The Department of Information Technology (DOIT) is responsible for planning and overseeing the state's uses of information technology (IT). The department is responsible for ensuring that appropriate plans, policies, and procedures are in place to assure successful implementation of IT projects.

The DOIT was created by Chapter 508, Statutes of 1995 (SB 1, Alquist), in response to difficulties the state experienced in attempting to successfully deploy IT projects. The provisions of Chapter 508 related to DOIT will expire on July 1, 2000, and be repealed as of January 1, 2001, unless a new statute deletes or extends the sunset dates. We discuss this in more detail below.

The budget proposes $8.3 million ($7.6 million from the General Fund and $750,000 from reimbursements) for support of the department's operations in 1999-00, a decrease of $172,000, or 2 percent, from estimated current-year expenditures. The budget proposes 37.1 personnel-years for the department in the budget year, which is the same level as the current year.

Expiration of DOIT Allows Opportunity For Legislature to Consider Changes

The statutory provisions that created the Department of Information Technology in 1995 are set to expire on July 1, 2000. We believe that the Legislature should enact legislation to extend the life of the department and should consider a number of issues that could improve the operations of the department and state information technology generally.

Background. In 1995, the Legislature enacted major reform legislation relating to the planning, implementation, and oversight of the state's IT activities. This legislation--Chapter 508--was the result of several legislative hearings and various reports by our office, the Bureau of State Audits, and the Governor's Task Force on Government Technology and Procurement. The Legislature determined that major reform was necessary in order to address multiple serious problems affecting the state's IT activities. California state government spends more than $2 billion annually on these activities.

The centerpiece of this reform was to establish a new department (DOIT), reporting directly to the Governor, and to assign to it many specific responsibilities which, if accomplished, would improve the state's ability to apply IT in a cost-effective manner, and improve the Legislature's confidence in major IT initiatives. Figure 1 shows the major responsibilities assigned to DOIT by Chapter 508.

Figure 1
Department of Information Technology Major Responsibilities Under Chapter 508, Statutes of 1995 (SB 1, Alquist)
	Oversee the management of information technology in state agencies, with the authority to suspend or terminate projects.
	Develop and implement a strategy to facilitate information sharing among state computing systems.
	Determine which information technology applications should be statewide in scope, and ensure that such applications are not developed independently or duplicated by state agencies.
	Develop and maintain a computer-based file, accessible to the Legislature, of all approved information technology projects.
	Develop statewide policies and plans that recognize the interrelationships and impact of state activities of local governments, including local school systems, private companies that provide services to state agencies, and federal government.

Sunset Provides Opportunity for Legislature to Reexamine State IT and DOIT. As indicated above, the provisions of Chapter 508 related to DOIT will sunset at the end of 1999-00. Thus, the Legislature will need to consider during the next year whether it wishes to extend the life of DOIT and what changes it may wish to make to its statutory mission and operations.

In our view, DOIT has added value to the state's IT program. However, we believe that it has not met all of the Legislature's expectations, as evidenced by the fact that the state continues to have difficulty implementing major IT projects. Thus, we think that the DOIT statute can be strengthened. Below we outline several issues for the Legislature to review as it considers the future of DOIT and IT in state government.

Is a State IT Agency Needed? Given the level of state expenditures for IT and the general importance of IT to state government, we believe that a central planning and oversight agency for IT continues to be needed. The major responsibilities outlined in Figure 1--oversight, information sharing, avoidance of duplication, policy development, and planning--are all vital. Thus, we recommend that the Legislature extend the life of DOIT.

Should DOIT Continue to Report to the Governor? Currently, DOIT is an independent state department that reports directly to the Governor rather than to a cabinet-level agency. Because DOIT has responsibility for oversight of IT in state departments across several different agencies, we believe that independence from a particular agency is important and necessary. However, we believe that it will be important for the Governor's Office to actively support DOIT and its director--the Chief Information Officer (CIO)--in order to ensure that DOIT can provide meaningful oversight and increase the chances of success of IT projects. In order to accomplish this, the Legislature may wish to consider elevating DOIT by giving the CIO cabinet-level status.

Should DOIT Be Given Additional Responsibilities? The Legislature will need to decide whether DOIT should have additional responsibilities for the oversight and management of state IT beyond those contained in Chapter 508. In our view, there are several areas that the Legislature should consider, including:

• Moving responsibility for IT procurement from the Department of General Services (DGS) to DOIT.
• Moving responsibility for state telecommunications policy and operations from DGS to DOIT.
• Having the state's major data centers report to DOIT rather than their current agency secretaries.
• Giving the CIO a formal or informal role in the selection of IT directors in individual departments.

We believe that there are good reasons both for and against providing these additional responsibilities to DOIT which need further study and analysis before decisions are made.

Should the Legislature Clarify the Role of DOIT? The DOIT took the place of the Department of Finance's (DOF's) Office of Information Technology. Chapter 508 limited the role of DOF to the approval of the expenditure of funds for IT projects. The DOF established the Technology Investment Review Unit (TIRU) to fulfill this role. In discussions with a number of state agencies, however, we have found significant confusion about the roles and responsibilities of DOIT versus TIRU. In order to maximize the benefit of each organization, the Legislature may wish to clarify these responsibilities in legislation.

Should DOIT Be Given Additional Resources? In our view, DOIT has never been adequately staffed to fully carry out its mission. If the Legislature wishes to extend DOIT with the same or additional responsibilities, we believe it must be willing to provide additional resources to the department, especially staffing, in order to maximize its potential benefit to state government.

Set Proper Expectations. If the Legislature ultimately decides to extend DOIT with the same or additional responsibilities, we believe that it will continue to be important that the Legislature set realistic expectations. Although we believe that the state of IT in California state government can be improved upon (we have outlined a number of improvements in several reports in recent years), some problems in the development and implementation of IT projects are likely to continue given the rapid pace of technological change and the ever-evolving needs of state government agencies to perform their activities.

What's the Status of the State's Year 2000 Correction Efforts?

We recommend that the Department of Information Technology provide the Legislature with a detailed status report on the state's Year 2000 correction efforts prior to budget hearings.

Background. Since its creation, DOIT has placed a priority on working with state departments to ensure that changes are made to the state's computer systems to accommodate the year 2000, or Y2K, change (these efforts are often referred to as "remediation"). The DOIT has produced numerous guides and documents for state departments on Y2K remediation and required departments to report periodically on their progress. In addition, the Governor issued an executive order in 1997 requiring all state departments to complete their Y2K correction efforts by December 31, 1998.

Funding for Remediation. During the last two years, the Legislature has appropriated about $100 million to state departments for Y2K remediation activities and departments have redirected millions of dollars more for these activities. The 1997-98 Budget Act provided $55 million for this purpose that was distributed by DOF following review and approval of DOIT. The 1998-99 Budget Act provided $20 million in a separate set-aside for distribution by DOF, as well as about $20 million more that was appropriated directly to individual departments for remediation. At the time this analysis was prepared, it was not clear how much of the $20 million set-aside had actually been distributed, although DOF advised that requests for funds from state departments will likely exceed the amounts available.

