to ensure that funds are spent in a timely manner. Yet, few procedures exist to ensure the funds are spent in a wise manner. There has been the perception that the agencies spend a disproportionate or excessive amount of their low and moderate income housing funds on administrative costs. In 1996-97, redevelopment agencies spent almost $60 million, or 12 percent of their housing expenditures, on planning and administrative costs. However, this 12 percent rate does not tell the entire story relating to administrative costs.

Legislative Options. Among the possible solutions to these ongoing redevelopment housing problems are:

Land Use and Housing

Under California's system of local finance, cities and counties face various fiscal incentives when deciding how to develop the land within their boundaries. Most communities, for example, receive the highest local tax revenues--and face the least demand for public services--from retail developments. These retail developments provide a source of local sales tax revenues, as well as other traditional revenues such as the property tax. Industrial, office, and agricultural land uses, on the other hand, generally yield much lower tax revenues (since they do not provide sales tax revenues). Finally, housing developments frequently do not yield sufficient local tax revenues to offset a community's increased costs to provide services to its new residents. Moreover, affordable housing often creates a greater demand for services in a community while providing the least amount of local tax revenues.

In addition, many California communities have passed measures in recent years that aim to limit or control growth in their areas. While these measures may be able to protect particularly sensitive environmental areas or an individual community's character, they also often can have a significant impact on an entire region's housing supply. Specifically, growth control measures tend to: (1) increase the cost of housing within that community and (2) shift housing development to neighboring communities without such controls. Both of these results create additional pressures on a region's ability to supply affordable housing.

Some Key Considerations Regarding Land Use and Housing

Fiscal Incentives Do Not Promote Affordable Housing. Many cities and counties have oriented their land use planning and approval process disproportionately towards the development of retail establishments, a process referred to as the "fiscalization of land use." As long as the fiscal incentives for land use match local governments' and the state's priorities, linking fiscal incentives and land use decisions helps to ensure beneficial development. However, local jurisdictions do not have the fiscal incentives to develop additional affordable housing.

Land Use Issues Need to Be Placed in Broader Context. These housing/land use concerns are really a part of broader issues related to economic development policy and the state-local fiscal relationship. While the housing task force can make valuable contributions in this area, effective solutions to land use problems must come from a broader spectrum of interested parties. In fact, the Governor has directed his Office of Planning and Research to begin a discussion with local governments regarding the evolving state-local relationship. This would appear a more appropriate venue for developing plans addressing these land use issues.

Some Final Considerations

Where Is State Intervention Most Effective? Local governments play the leading role in determining the cost and availability of housing in their communities--through the adoption of local zoning, growth management, building fees, and other regulatory policies. Therefore, in preparing its plan and recommendations, we would urge the task force to focus its efforts on areas in which the state can achieve its highest effectiveness through the encouragement of local governments to develop additional affordable housing.

Moreover, the issues discussed in this piece are not the only affordable housing issues facing California. Broader structural issues, such as the housing element process, the role of regional governments, and local zoning and permitting practices, also require attention by the task force. Additionally, the Legislature and the task force may wish to evaluate the role of tax policy (that is tax credits, deductions, and other special provisions) in addressing the state's housing goals.

We would recommend that the task force strategically look for the "highest and best use" of the limited state General Fund dollars dedicated to housing. The task force ought to prioritize state spending options by greatest demonstrated need and most effective use of state intervention. At its completion, the task force could then recommend to the Legislature a spending plan that ensures the best results. In conjunction with this concept, we have recommended that funds earmarked by the Governor for various new housing spending instead be held in reserve. (We have recommended that $10 million be set aside--$8 million in proposed funds for specific housing programs and $2 million of the $2.5 million reserved for the task force. Please see page F-98 for more information.) These funds could be allocated by legislation after taking into account the task force's recommendations. This will ensure that the state's new General Fund spending on housing programs will be consistent with the state's highest housing priorities.

Targeting Recipients. As part of its effort to encourage the development of affordable housing, both the task force and the Legislature should recognize that "affordable housing" encompasses a wide band of households. There are many households with extremely low incomes that pay large percentages of their incomes even to live in substandard housing. There are other more moderate income households who, without some government assistance, likely would not be able to afford the purchase of a home. Additionally, there are a variety of groups with special housing needs, such as farmworkers, the homeless, and individuals moving from welfare-to-work. Therefore, based upon which potential recipients are deemed the highest housing priority, different approaches are necessary.

Reducing Administrative Costs. A number of the state's housing programs have a history of high administrative and monitoring costs. In considering options for affordable housing, the task force and the Legislature should take steps to avoid a similar fate for any new housing spending. Two of the causes of these high costs have been:


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