Legislative Analyst's Office

Analysis of the 2000-01 Budget Bill

Department of Motor Vehicles

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

The budget proposes total expenditures of $632.7 million for support of DMV in 2000-01. This represents an increase of $23.5 million, or 3.9 percent, above estimated current-year expenditures. The increase primarily reflects general workload increases. (These figures do not include the administrative cost of issuing smog impact fee refund checks, which the Governor's budget display estimates to be $6.3 million in 1999-00 and $4.7 million in 2000-01.)

About $330 million (52 percent) of the department's total support will come from the Motor Vehicle Account and $246 million (39 percent) from the Motor Vehicle License Fee Account. The remaining support will be funded primarily from the State Highway Account and reimbursements.

Cost of Fee Refunds Should Be Included in Legislation

We recommend that funding for the cost of issuing smog impact fee refunds be included in the legislation that authorizes the refunds.

Although not included in the budget bill, the Governor's budget display for DMV includes $4.7 million and 75.4 personnel-years (PYs) to issue refunds of smog impact fees collected between 1990 and 1999. The budget display also assumes DMV would incur refund-related costs of $6.3 million in the current year, for a total administrative cost of $11 million over the two years.

The smog impact fee, which was levied on vehicles originally purchased outside California, was declared unconstitutional by the Third District Court of Appeal in October 1999. The Governor proposes to have DMV refund these fees with interest, and is proposing legislation to implement the refund program. The estimated cost of the refunds, $665.3 million, is reflected in Item 9670 (Claims, Judgements, and Settlements).

Refund Program Will Be Legislatively Determined. The Legislature is currently considering several bills which would create a smog impact fee refund program. There are significant differences among the bills as to how, and by which state department, the fees would be refunded.

Because it is not clear at this time how the refund program will be administered, we believe that any appropriation for administering the refunds should be based on the particular program that is created and should be included in the enabling legislation.

Computer Projects in Disarray;
Department Proposes Still More Projects

The Department of Motor Vehicles (DMV) continues its decade-long effort to try to replace its major computer databases. After earlier failures and delays, these projects now appear to be encountering new problems. We cannot advise the Legislature on the full extent of these problems, however, because DMV has failed to provide a mandated report on the status of the replacement effort. Meanwhile, the department proposes to undertake other discretionary computer projects. We recommend deletion of $4.5 million for budget-year funding for a smaller information technology project because it too is encountering cost overruns and schedule slippage. We also recommend the Legislature request the Bureau of State Audits to perform an audit of the department's database replacement projects.

Since 1988, DMV has been attempting to replace its major database systems, which are about 30 years old, obsolete, and increasingly difficult and expensive to maintain. The first effort to replace these systems was abandoned as a failure after six years and the expenditure of $50 million. After a major reassessment of DMV's business needs and potential technological solutions by an outside consultant, the department has embarked on a second replacement effort. Since it began in 1996, this second effort has been subject to revisions and delays. (Please see our write-up on this issue in our Analysis of the 1999-00 Budget Bill, pp. A-51--A-57.)

Unrealistic Schedules, Year 2000 (Y2K) Concerns Discussed During 1999-00 Budget Hearings. During hearings on the 1999-00 budget, the Legislature expressed concerns about DMV's ability to maintain its proposed schedule for these projects. It was noted that several important deadlines had already been revised as DMV encountered unanticipated problems. Further, the department was asked how potential delays in its Y2K readiness efforts could affect progress on the database projects. Although DMV asserted that its Y2K efforts were on schedule, the Legislature decided that it needed better and more frequent updates on DMV's progress. Accordingly, the Legislature adopted supplemental report language requiring DMV to submit quarterly reports on its major database replacement projects, beginning December 1, 1999.

Report Not Provided. The department did not provide the first report as scheduled. At the time this analysis was prepared in February 2000, the report had still not been received and DMV could not provide an estimate as to when it might be forthcoming. For this reason, details of the department's database replacement efforts are not known.

New Delays Indicated. Although the Legislature has not received any quarterly report, our discussions with DMV indicate that the department is encountering new problems and delays in advancing its database replacement efforts. As shown in Figure 1, all three of the major database projects have experienced serious delays. One project (occupational licensing) has been suspended indefinitely, while the vehicle registration project has been delayed about two years and the driver license project is behind by more than a year.