Budget Does Not Propose Additional Funds. The budget does not propose to set aside any funds in a separate budget bill item for 1999-00 for Y2K remediation, as it has been done for the past two years, and proposes few additional appropriations in individual departmental budgets. According to DOF, departments have been encouraged to complete all Y2K remediation this year, since the century change will actually occur during the budget year.

Budget Indicates That Evaluation of Situation Is Underway. The 1999-00 Governor's Budget Summary indicates that the new administration will appoint a task force to immediately evaluate the state's most critical service delivery areas with respect to Y2K corrections. At the time this analysis was prepared, it was not clear whether the task force had been appointed.

The summary indicates that, should the evaluation uncover significant critical activities that need to be undertaken, the administration will recommend actions necessary to minimize the risk of failure and insure appropriate contingency plans are in place. It indicates that the administration may request additional funding in the spring.

Limited Up-to-Date Information. It is not clear how many state departments met the requirements of the 1997 executive order to complete Y2K remediation efforts by the end of 1998. This is because there is limited information available about the current status of the state's efforts. The last quarterly status report from DOIT was submitted in October 1998. In addition, the new administration has indicated that it is still completing its own assessment of the situation.

Among the findings of the October 1998 report:

• 51 percent of the state's most critical IT systems have either been remediated or do not require remediation.
• About half of the most critical systems have completed remediation, but some critical systems will not meet the December 1998 deadline.
• State agencies were beginning the process of evaluating the potential Y2K impact on those embedded systems within state government that control building access, security systems, facility management, telecommunications, and water and power services.

Audit Pointed Out Other Problems. In August 1998, the Bureau of State Audits (BSA) released a review of the state's readiness to deliver critical services at the change of the century. The audit found:

• Efforts to fix almost 700 of the state's most critical computer projects are not progressing as rapidly as reported, and some projects declared complete are not.
• Many critical systems have not been tested to determine if they are Y2K ready and time allotted for project testing is far less than IT industry norms.
• Agencies sharing data with other computer systems have not taken the steps necessary to protect against failures caused by uncorrected Y2K problems in other systems.
• Managers at most agencies have yet to develop tangible business-continuation plans in the event of Y2K-caused delays or failures.

The BSA recommended the Governor's Office ensure that all state agencies: (1) provide DOIT with accurate information on the status of the Y2K remediation efforts, (2) thoroughly test the remediation for each critical project, (3) protect their systems from missing or corrupted data supplied by external parties, and (4) establish business-continuation plans for core state business processes. The BSA recommended that DOIT: (1) continue to collect and analyze information state agencies provide on their overall progress, (2) continue to collect information from agencies on the extent to which their data-exchange partners are Y2K ready, and (3) require agencies to indicate whether they have plans that ensure continuation of core business functions if the critical computer systems supporting those functions fail to work or are delayed because of Y2K problems.

In its response to the audit, DOIT stated that the findings and conclusions had substantial merit.

What Should the Legislature Do? Given the importance of IT to the operations of state government, we continue to believe that it is essential that state agencies make Y2K remediation their first IT priority, especially for those systems that are critical to the central missions of the agencies. Oversight by the Legislature continues to be necessary. At this time, however, there is limited information available directly from the administration about the current state of the situation. For this reason, we recommend that DOIT provide the Legislature with a detailed status report prior to budget hearings.

Department Failed to Provide Study of Data Centers

The Department of Information Technology failed to complete a study on siting and configuration of the state's data centers as directed in the Supplemental Report of the 1998-99 Budget Act.

Background. One of the original tasks assigned to DOIT in Chapter 508 was to undertake preliminary assessment of the feasibility of consolidating the state's IT activities. In 1996, DOIT contracted for a study of the feasibility of consolidating the state's two main data centers, the HWDC and the Stephen P. Teale Data Center (TDC). In July 1997, DOIT released the report, which recommended consolidation and identified modest savings resulting from consolidation. However, the report recommended that no actions be taken toward consolidation until the state had completed all remediation activities related to the Y2K change.

1998 Budget Action. Last year, the administration requested funding to purchase one of the leased buildings that houses HWDC. The Legislature rejected this request in part because of concerns about the lack of an overarching policy guiding the future of the states two main data centers and the long-term plans, if any, for consolidation. The Legislature directed DOIT, in supplemental report language, to develop a data center siting and configuration plan by January 1, 1999, including a schedule and budget for siting and configuration of the state's data centers. In addition, the development of the plan by DOIT was a condition of the Joint Legislative Budget Committee's concurrence in an earlier proposal to lease a new facility for the TDC. During the budget process last year, DOIT agreed to prepare the plan.

Report Not Provided. In the fall of 1998, however, DOIT advised legislative staff that it would not be doing the study and that the issue of data center consolidation, siting, and configuration would be left for the new administration. This occurred despite the fact that the department assured the Legislature during budget hearings that it would complete the study.

The 1999-00 Governor's Budget again proposes funding to purchase the HWDC facility (we discuss the proposed purchase in the "Capital Outlay" chapter of this Analysis). Thus, the Legislature is once again being asked to approve this acquisition without knowing what the long-term plans are for data center consolidation.

The Stephen P. Teale Data Center (TDC) is one of the state's two general purpose data centers (the other is the Health and Welfare Agency Data Center [HWDC]). It provides a variety of information technology services to numerous state agencies. The cost of the center's operation is paid by these client agencies.

The budget proposes $85.4 million for support of the TDC in 1999-00 ($85.2 million from the TDC Revolving Fund and $162,000 in reimbursements). This is an increase of $1.7 million, or 2.2 percent, above estimated current-year expenditures. The primary reason for the increase is a requested augmentation of $2.2 million for costs related to the center's plan to relocate to a new facility during the budget year that is currently under construction. Specifically, the center plans to use the augmentation to simultaneously operate two facilities for approximately 90 days during the relocation because many of the TDC's customers require 24-hour a day, seven-day-a-week, availability of data processing services.

Budget Proposes to Transfer Large Portion of Fund Balance

We withhold recommendation on the proposed transfer of balances in the Teale Data Center Revolving Fund contained in Control Section 15.00, pending receipt and review of proposed trailer bill legislation designed to reduce potential cash-flow problems for the center and a revised breakdown of the amounts of money that would be returned to the General Fund and the other individual funds.

Background. The 1996-97 Budget Act included funding for the Department of Finance (DOF) to conduct an audit of TDC's billing rate structure and financial controls. The audit was completed in mid-1998 and made a number of policy and technical findings and recommended some changes in TDC operations. Among them were findings that some of TDC's billing rates to its customers had been higher than the center's actual costs. The audit recommended that rates for some services be reduced.

Budget Proposes Substantial Reduction in Fund Balance. As a consequence of the audit findings, the budget proposes to return moneys collected from clients which exceeded the center's costs. Specifically, the administration proposes budget bill Control Section 15.00, which would transfer from the TDC Revolving Fund to the General Fund and other funds an amount determined by DOF to be in excess of a sufficient balance in the fund. The Governor's budget assumes that the fund will have a balance of $26.4 million at the end of the current year, and it proposes to transfer $22.7 million from the balance in the budget year. This amount includes $11.3 million that would be returned to the General Fund and $11.4 million that would be returned to various special funds.

Analyst's Concerns. We concur with the administration that TDC's billing rates should be reduced so that they cover only the center's actual costs and that efforts should be made to reimburse those funds that have been overcharged. However, we are concerned that the proposal may leave TDC with inadequate resources to meet its regular operating obligations.

The proposed transfer would leave the fund with a balance of about $5 million at the end of the budget year. We generally believe that departments that are supported by special funds should have reserves equal to about one to two months worth of their annual expenditures. In the case of TDC, this would mean a fund balance in the neighborhood of $7 million to $14 million, or substantially more than proposed.

We believe that this is particularly critical for TDC because many of its state agency clients have not always paid their bills in a timely fashion. Without a sufficient reserve, TDC could experience cash-flow problems that would impede its operations.

The DOF indicates that it is sensitive to the center's potential cash-flow difficulties and will seek budget trailer bill legislation to ensure that TDC is able to collect from state agencies in a more timely manner so that it can eliminate potential cash-flow problems. At the time this analysis was prepared, however, the legislation had not yet been developed. In addition, TDC and DOF indicate that the amounts of the proposed transfers to the General Fund and the other specific funds may change following further analysis of the overcharges.

For these reasons, we withhold recommendation on the TDC budget and budget bill Control Section 15.00, pending receipt of a proposed budget trailer bill language and a revised breakdown of the specific amounts proposed for return to the General Fund and other funds.

The Health and Welfare Agency Data Center (HWDC) provides information technology services, including computer and communications network services, to the various departments and other organizational components of the Health and Welfare Agency. The center also provides services to other state entities and various local jurisdictions. The cost of the center's operations is fully paid by its clients.

The budget proposes $250 million for support of the data center in 1999-00, which is an increase of $11 million, or 4.6 percent, above estimated current-year expenditures. The budget includes a number of increases for workload, the largest of which is a request for $15 million for additional data processing and storage capability and equipment. It also includes a number of decreases for completion of various aspects of certain large information technology projects.

Projects at Various Stages; Additional Requests for Funding Yet to Come

The Health and Welfare Data Center continues to develop several major social services-related information technology projects. The projects are at various stages of implementation and the budget proposes several changes to expenditures for the projects. However, it is likely that the Legislature will be asked to provide a substantial increase in expenditures beyond the amounts requested in the Governor's budget, presumably through the transmittal of budget amendment letters.

In 1995, the Department of Social Services (DSS) transferred to HWDC responsibility for three of the state's largest information technology projects. The projects, which were to automate welfare, child welfare services, and child support, were transferred due to the difficulties DSS was experiencing in developing the projects. Since that time, HWDC has been given responsibility for developing several other social services-related projects.

The projects are at various stages of implementation and the budget requests a variety of changes in HWDC's expenditure authority, as well as changes in expenditure authority in the DSS, which provides funding to HWDC for the projects. In this section, we describe the status of the projects and the requested changes in HWDC's budget. We note that, given the point in the development process of these projects, the Legislature is likely to see a number of requested changes to proposed budget-year expenditures, presumably through Department of Finance budget amendment letters.

Statewide Automated Welfare System (SAWS)

Four Consortia. The purpose of SAWS is to provide improved and uniform information technology capability to county welfare operations. The system is being delivered through a state partnership with the counties, which have chosen to be in one of four consortia. Figure 1 shows the four consortia, the participating counties, and the current status of each.

As the figure shows, the budget proposes little change in HWDC's expenditure authority for the budget year for the four consortia. However, given the status of the projects, it is likely that the administration will submit budget amendment letter requests to appropriate more money for them in the 1999-00 Budget Act. For example, the administration has already provided information to the Legislature that there will be an increase of $20 million in the contract for Los Angeles Eligibility Automated Determination, Evaluation, and Reporting (LEADER) System.

The SAWS Consortium Planning and Management. Because of delays and extensions in the planning schedules for two of the consortia (Welfare Client Data System [WCDS] and Consortium IV [C-IV]), the budget proposes to continue HWDC's existing planning and management program for SAWS in the budget year. The budget requests no change in HWDC's spending authority, however.

The SAWS Technical Architecture (SAWS-TA). In addition to the four consortia, HWDC is responsible for SAWS-TA which will (1) enable the exchange of data among the four consortia for eligibility, anti-fraud, and case management purposes; (2) provide an interface for the consortia with other state automation systems; and (3) connect the consortia and state agencies to meet state and federal reporting requirements. The HWDC budget proposes a reduction of $1.3 million for SAWS-TA in budget year. However, planning documents for SAWS-TA are still under review within the administration, and the final planning documents could result in modifications to the budget-year request.

Figure 1
Statewide Automated Welfare System (SAWS) Consortia
	Status	Proposed Budget Change
Interim SAWS (ISAWS)
35 counties: Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn, Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Madera, Marin, Mariposa, Mendocino, Modoc, Mono, Monterey, Napa, Nevada, Plumas, San Benito, San Joaquin, Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tuolumne, Yuba	Working in all 35 counties	-$3.8 million
Los Angeles Eligibility Automated Determination, Evaluation, and Reporting (LEADER) System
1 county: Los Angeles	Pilot testing; countywide implementation in 1999-00	Nonea
Welfare Client Data System (WCDS)
18 counties: Alameda, Contra Costa, Fresno, Orange, Placer, Sacramento, San Diego, San Francisco, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Tulare, Ventura, Yolo	Implementation to begin in February 1999	Nonea
Consortium IV (C-IV)
4 counties: Merced, Riverside, San Bernardino, Stanislaus	Implementation to begin in September 1999	Nonea
a Given current status of contract development for projects, budget adjustments likely to be requested prior to enactment of 1999-00 Budget Act (for LEADER and WCDS) or during 1999-00 after enactment of budget act (for C-IV).

California Work Opportunity and Responsibility to Kids (CalWORKs) Reprogramming. Recent changes in state and federal welfare laws will necessitate system changes, especially for LEADER and Interim SAWS (ISAWS). The budget proposes to reduce expenditure authority for HWDC by $5.5 million in 1999-00 to reflect work completed on LEADER. However, the ISAWS consortium is still identifying and assessing the technological alternatives. Thus, additional costs for ISAWS reprogramming have yet to be identified, and funding may be requested for the budget year.

Child Welfare Services/ Case Management System (CWS/CMS)

The CWS/CMS provides a statewide database, case management tools, and reporting system for the state's Child Welfare Services program. The project began at DSS in 1990. The project has completed development and the system is in operation in all 58 counties. The project has now moved into the maintenance and operation (M&O) phase.

The budget requests an increase of $1.2 million for M&O services in the budget year due to caseload growth. This increase is the net effect of the center's assumption that M&O services will cost an extra $10.4 million, offset by $9.2 million in existing expenditures already in HWDC's budget for CWS/CMS infrastructure changes that will be completed in the current year. However, this amount is based on current contracts. Pending the outcome of negotiations for the new M&O contract, the requested amount could change, either through the budget letter amendment process or during the budget year through the section letter process.