Financial Systems Redesign Also Delayed. In addition to the three major database systems discussed in Figure 1, another information technology (IT) project being undertaken by DMV is the redesign and replacement of its financial accounting system. This system tracks and manages the various funds that are collected and distributed by the department. This project is much smaller in scope and cost than the major databases. Nevertheless, DMV appears to be experiencing cost and scheduling overruns with it as well.

Specifically, the 1999-00 budget provided $4.9 million for DMV to complete the first phase of a four-phase replacement schedule for the financial accounting system. The DMV now reports that implementation of this phase was delayed due to Y2K preparations. The department now indicates that Phase I is "tentatively scheduled for completion in June 2001."

The department expects to spend the full $4.9 million in the current year. For 2000-01, it is requesting $4.5 million to complete Phase I (and to advance Phases II and III). It is not clear what portion of the $4.5 million will be spent on Phase I. Nevertheless, we consider that portion to represent a cost overrun, since the 1999-00 funding was expected to complete Phase I.
Figure 1
DMV's Database Replacement Schedules

Falling Further Behind


(Per 1998 Finance Letter)


(Per 1999-00 BCP)a



(January 2000)

Occupational Licensing
Complete new system by 10/31/99 No change in schedule Project suspended indefinitely Department asserts completing project would require funds "above approved spending authority and would not result in a benefit worth the estimated expenditure of funds"
Vehicle Registration
Award system development contract by August 1, 1999 Contract to be awarded May 30, 2000 Contract to be awarded "near the beginning of 2001-02" Department asserts alternative procurement has been delayed since May 1999 due to Y2K delays
Driver Licensing
Begin reengineering of database "approximately January 1999" Alternative procurement to begin March 1, 2000 Alternative procurement delayed; no new estimate Budget bill language restricts department from beginning alternative procurement until alternative procurement for vehicle registration database has been completed
a BCP: Budget change proposal.

Organization, Oversight Needed. The DMV's computer replacement efforts have been hampered by unrealistic schedules, inadequate project oversight, faulty decision making, and poor communication. We are concerned that DMV has undertaken projects on a scale and on a schedule that are beyond its capabilities.

We are especially concerned that the department has failed to respond to the Legislature's repeated requests for accurate information on a regular basis concerning the status of the department's efforts. Without this information, the Legislature has been unable to adequately evaluate the department's requests for additional funding.

The DMV Attempting Additional New Projects. Undeterred by its delays and difficulties with its major computer databases, DMV is undertaking new and risky computer projects. For example, as discussed below, the department plans to invest millions of dollars in a web-based vehicle registration project. It also is conducting pilot projects for online appointment scheduling, e-mail-enabled refund requests, and computer-based "queuing" in district offices, among others. Each of these projects, it should be noted, has encountered its own difficulties.

We believe it is not prudent for DMV to embark on new projects for three reasons. First, DMV should be dedicating its IT resources to completing the long-delayed replacement of its mission-critical database systems. Second, DMV has not demonstrated an ability to pursue IT projects in an effective manner. And finally, while Internet-based solutions to DMV's business practices may some day be cost-effective and convenient to drivers, this is not currently the case. We believe such projects should await the development of proven technology and processes.

Recommend Deletion of Funding. We believe that the DMV's major computer projects need to be refocused and prioritized. As a first step, we recommend that the Legislature delete the $4.5 million the department is requesting to continue its financial system redesign project. Funding for this project should not be resumed until, at a minimum, the department (1) provides a written, detailed report that describes the projected costs and schedule for each of the project's phases; (2) commits to providing monthly written updates on the project's cost, schedule, and success; and (3) provides the overdue reports on its major database replacement projects, with clarity and detail that satisfies the Legislature.

Audit Could Help to Identify Solutions. Because DMV's major databases are necessary for critical law enforcement and revenue collection functions, it is imperative the replacement effort be completed successfully and expeditiously. Given DMV's history of management problems with this project and its inability to provide the Legislature with timely information on its efforts, we think the project should be evaluated by an independent auditor. Specifically, we recommend that the Legislature request the Bureau of State Audits to perform an audit of the department's database replacement projects and (1) provide an assessment of the causes for the repeated delays and cost overruns and (2) propose a solution to the project's current difficulties. If the $4.5 million is deleted from the department's financial system project, a portion of this money could fund the audit.

We believe that such an audit could help the Legislature and the Governor to develop an appropriate strategy for ensuring that future DMV efforts are successful, timely, and effective.