Electronic Benefits Transfer

Electronic Benefits Transfer (EBT) is the electronic transfer of funds to welfare recipients. This includes food stamps and welfare cash benefits for the CalWORKs program. The system uses debit card technology and retailer terminals to automate benefit authorizations, delivery, redemption, and financial settlement, thereby eliminating paperwork. The HWDC is responsible for planning, developing, and implementing EBT technology statewide for Food Stamps and CalWORKs.

Federal law requires that all states implement EBT for Food Stamps by October 2002. The planning phase for the project is scheduled for completion at the end of the current year, but HWDC advises that it may be delayed for several months into 1999-00. The budget requests an increase in HWDC spending authority of $1.6 million to begin implementation in 1999-00.

Chapter 270, Statues of 1997 (AB 1542, Ducheny), required that the state certify one or more vendors by July 1, 1998, as eligible to contract with counties to develop and implement an EBT system. The HWDC, working with DSS and the counties, developed a strategy in which the state would contract with and certify EBT processors. The counties, grouped as consortia, would then select and contract with one or more processors to implement EBT in the counties.

In response to concerns expressed by the counties, HWDC is changing its strategy to provide that the state contract with a single vendor to implement an EBT system statewide. Chapter 329, Statutes 1998 (AB 2779, Aroner), made the changes in law that permit this new approach.

State Fingerprint Imaging System (SFIS)

The SFIS is a system which will automate the collection, interpretation, and storage of fingerprints for persons applying for public benefits. The purpose of the system is to reduce welfare and food stamp fraud. The HWDC originally intended to award a contract for the system in late 1997, but a bid protest delayed execution of the contract into 1998. Before the contract could be executed, however, HWDC canceled the procurement in response to the Governor's March 1998 executive order requiring departments to rebid all state contracts that had not yet been executed. (The executive order was in response to a federal court ruling which found that provisions of state contract law related to participation goals for minority and women-owned businesses were unlawful.) The state had to rebid the contract in June 1998, and HWDC estimates that the contract will be awarded in March 1999, with statewide implementation competed by March 2000.

The budget requests increased expenditures for HWDC of $9.5 million for SFIS in the budget year. This request could change, however, based on the final contract award.

California Child Support Automation (CCSA) Project

The CCSA is the successor to the Statewide Automated Child Support System (SACSS). The SACSS, a federal and state-mandated computer system, was intended to provide a statewide automated child support enforcement tracking and monitoring capability through the offices of county district attorneys. Following several years of difficulty and the expenditure of more than $100 million, the state terminated its contract with the SACSS vendor and canceled the project in late 1997. As a consequence of failing to implement a statewide system as required by federal law, the state will incur federal fund penalties. The budget assumes that the state penalty in the current year will be $37.1 million and $52.8 million in the budget year. (We discuss the penalties in more detail in our analysis of DSS in the "Health and Social Services" chapter.)

A New Approach. The Legislature established the new approach for CCSA in last year's budget and in Chapter 329. Under the new approach, HWDC plans to deploy a Statewide Case Registry (SCR) and Statewide Distribution Unit (SDU) which will enable the transmission of data and child support monies across county lines in compliance with the recently enacted welfare reform laws.

The administration's original plan called for a consortia approach in which counties would chose one of seven automated case management systems to connect to the SCR and SDU. Chapter 329 amended the plan to allow HWDC to chose up to four systems for the consortia and specified that Los Angeles County's system be one of the four. In addition, the measure specified that the four systems must be compliant with the Year 2000 changes and meet certain federal requirements by April 1, 1999. Systems not found in compliance by June 1, 1999 would be excluded.

In November 1998, HWDC announced its selection of the four systems from which the counties could chose--the Los Angeles's ARS, San Francisco's CASES, Kern Couny's KIDZ, and Riverside County's STAR/KIDS.

Federal Approval Still Pending. Although all 58 counties have now chosen which system they plan to use, HWDC is still awaiting the federal government's approval of the state's new approach to develop four systems rather than a single statewide system. Federal approval will be crucial to determine how much of the costs of the system the federal government will pay.

Long-Term Strategy. Chapter 329 also required the administration to develop a long-term strategy for child support automation. Specifically, it required DSS to establish a steering committee comprised of representatives of DSS, HWDC, the Department of Information Technology, the California District Attorneys Association, the County Welfare Directors Association, child support advocates, Members of the Legislature, and the U.S. Department of Health and Human Services. The committee is to develop standards, goals, priorities, objectives, and an evaluation model to guide the department on a study and report regarding the best long-term solution for statewide automation, including whether another entity should be responsible for managing the CCSA project. The HWDC is contracting with a vendor for a Feasibility Study Report (FSR) for development of the long-term solution.

Budget Proposal. The budget proposes to reduce expenditures by $8.7 million in the budget year due primarily to completion of transitioning of counties from the SACSS system to other systems and elimination of SACSS' M&O costs. Given the rapid changes occurring in this project, the still-to-come response to the state's new approach from the federal government, the state of development of the SCR, SDU, and FSR for the long-term solution, it is likely that there will be changes in the requested amounts.

The State Controller is responsible for (1) the receipt and disbursement of public funds, (2) reporting on the financial condition of the state and local governments, (3) administering certain tax laws and collecting amounts due the state, and (4) enforcing unclaimed property laws. The Controller is also a member of various boards and commissions, including the Board of Equalization, the Franchise Tax Board, the Board of Control, the Commission on State Mandates, the State Lands Commission, the Pooled Money Investment Board, and assorted bond finance committees.

The Governor's budget proposes expenditures of $99.2 million ($62.2 million from the General Fund) to support the activities of the State Controller in 1999-00. This amount is an increase of $1.9 million, or 1.9 percent greater than estimated current-year expenditures. This includes requested funding for the Controller's main budget bill item (Item 0840) and for two information technology projects within a newly created budget bill item (Item 0841) titled the State Controller's Statewide Information Technology Projects.

The Human Resources Management System

In the current year, the State Controller's Office began work on the Human Resources Management System prior to final review of a funding request by the Legislature. The budget proposes to continue the project in the budget year.

Background. The 1998-99 Budget Act appropriated up to $1.2 million from the General Fund in Control Section 8.80 to the Controller and the Department of Personnel Administration (DPA) for development of a major new information technology project--the Statewide Human Resources Management System. The system would replace the state's existing payroll and personnel systems. The Controller's share of these funds included $240,000 to support four one-year limited term positions, and $653,000 to cover the costs of consultants.

The activities for the project in this first year were to include (1) approval of an alternative procurement approach, (2) development of a Request for Information to secure a pool of qualified vendors, (3) definition of business and technical requirements, and (4) development and release of a Request for Proposal to select a software solution. The entire project is scheduled to take five years to complete, with an estimated cost of $60 million.

Control Section 8.80 specified that the funds were to be allocated no sooner than 30 days after written notification to the Chairs of the Joint Legislative Budget Committee (JLBC), the Assembly Budget Committee, and Senate Budget and Fiscal Review Committee, including a mutually agreed upon justification explaining the need for the funds and positions, and identifying a project schedule and deliverables.