$14 Million for Proof of Insurance Program;
Department Fails to Submit Program Evaluation

The budget proposes $14.1 million and 248 personnel-years for the Department of Motor Vehicles to verify that persons registering vehicles comply with the state's "financial responsibility" law, usually by maintaining automobile insurance. However, the department has not submitted a legislatively required report on (1) the impact of this law and (2) a pilot project to allow the electronic transfer of insurance information. We recommend that the Legislature delete funding for this activity until the department provides this information.

Chapter 1126, Statutes of 1996 (AB 650, Speier) required that automobile registration applications and renewals be accompanied by proof of financial responsibility. Collecting, processing, and verifying these documents is expensive and time-consuming. The DMV expends about $15 million and 300 PYs on this process annually.

Financial Responsibility Requirement Extended Indefinitely. Under Chapter 1126, the program was to sunset on January 1, 2000. However, the law was extended indefinitely by Chapter 880, Statutes of 1999
(SB 652, Speier).

Electronic Transfer of Data May Be More Efficient. Rather than manually process and verify paper documents containing insurance information, some have suggested that DMV could more efficiently receive insurance information directly from insurance companies through an electronic transfer of files. Not only could this reduce fraud, but DMV has estimated that its costs of administering the financial responsibility program could be reduced by half. Others, however, have expressed concern about the reliability of such data transfers.

In order to evaluate these issues, DMV in 1998-99 conducted a pilot of an electronic data transfer program with several insurance companies. The Legislature had hoped to use this information in deciding how to continue the financial responsibility program, if at all, beyond its
January 1, 2000 sunset date. Accordingly, the Legislature, in the Supplemental Report of the 1998 Budget Act, required that DMV submit a report on its effectiveness in carrying out the program, including an evaluation of the electronic transfer pilot. The report was due April 1, 1999, but had not been submitted at the time this analysis was prepared--about ten months later.

The DMV's Online Registration Program Relies on Electronic Transfer. The department plans to offer online vehicle registration through its website beginning in spring 2000. Online registration will require that proof of financial responsibility be transferred electronically from insurance companies to DMV. Only three insurance companies, representing about one-fifth of the state's vehicles, are prepared to transfer insurance data in this way.

Because the success of online registration is partly dependent on the cost and effectiveness of electronic insurance data transfer, the report required by supplemental language, if provided to the Legislature, could help facilitate an evaluation of the potential benefits, costs, and risks of online registration. (We discuss DMV's online registration proposal in more detail below.)

Full Proof-of-Insurance Administrative Funding to Be Restored. The 2000-01 budget proposes $14.1 million to provide full-year funding for insurance verification activities. However, without the information required by the supplemental report requirement, the Legislature cannot determine (1) how effectively DMV administers the program and
(2) whether it would be desirable to eliminate the manual processing of financial responsibility forms and require electronic transfer of insurance information.

In addition, the report on the electronic transfer pilot has implications for the effectiveness and cost of the proposed online vehicle registration project. Vehicle registration is one of DMV's core missions. It is necessary for the Legislature to be informed of the feasibility and cost of electronic data transfer, as it relates to online registration, departmental administrative costs, and motorist convenience.

Recommend Withhold Funding, Pending Report. We believe it is difficult for the department to justify its costs of administering the financial responsibility program without providing the mandated report evaluating its administration of the program. Not only is the report necessary for the Legislature's oversight of the implementation of Chapter 1126, but it would facilitate the Legislature's ability to evaluate emerging opportunities to improve the department's business practices with technology. For example, if electronic transfer of insurance data and online registration are to be widely utilized, it should be possible to reduce funding for some of DMV's administrative costs. We therefore recommend the Legislature delete $14.1 million for DMV's administration of the financial responsibility program until the Legislature has received and had an opportunity to review DMV's report evaluating the program and pilot.

Registration-on-the-Web Tangled in High Costs,
Technical Limitations

The Department of Motor Vehicles plans to allow limited vehicle registration via the Internet. We believe this project is justified neither by cost nor by convenience.

As noted above, DMV has begun a pilot project to permit the registration of vehicles through the Internet. The department has redirected current-year funding to pay for some startup costs, although a portion of the startup costs are being paid by a business partner sharing the project with DMV. It is unclear what financial obligations, if any, this outside contribution imposes on DMV.

Online Registration Available to Limited Number of Vehicle Owners. The department expects that certain vehicle owners would be able to register their vehicles online beginning April 1, 2000. Because the transaction would be entirely electronic, the only persons who could participate would be those who (1) have access to the Internet, (2) have a valid credit card with which to pay registration fees, and (3) possess automobile insurance issued by one of the three companies set up to electronically transfer insurance data to DMV. About one-fifth of the state's automobiles meet this third criterion.

Project Not Cost-Effective. Unlike most IT proposals, the online registration project is not intended to save money. Indeed, the department acknowledges that the project "will not result in process cost savings when compared to the mail-in process from which it is likely to draw customers." In other words, DMV can process mailed-in registration forms more efficiently than it expects to process Internet-based registration.

The department estimates that developing the program will cost $2.2 million, and that ongoing annual costs will be $3.8 million. Much of the ongoing costs relate to programming and maintenance of computers. In addition, based on the department's estimate that about 350,000 people will renew their registrations online each year, $1.3 million of the ongoing costs will be in the form of transaction fees charged by credit card companies to the state. The department believes that passing on those fees (equal to 1.8 percent of each transaction) to customers would discourage the use of Internet registration, and several major credit card companies will not permit the fees to be passed on to consumers.

We note, however, that the department currently charges a fee of $3 for vehicle registration transactions conducted over the telephone, which requires the use of a credit card. We believe that applying a similar fee to online registration would be appropriate. As we have noted in previous Analyses (see for example our Analysis of the 1994-95 Budget Bill, p. A-58), we believe it is not appropriate for the state to absorb these fees. Instead, they should be borne by customers who are willing to pay what amounts to a "convenience fee."

Project Adds Little Convenience for Customers. Online vehicle registration provides little advantage over mail-in registration. For the price of a stamp, vehicle owners can mail their registration forms to DMV and receive their registration stickers by return mail. Online registration is unlikely to be any easier for a customer to perform than mail-in registration. Both online and mail-in registration can be performed, without waiting, at any time of the day or night and any day of the week. Online registration would presumably arrive at DMV more quickly than registration that is mailed, but processing activities would probably take similar amounts of time.

We note further that only about one in five vehicle owners will be able to take advantage of online registration, since only this proportion of vehicles are insured by companies able to electronically transfer insurance data to DMV. Since a number of this group may have reservations about providing credit card data over the Internet, and/or may have a low level of comfort or experience with computers, we expect that the actual number of vehicles registered online may be quite low. The DMV estimates that only about 1.2 percent (350,000) of all registration renewals will be conducted online for the first two years of the program.

Online Registration May Become Practical in the Future. We recognize that many governmental activities, including automobile registration, could eventually be widely conducted through the Internet. Such "e-government" transactions have the potential for customer convenience and substantial cost savings, particularly if they are accompanied by substantial reductions in governmental personnel, building, and other overhead costs. We note, however, that DMV's online registration project foresees no such reductions in overhead, and will only be available to a small portion of the state's vehicle owners.

Department Expects to Propose Finance Letter. While no new money has been appropriated for this project in 1999-00, the department indicates that it expects to request several million dollars for 2000-01 through a finance letter to be submitted in spring 2000.

Project Is Premature for Several Reasons. We believe the online registration project is premature for several reasons. Necessary technology, administrative changes, and customer interest have not yet materialized. In addition, the project diverts departmental resources from more crucial IT projects (such as upgrading the three mission critical databases). Moreover, the project is being undertaken at a time that DMV's management of its computer projects is in disarray.

Backlog of License Suspension Hearings Continues

For the past several years, the Department of Motor Vehicles has been unable to meet statutory time frames for holding administrative hearings on certain license suspension actions. The Legislature has directed the department to provide information relating to this issue. We withhold recommendation on $3.3 million requested to address hearing backlogs until the department provides additional information, including the mandated report which is due March 1, 2000.

State law prohibits persons under the influence of drugs or alcohol from driving a motor vehicle. Legislation enacted in 1989 provides for the automatic suspension or revocation of a driver license if either (1) a chemical test indicates the presence of illegal levels of alcohol or drugs in a driver's blood, breath, or urine; or (2) a driver refuses to take such a test when so ordered by a peace officer. In such cases, the arresting officer can confiscate the driver's license. However, the suspension or revocation does not become effective for 30 days, during which time the driver is permitted to drive.