Work Started Prior to Control Section Approval. In August 1998, the Director of Finance wrote a letter to the chairs of the committees in response to the provisions of Section 8.80, and included a joint letter from the Controller and Director of DPA stating that the departments agreed to coordinate on the project. The Chair of the JLBC subsequently informed the Director that he did not concur with the Director's plan to release the funds and suggested that a revised submittal addressing a number of specific concerns would merit further legislative consideration.

The Department of Finance (DOF), Controller, and DPA subsequently submitted additional information to respond to concerns raised by the Chair of the JLBC. However, in January 1999, the DOF released the funds without submitting another letter to the Legislature pursuant to Section 8.80.

Our review indicates that the Controller's office began work on the project at the beginning of the current year, well before the request for release of funds was made pursuant to Section 8.80. Specifically, the Controller redirected resources and entered into contracts with outside consultants as of July, and hired new positions in August. The Controller's Office indicates that by starting immediately, it has been able to remain on its projected time schedule and perform a number of necessary procurement functions.

We have reviewed the Controller's office budget request for the Human Resources Management System. Despite our concerns that the Controller's office began spending money for this project in the current year prior to authorization as prescribed in Control Section 8.80, we believe that the request for funding in the budget year is reasonable.

The Department of General Services (DGS) is responsible for providing a broad range of support services to state departments and performing management and oversight activities related to these services. It provides these services through three programs: statewide support, building regulation, and real estate services.

The Governor's budget proposes total expenditures of $613 million from various funds (including $50.8 million from the General Fund) to support the activities of DGS in 1999-00. This is $2.6 million, or less than 1 percent, below estimated current-year expenditures.

Statewide Support Services. Expenditures for statewide support services are $340 million in the budget year, representing an increase of $924,000, or less than 1 percent, over estimated current-year expenditures. The amount includes several small increases and reductions to programs. The largest request is $4.9 million for local assistance proposed to upgrade the 9-1-1 telephone system switching equipment in the current and budget years.

Building Regulation Services and Real Estate Services. Proposed budget-year expenditures for these services are $265 million, or $3.9 million less than current-year levels. There are no major changes in the budget, but rather proposed continuation of augmentations made in the current year pursuant to budget act authority provided to the department.

Master Plan Needed for Public Safety Microwave Network

We recommend that the Legislature adopt supplemental report language directing the Department of General Services, in cooperation with other state and local agencies, to develop a master plan for the Public Safety Microwave Network. We further recommend that the Legislature not approve any additional funds for changes to the network until completion of the master plan.

Background. The Public Safety Microwave Network is a key communication system for public safety and other public agencies in California. It serves 36 state agencies, three federal agencies, and three counties. The five major users of the network, which represent over 95 percent of the network's use, are shown in Figure 1. The percentage of use made of the system by each is expressed in circuit-miles (that is, one circuit between two points one mile apart is one "circuit-mile").

Figure 1
Public Safety Microwave Network Five Largest Users
Agency	Circuit-Miles	Percentage of Usea
California Highway Patrol	33,017	44%
Department of Transportation	18,881	25
Department of Forestry and Fire Protection	12,890	17
Office of Emergency Services	6,980	9
Department of Water Resources	3,476	5
a Percentage of the total use by these five largest users.

The initial state microwave system was created in 1953 to support what is now the Office of Emergency Services. Other agencies then began creating their own, sometimes overlapping, microwave systems. In 1978, the Legislature enacted legislation which established DGS as the central owner and manager of the entire network.

The 1994 Study Called for Conversion to Digital Technology. In 1994, the DGS undertook a study of the ability of the network to meet the needs of the users. Part of this study included an evaluation of the comparative merits of the existing analog system and a digital system. The report concluded that the system should be converted to digital technology because of its substantially greater capability and because of a decreasing availability of analog equipment. The study estimated the costs of analog-to-digital conversion as indicated in Figure 2 (see next page).

We have several concerns about the current direction the department is taking with regard to the network.

Overall Cost of Analog-to-Digital Conversion Understated. First, it appears that DGS has underestimated the cost of the analog-to-digital conversion, particularly the site improvement costs. Although the DGS is by law the owner and manager of the network, it owns and manages only the equipment, which is located on sites owned and managed by various "landlord" agencies. The California Highway Patrol (CHP), as an example, is landlord for 217 tower-and-vault facilities and the California Department of Forestry and Fire Protection (CDFFP) for 130.

Figure 2
Analog-to-Digital Conversion Costs For Public Safety Microwave Network
(In Millions)
One-Time Costs
Equipment costs for conversion	$45
Analog conversion for 2 ghz radios	20
Site improvement costs	20
Recurring Costs
Ongoing maintenance costs	$2
Network management costs	5

The 1995-96 Budget Act appropriated $10 million for CDFFP to replace 22 towers and vaults with ones having the proper configuration and load-bearing capacity for a digital system. Bids for construction of towers funded by this appropriation were substantially higher than estimated, and it was not possible to construct 22 towers as planned. Subsequently, in 1997 the Legislature adopted supplemental report language directing that the 1995-96 appropriation be used to fund the 11 highest priority towers-and-vaults. These projects are currently being implemented. The Legislature also appropriated $9.1 million in the 1998-99 Budget Act to replace another nine towers. Thus, to date, $19.1 million has been appropriated to replace only 20 towers.

Clearly the DGS estimate of $20 million for all site improvement costs, for all landlord agencies, was very low. The CDFFP currently estimates the future cost to upgrade its remaining towers and vaults to be $61 million. These estimates do not take into account the cost for upgrading the CHP's 217 facilities, as well as those owned by other state agencies.

This is clearly a significant capital outlay program, for which the Legislature has not been given a comprehensive master plan that identifies the total cost of the program, a schedule for completion, and addresses the issue of how that cost burden should be allocated among state agencies and others that utilize the network.

Allocation of Cost Is Questionable. Our second concern is that DGS has not addressed how the cost of the analog-to-digital conversion should be allocated among the users of the network, both state and nonstate. The CDFFP uses 17 percent of the network capacity compared to 44 percent by the CHP and 25 percent by the Department of Transportation (Caltrans). Current plans indicate CDFFP will bear a larger proportion of the cost of upgrading tower and vault facilities than may be warranted by its use of the network. Conversely, the CHP and Caltrans do not appear to be bearing a proportion of this cost commensurate with their use of the network. This is an important consideration because of the different funding sources these departments use. The CDFFP relies mostly on the General Fund for funding whereas Caltrans and the CHP have the State Transportation Fund as a resource.

Master Plan Is Needed. We believe that these issues need to be clarified in a comprehensive master plan. For this reason, we recommend that the Legislature direct DGS to complete such a plan in cooperation with the network landlords and user state agencies and, to the degree practical, nonstate agencies as well. Until such a master plan is complete, we recommend that the Legislature not fund additional changes to the network. The only projects what will be delayed as result of this recommendation are the tower and vault projects for CDFFP in this budget, and this delay will only be for one year. Since replacement of the 20 most critical CDFFP towers and vaults have already been funded and their replacements in progress, the towers and vaults proposed in the budget are not critical, and there will be no threat to the overall performance of the network during this one-year period while the master plan is being prepared.

The master plan should addresses the following issues:

• A confirmation that the microwave technology recommended by DGS in its 1994 report continues to be the preferred option, in light of the current state of the art in communications technology.
• A summary of the regulatory environment within which the system will operate, with specific emphasis on the impact of personal communication systems on the communications spectrum available to the network.
• A quantified summary of system usage by agency, both state and nonstate.
• A comprehensive estimate of all costs associated with the analog-to-digital conversion, including the cost of tower and vault replacements, renovations, and modifications.
• A recommendation for an equitable allocation of the cost of conversion among those agencies.
• A schedule for implementation of the plan.

This could be accomplished by adopting the following supplemental report language:

The Department of General Services (DGS) shall develop a master plan for the Public Safety Microwave Network. In developing the plan, the department shall work with the network landlords and user state agencies and, to the degree practical, nonstate agencies. The plan shall include, but not be limited to, the following: (1) a reassessment and confirmation that the microwave technology recommended by DGS in its 1994 report continues to be the preferred option, in light of the current state of the art in communications technology; (2) a summary of the regulatory environment within which the system will operate, with specific emphasis on the impact of personal communication systems on the communications spectrum available to the network; (3) a quantified summary of system usage by agency (both state and nonstate agencies); (4) comprehensive estimates of all costs associated with the analog-to-digital conversion, including the cost of tower and vault replacements, renovations and modifications; (5) a recommendation for an allocation of the cost of conversion among those agencies; and (6) a schedule for implementation of the plan. The department shall submit the master plan to the relevant fiscal and policy committees of the Legislature by December 1, 1999.

Because of the need first to have a master plan, we have recommended deletion of a $5.3 million request for network towers and vaults for the CDFFP. This is discussed further under CDFFP's capital outlay write-up (please see Item 3540).

The mission of the Department of Housing and Community Development is to help promote and expand housing opportunities for all Californians. As part of this mission, the department is responsible for implementing and enforcing building standards. The department also administers a variety of housing finance, economic development, and rehabilitation programs. In addition, the department provides policy advice and statewide guidance on housing issues.

The budget proposes expenditures of $172 million for 1999-00. This is a 1.5 percent increase from estimated current-year expenditures. The proposed General Fund appropriation of $28.1 million is a 34 percent increase over the current year and accounts for 16 percent of the department's proposed funding. Federal funds account for $101.8 million, primarily for the Community Development Block Grant and Home Investment Partnership Act programs. A number of state special funds provide the remainder of the department's funding. The department has a proposed staffing level of 475 personnel-years.

Below, we provide an update on the administrative costs for the department's homeless grant program, review the Governor's proposals for new housing spending, and assess the workload of the mobilehome registration and titling program.

Update: Costs to Administer Homeless Grants Remain High But Improving

The Emergency Housing and Assistance Program (EHAP) is a grant program that provides funds to local governments and nonprofit organizations to support shelters and services for the homeless. As has been the case for the past several years, the budget proposes $2 million from the Housing Trust Fund to fund the local assistance grants. As we discussed in the 1998-99 Analysis (see pages G-112 through G-114), the program's administrative costs for distributing the grants are extremely high. In an effort to lower these expenses, the 1998-99 budget reduced the EHAP administrative budget by $100,000 to $457,000. Although its costs have declined somewhat with this budget reduction, the department continues to spend nearly $4,000 to administer an average grant of less than $16,000.

In response to these concerns, the Legislature requested the department to report on its efforts to reduce costs and explore alternative delivery methods for the grants. In its preparation of the report, the department surveyed counties to determine their willingness to receive a direct allocation in place of the current grant process, similar to the one we proposed in last year's Analysis. About two-thirds of those responding supported this concept, with many counties emphasizing the possibility to integrate the EHAP funds with their other existing programs. Therefore, we continue to believe that such a system could greatly reduce administrative costs.

The department expressed some concerns with the direct allocation approach, however, and as an alternative outlined a number of steps it plans to take to further reduce administrative costs over the coming years within the existing program structure. If all of these measures yield their predicted savings, then the department proposes to reduce its current administrative costs by more than half by 2001-02.

Increase Effectiveness of New Housing Dollars

The budget proposes $10.5 million in new spending on housing programs and the Governor's Housing Task Force. We recommend that (1) $10 million be held in reserve and allocated by legislation that takes into account the Housing Task Force's recommendations and (2) $500,000 be available for expenses of the task force.

The Governor has proposed a Housing Task Force to develop and implement a plan to address California's lack of adequate affordable housing. To help achieve this end, the budget proposes $2.5 million for the task force's use--for both its planning work and implementation. (For a more detailed discussion of the task force's proposed agenda, see pages F-20 through F-28.)

In addition, the budget proposes $8 million in new General Fund spending for three department programs:

• $1 million for the self-help housing program (bringing total program funds to $2 million) to provide technical assistance grants to organizations which help families build their own homes.
• $2 million for the farmworker housing grant program to help fund the development of homes for low-income agricultural employees.
• $5 million to create a welfare-to-work housing grant program. Funds would be used to develop community housing that provides services typically needed by individuals moving from welfare assistance to self-sufficiency.

While we support the idea of a comprehensive study to address housing affordability issues, the administration has yet to provide many details regarding the task force's work. In addition, the administration's budget bill language authorizing the expenditure of the task force funds provides only minimal opportunity for legislative oversight. As written, any amount of the $2.5 million could be spent on administration and developing the plan with no further legislative approval. Moreover, any funds to be spent on local assistance would only require notification to various committee chairs 30 days prior to expending the funds.

Given that the task force will likely develop the administration's housing priorities for the coming years, the Legislature should have a greater opportunity to decide how the $2.5 million and any future funds will be spent. Furthermore, while each of the new budget augmentations have some merit on their own, it is unclear that these augmentations are the best use of limited state housing dollars or are the most appropriate areas for state intervention.

Accordingly, we recommend that $10 million in housing funds ($8 million from the proposed augmentations and $2 million of the $2.5 million designated for the task force) be held in reserve. These funds could then be allocated by legislation that takes into account the task force's recommendations. In this way, the proposed new housing funds could be strategically directed by the Legislature to those areas in which state funding can be used most effectively. We recommend that the remaining $500,000 be available for use by the task force to support its administrative expenses.

Effort to Reduce Mobilehome Title Backlog

We withhold recommendation on the approval of 25 permanent and 18 limited-term positions for the Mobilehome Registration and Titling Program, pending additional updates on ongoing workload and productivity levels.

The Mobilehome Registration and Titling Program processes the state registration of mobilehomes, manufactured housing, and similar forms of housing and provides their owners with title documents. The budget proposes the addition of 43 new positions (25 permanent and 18 limited-term) with an increased expenditure authority of $2.4 million. The request is an effort to address a long-standing backlog in the processing of titles, as well as account for an increase in ongoing workload. Currently, the department takes more than six months to process title registrations and changes.