If a driver requests an administrative hearing on the suspension or revocation order within ten days of the arrest, statute requires DMV to hold the hearing before the order becomes effective (that is, within 30 days of the arrest). This process protects (1) public safety by facilitating the timely removal of dangerous drivers from the roads and (2) due process by ensuring that drivers have an opportunity to challenge improper suspensions. The department ultimately reinstates licenses in approximately one-fourth of these hearings.

The DMV Fails to Meet Deadlines. As shown in Figure 2 (see next page), DMV's ability to meet the statutory deadline for driving-under-the-influence (DUI) administrative hearings has declined dramatically in recent years. Currently, only about one in five hearings is held within 30 days of arrest. The average length of time before a hearing can be held is 46 days. (This is down slightly from 52 days in 1998-99.) Such delays increase the length of time potentially unsafe drivers are able to legally drive, and postpone drivers' access to a potential remedy for improper license suspensions.

The DMV asserts that it is unable to schedule hearings in a timely fashion because it does not have enough staff to accommodate the inflow of hearing requests. To address the backlog and ongoing hearing workload, it is asking for an increase of $3.3 million and 56 PYs for the budget year. According to DMV, the situation resulted from four factors.

First, the statutory time frame for DUI hearings was reduced from 45 days (when the program began in 1990) to 30 days (in 1993). We note, however, that while this shortened the length of time before a hearing could be held, it had no effect on the number of hearings DMV has to schedule. Moreover, DMV's on-time rate for hearings in the first year of the 30-day requirement (84 percent) was virtually unchanged from the previous year (85 percent).

Second, the department reduced staff in the driver safety program by 60 positions in recent years, including a number of hearing officers, in conjunction with an office automation project and other efforts intended to increase efficiency. However, the department now reports that these measures have failed.

Third, while the number of DUI arrests has declined by about a third since the implementation of the mandatory suspension laws, the number of arrestees requesting a hearing has increased. According to DMV, the number of DUI hearing requests has increased from about 35,000 in 1996-97 to about 48,000 in 1998-99. The department did not provide data for earlier years.

Fourth, the department asserts that the typical hearing is becoming more complex as an increasing portion of drivers (currently about 30 percent) are being represented by legal counsel. The legal challenges, objections, and other legal motions made by legal counsel tend to slow down the hearing process, and require greater preparation on the part of DMV hearing officers.

While the preceding information suggests that DMV's inability to meet statutory time frames stems from a growing gap between workload and personnel resources, the lack of complete historical data on staffing levels and hearing workload prevent the Legislature from evaluating whether the size of the requested augmentation is appropriate.

Other License Suspension/Revocation Actions Also Not Timely. Only about half of the hearings DMV holds on license actions are related to DUI suspensions. The other half include, for example, hearings on drivers who may be physically or mentally unable to drive safely, drivers who have accrued a large number of moving violations, and drivers who have committed fraud in obtaining their license. Unlike the DUI hearing process, however, there is no statutory time limit on DMV to hold the other hearings. As a consequence, drivers whose licenses were suspended or revoked for non-DUI reasons may wait even longer for a requested hearing.

Hearing Delays Compromise Public Safety and Due Process. If a driver arrested for DUI requests a hearing, the mandatory license suspension/revocation does not go into effect until after DMV holds the hearing. The delay of these hearings beyond 30 days thus allows a potentially dangerous driver to remain on the road for a longer period, thereby threatening public safety.

If a driver's license is suspended or revoked by DMV for a different reason--such as evidence of diminished physical or mental ability to drive--the suspension or revocation action remains in effect unless overturned at a hearing. While this helps to protect the motoring public, a delay in scheduling a hearing in such cases thus delays the driver's opportunity to challenge a possibly improper administrative action.

Further Information Needed to Fully Evaluate Proposal. We believe that increasing DMV's ability to hold timely administrative hearings of license actions would enhance public safety and strengthen drivers' due process rights. Our preliminary review suggests that an increase in the department's staff in this area would provide a reasonable response to the hearing backlog. However, without additional information about how different staffing levels historically have been able to respond to workload, we cannot determine whether the proposed level of increase is warranted.

After deliberating on the DUI hearing backlog in 1999-00 budget hearings, the Legislature directed DMV to provide a report on the subject by March 1, 2000. This report is to include current and historical data on its hearing activities, as well as explain how the department will eliminate its backlog of cases and ensure that future cases are heard within their statutory time frames.

Accordingly, we withhold recommendation on the budget request pending receipt of the historical workload information, as well as the March report.

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