In December of 1998, the department sought a deficiency authorization for these 43 positions in the current year. At that time, a number of concerns were raised regarding the request, including:

• Mix of Temporary and Permanent Positions. As a temporary problem, the backlog should be addressed with temporary staff. However, the department intended to use seven permanent positions, along with the 18 limited-term positions, for this purpose.
• Level of Ongoing Workload. Until recently, the department did not track the level of weekly incoming transactions. Therefore, it was unknown whether workload from the past few months was an accurate reflection of the department's expected workload in the coming years.
• Level of Staff Productivity. The productivity assumptions of the department assumed only modest benefits from ongoing computer training. The department also did not account for expected increases in productivity resulting from (1) improved consistency between their forms and their computer system and (2) improved management practices.

Despite these concerns, the Legislature approved the deficiency request in order to have the department begin work immediately on eliminating the backlog.

Concerns Over Staffing Levels Remain. The department's current personnel request is based on the same assumptions as their original deficiency request. Therefore, the concerns remain over the appropriate level of permanent staffing for the program. In fact, additional data collected since the time of the deficiency authorization indicates that ongoing workload may be declining. However, with less than a year's worth of actual transactions, it is difficult to assess the department's permanent staffing needs. Consequently, we withhold recommendation on the department's request. Prior to budget hearings, the department should report on subsequent workload and productivity developments in order to provide a more accurate estimate of its staffing needs.

The Trade and Commerce Agency--created in 1992--is the state's primary economic development entity for promoting the establishment, retention, and expansion of business, employment, and international trade in California. It promotes tourism and foreign investment as well. The agency also has been designated as the entity leading the state's efforts in defense conversion.

The budget proposes expenditures of $67.2 million from various funds, including $50 million from the General Fund, for the agency in 1999-00. The total budget is $61.3 million, or 48 percent, less than estimated current-year expenditures. The reduction is due primarily to a reduction in spending for the removal of underground storage tanks and various one-time expenditures in the current year for local economic development programs.

Commission of the Californias

We recommend that the Legislature delete the request for $250,000 from the General Fund and two positions to augment existing resources for the Office of California-Mexico Affairs because the agency has not justified the request. (Reduce Item 2920-001-0001 by $250,000.)

The agency requests an augmentation of $250,000 from the General Fund and two positions for the Office of California-Mexico Affairs to dedicate additional resources to the Commission of the Californias. The agency indicates the additional funds would also be used to address border-related economic development issues.

The Office of California-Mexico Affairs provides a centralized office to deal with issues affecting the relationship between California and Mexico. It also provides information on policy issues and business opportunities to California firms working with Mexico. The office is involved in coordinating two conferences--the Border Governors' Conference and the Commission of the Californias. The Commission of the Californias, which has formally met only once since 1991, was established in 1964 to promote favorable economic, educational, and cultural relations with Baja California, Baja California Sur, and the rest of Mexico.

Currently, the Office of California-Mexico Affairs staff includes a director and a deputy director. This proposal would add two staff members to work exclusively on projects associated with the Commission of the Californias. The agency's request did not include any information on the need for two additional staff. It merely indicated that the proposed funding and staff would be used to "reinvigorate the Commission and work on the multiple economic development activities associated with the border region." Lacking any specific justification for this increase, we recommend that the Legislature delete the request.

Foreign Trade Offices

We withhold recommendation on the $5.8 million requested from the General Fund for the agency's foreign trade offices pending receipt of the reports the Legislature requested in 1998-99.

Through its International Trade and Investment Division, the agency oversees the activities of California's ten foreign trade offices. As shown in Figure 1, the budget includes $5.8 million from the General Fund for these offices in 1999-00.

For the past several years, the Legislature has been concerned about the cost-effectiveness of the agency's various foreign trade offices. As a result, in the Supplemental Report of the 1998-99 Budget Act, the Legislature directed the agency to submit several reports on the offices. These reports were due to the Legislature by January 1, 1999 and were to include a:

• Report on specified performance data for all the offices, such as the number of private sector inquiries, the number of businesses served and type of assistance provided, and a breakdown of office income and expenditures.
• Report on performance measures (established July 1, 1998) to evaluate the performance of all the offices. In addition, the Legislature directed the agency to (1) require all office directors to spend at least 75 percent of their time in the home country of their assigned office; (2) perform a cost-benefit analysis of each office to quantify its benefits; and (3) require office directors to possess prior international private sector experience with a major export industry, as well as in-depth knowledge of the California economy and trade affecting California.

Figure 1
1999-00 Proposed Funding Foreign Trade Offices Item 2920-012-0001
(In Thousands)
Location	1999-00 Budget
Taiwan	$317
Africa	422
Germany	584
Hong Kong	956
London	511
Mexico City	1,279
Japan	1,163
Shanghai	296
Calgary	143
Philippines	158
Total	$5,829

Also, by April 1, 1999, the agency is to report the performance and rank of each office to the Legislature.

At the time this analysis was written, the agency had not submitted the requested reports that were due to the Legislature by January 1, 1999. Consequently, we withhold recommendation on the $5.8 million requested from the General Fund for the agency's ten foreign trade offices pending receipt and review of these reports as well as the April 1, 1999 report.

The Department of Personnel Administration (DPA) manages the nonmerit aspects of the state's personnel system. (The State Personnel Board manages the merit aspects.) The Ralph C. Dills Act provides for collective bargaining for most state employees. Under this act, DPA is responsible for (1) reviewing existing terms and conditions of employment subject to negotiation, (2) developing management's negotiating positions, (3) representing management in collective bargaining negotiations, and (4) administering negotiated memoranda of understanding (MOUs). The DPA also is responsible for the compensation, terms, and conditions of employment of managers and other state employees not represented in the collective bargaining process.

The budget proposes total expenditures of $27.4 million for support of the department in 1999-00. The principal funding sources are:

• $6 million from the General Fund.
• $14.8 million from reimbursements from other state departments.
• $5.9 million from the Deferred Compensation Plan Fund.

The proposed expenditures for DPA support are about $2.8 million, or 9.4 percent, less than estimated current-year expenditures. This change includes reductions of (1) $3.3 million in reimbursements, largely because individual departments, rather than DPA, will hire consultants for "total quality management" under the Statewide Continuous Improvement Program; and (2) $0.3 million in benefits administration, pursuant to Chapter 602, Statutes of 1998 (SB 1416, Brulte), which exempted the Deferred Compensation Plan Fund from pro rata charges. These reductions are partially offset by proposed expenditure increases of about $0.8 million for DPA's involvement in developing a new payroll/personnel system, implementing a drug testing program pursuant to a collective bargaining agreement, and auditing the Savings Plus Program.

Replacement of Payroll/Personnel System

We recommend that the Legislature delete the request for $604,000 from the General Fund and six one-year limited-term positions for the Department of Personnel Administration (DPA) to participate in the State Controller's project to replace and upgrade the state's payroll/personnel system because DPA has not provided sufficient justification for the request. (Delete $604,000 from Item 8380-001-0001.)

The DPA requests $604,000 from the General Fund and six one-year limited-term positions for its involvement in the State Controller's project to replace and upgrade the state's payroll/personnel system. Although the six positions are requested for one year, DPA has indicated that the department intends to request continuation of the positions during the budget process for the 2000-01 budget. The proposal includes $338,000 for the six positions, $188,000 for consulting services, and $78,000 for operating expenses.

The DPA is one of several departments that will participate in the State Controller's project. The State Controller will form an advisory committee to provide business and operational input for the new system. This advisory committee will consist of representatives from the State Controller, DPA, the Public Employees' Retirement System, the State Personnel Board, the Department of Finance, the Department of Information Technology, and three unspecified departments-one large, one medium, and one small.

Current-Year Funding. Control Section 8.80 of the 1998-99 Budget Act provided up to $1.2 million from the General Fund for the State Controller and DPA costs related to this project. These funds, however, were not available for expenditure until DPA and the State Controller submitted to the Department of Finance (DOF) a mutually agreed upon written justification explaining the need for the funds and position(s) and identifying a project schedule and deliverables in 1998-99. Allocation of the funds was not to occur sooner than 30 days after DOF notified specified legislative committees of the written justification. In a letter dated August 28, 1998, the Director of Finance submitted the required notifications. In response, the Chair of the Joint Legislative Budget Committee advised the Director that he did not concur with the proposal. The Chair advised the Director that a revised submittal reflecting a coordinated effort by the two departments and addressing specific concerns would merit legislative consideration. At the time this Analysis was written, a revised submittal had not been sent to the committees. Notwithstanding the Chair's response, the department recently allocated the funds to DPA and the State Controller. Furthermore, DPA staff have advised us that DPA dedicated two positions to the project and committed the Section 8.80 funds in July, prior to the Director of Finance's notification to the committees.

Need for Funds in the Budget Year Not Justified. The request for the budget year includes six one-year limited-term positions (including two positions subject to Section 8.80) and $188,000 for consultants. The DPA has not provided sufficient information or workload data to justify this request. As mentioned above, DPA is one of many departments that will participate in the development of the State Controller's project. The DPA has not substantiated the need to add more staff in order to participate along with the other departments. The DPA has simply described the anticipated participation and allocated six new positions to the project activities. Based on the DPA descriptions, however, it is not clear that these activities (such as meeting with the State Controller, reviewing DPA business practices, and reviewing vendor proposals) would require the six full-time staff requested.

Given the lack of data to substantiate additional staff, we recommend that the Legislature not approve the $604,000 General Fund request for the project.

New Collective Bargaining Agreements Still Under Negotiation

The Department of Personnel Administration should report to the budget committees during budget hearings on the administration's collective bargaining proposals and the status of negotiations.

The DPA began negotiations in 1995 with the 21 bargaining units representing rank-and-file state employees (other than higher education) for new MOUs governing compensation and other terms and conditions of employment. These MOUs were to replace those that, for the most part, expired June 30, 1995. Under current law, the provisions of expired MOUs generally remain in effect pending adoption of replacement MOUs.

In 1998, DPA reached agreement with four of the 21 units and the Legislature approved these MOUs--California Correctional Peace Officers Association; California Department of Forestry Firefighters; Physicians, Dentists, and Podiatrists; and Health and Social Services/Professional. These MOUs are in effect until June 30, 1999. In addition, DPA has reached agreement with the California Highway Patrol, but at the time this Analysis was written the Legislature had not approved the MOU. This MOU, if approved, would also be in effect until June 30, 1999.

The Ralph C. Dills Act directs the administration and employee representatives to endeavor to reach agreement before adoption of the budget act for the ensuing year. The act further specifies that provisions of MOUs requiring the expenditure of state funds be approved by the Legislature in the annual budget act before the provisions may take effect. Historically, however, agreements often have not been reached in time for legislative consideration as part of the budget process.

In recognition of the statutory intent and the importance of these negotiations for the 1999-00 budget, we recommend that DPA report to the Legislature during budget hearings on the administration's collective bargaining proposals and the status of negotiations. Furthermore, in our analysis of "Augmentation for Employee Compensation" (Item 9800) in this section of the Analysis, we have recommended that the Legislature (1) require a minimum 30-day review period between the submittal of proposed MOUs to the Legislature and hearings on the proposals to ensure that their fiscal and policy implications are fully understood and (2) review the administration's MOU proposals at the budget hearings and adopt them in the budget act (or as amendments to the act if they are not available for review during budget hearings).

The Military Department is responsible for the command and management of the California Army and Air National Guard. To support the operations of a force of 22,000, the department maintains a headquarters complex in Sacramento, 127 armories, 33 equipment maintenance facilities, and 10 air bases throughout the state.

The missions of the National Guard are to provide combat-ready forces to the federal government at the direction of the President, to contribute emergency public safety support at the direction of the Governor, and to otherwise assist the community as directed by proper authorities.

The 1999-00 Governor's Budget proposes expenditures of $460 million by the department. Of that sum, $433 million would come from the federal government, although only $34 million would be appropriated through the budget bill. The budget bill would also authorize the expenditure of $24 million from the state General Fund for the department, an increase of $1.2 million, or 5.3 percent, in the budget year. The balance of the request ($2.2 million) is from reimbursements and a special fund.

Redirect Armory Homeless Shelter Funds to Counties

We recommend that the $1 million provided to the department to use its armories as emergency winter homeless shelters be redirected to all counties as grants through the Emergency Housing Assistance Program. (Reduce Item 8940-001-0001 by $1 million and Increase Item 2240-101-0985 by $1 million.)

Each winter since 1987, National Guard armories have been used as emergency homeless shelters. The armories have been used because they (1) are already equipped to handle emergency shelter situations, (2) are available throughout the state, and (3) lie unused most nights. Yet, the program was intended as a temporary solution, and the Legislature has in the past expressed its interest in finding a more permanent solution to providing emergency homeless shelters. In 1997, the Legislature enacted a series of bills that extended the program for 26 armories through the winter of 1998-99. For the winter of 1997-98, limited funding was provided to the counties in which these armories are located. With this funding, counties paid the National Guard a nightly rent of $454 to use an armory as a shelter. For 1998-99, no supplemental funding was provided to the counties, but 14 armories are currently being used--with the counties paying the nightly rent from their own sources of funds. For additional background on this program, see our report Sheltering the Homeless: Alternatives to the Armories (December 1997).

The budget proposes to provide the Military Department with a $1 million appropriation to operate 26 armories in the winter of 1999-00. This would require legislation again extending the program's sunset date and would make the collection of rent from counties unnecessary. We agree with the administration's policy objective of continuing to make the armories available as emergency homeless shelters. In fact, the Military Department indicates that program improvements over the past two winters have eliminated most of the health, security, and soldier retention problems that the department reported in previous years.

However, we recommend two changes with regard to the $1 million appropriation. First, we recommend redirecting the funds from the department to the counties directly through the Emergency Housing Assistance Program (administered by the Department of Housing and Community Development). This method was used in 1997-98 and offers a major advantage over the administration's proposal. That is, counties can use the funds to provide homeless services through the best available means, including renting the armories. Alternative shelters, especially permanent ones, offer the possibility of providing more comprehensive social services to the homeless--such as health care, counseling, and job training--than can be provided at the armories. Second, we recommend allocating the $1 million among all counties, not just those authorized to use the armories, using the existing program allocation formula. The provision of emergency homeless services is a statewide problem--not one unique to the counties that continue to use the armories. Furthermore, those counties that have developed alternatives to the use of the armories in the past should not be penalized by their exclusion from funding for homeless services.