Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

Health and Human Services Agency Data Center (4130)

The Health and Human Services Agency Data Center (HHSDC) provides information technology services, including computer and communications network services, to the various departments within the Health and Human Services Agency (HHSA). The center also provides services to other state entities and various local jurisdictions. The cost of the center's operations is fully reimbursed by its clients.

The budget proposes $317.9 million for support of the data center in 2002-03, which is an increase of $10 million, or 3 percent, above estimated current-year expenditures. The budget includes a number of increases for workload, the largest of which is a request for $2.2 million for additional data processing and storage equipment. It also includes a number of increases for the continued implementation of various large information technology projects.

Increased Expenditure Authority Not Justified

We withhold recommendation on the proposed expenditure authority increase of $2.2 million and instead recommend that the Legislature direct the Health and Human Services Agency Data Center (HHSDC) to provide a revised budget proposal reflecting prior-year adjustments based on actual costs of previously purchased computer equipment.

Budget Proposal. The budget proposes to increase HHSDC's expenditure authority by $2.2 million for additional computer equipment to meet increased workload needs of its client departments.

Adjustment Proposal Not Submitted. Each year, in submitting their budgets to the Legislature, HHSDC and the Stephen P. Teale Data Center (TDC) submit technical adjustments which modify the data center's budgets based upon actual expenditures in prior years. Over the past three years, such adjustments have decreased the overall expenditure authority of HHSDC and TDC by $34.6 million.

The 2001-02 Budget Act provided HHSDC with $7.5 million for new computer purchases based upon the estimated purchase price of the technology. This year, however, the Governor's budget does not propose to adjust the HHSDC's budget to reflect the actual price. It is important that the data center's expenditure authority be adjusted on an annual basis to reflect the actual cost of prior purchases in order to ensure that the data center does not overcharge client departments. At the time this analysis was prepared, HHSDC had not submitted the annual adjustment to reflect the actual price of technology purchased in the current year. In the absence of prior-year actual expenditure information, we are unable to determine the need for additional expenditure authority to purchase the proposed computer equipment.

Recommendation. For this reason, we withhold recommendation on the proposed expenditure authority increase of $2.2 million, and recommend that the Legislature direct HHSDC to submit a revised budget proposal which adjusts HHSDC's expenditure authority based on actual costs of previously purchased equipment.

Budget Internally Inconsistent

We recommend that the Legislature direct the Health and Human Services Agency Data Center (HHSDC) to submit a new budget request which adjusts the overhead charges to the Department of Social Services' county-based automation projects in order to reflect the proposed 5 percent reduction in HHSDC's overhead rate.

Background. In the 2000-01 Budget Act, the Legislature approved HHSDC to charge each of the Department of Social Services' (DSS) county-based automation projects a 20 percent overhead rate to reimburse HHSDC for providing overall support to the projects.

Proposed Rate Reduction. The HHSDC now proposes to decrease the overhead rate to 15 percent. However, our review indicates that the proposed decrease has not been applied to all DSS projects. Figure 1 compares current-year overhead charges for each DSS project to proposed budget-year charges. As Figure 1 shows, two projects' overhead rates were reduced and six projects overhead rates stayed the same. The HHSDC has been unable to explain why certain projects would not have a reduction. In the absence of such information, we would expect the charges for all projects to decline consistent with HHSDC's stated policy.

Recommendation. For this reason, we recommend that the Legislature direct HHSDC to submit a revised budget request that reduces the overhead charges on the DSS projects to reflect the proposed reduction in HHSDC's overhead rate.

Rate Study Needed

We recommend that the Legislature direct the Health and Human Services Agency Data Center (HHSDC) to conduct a rate study examining data center operations and recommending changes that will result in improved rates and services to client departments.

Rate Study Needed. The HHSDC provides computing services to its client departments, and is reimbursed for these services through rates it charges to these departments. The rates charged by the state's data centers are based on rate studies which historically have been conducted every two years. Rate studies are important because they provide information that allows the state to determine if its rates are consistent with state administrative policies, are equally applied to all client departments, recover full data center operation costs, and are competitive with other data centers.

The last HHSDC rate study was completed in 2000 and examined rates during the 1998-99 fiscal year. While this study provided some useful information on recommended changes to HHSDC's internal billing and accounting processes, it did not examine data center operations and practices to identify opportunities for increased efficiencies and cost reductions which could result in reduced rates.

The TDC's Financial Assessment Should Be Used as Model. In 2001, TDC conducted a financial assessment that evaluated TDC's current operation, compared TDC rates with private and other governmental entity rates, and recommended changes for improving TDC costs, rates, and services. This assessment was more comprehensive than traditional data center rate studies and provided a number of recommendations that TDC will be implementing which are aimed at improving its internal operations, thereby reducing TDC funding needs and decreasing rates to its client departments.

Analyst Recommendation. Given the data centers' historical practice of conducting biennial rate studies, it is anticipated that HHSDC will conduct a rate study within the next year. In view of this, we recommend that the Legislature direct HHSDC to conduct a rate study similar to the TDC study of its operations for the purpose of improving data center operations, thereby modifying rates and services to client departments. Specifically, we recommend the Legislature adopt the following supplemental report language:

The Health and Human Services Agency Data Center (HHSDC), in consultation with the Department of Finance, shall conduct a rate study that evaluates HHSDC current operations and processes and identifies operations and processes that should be improved thereby resulting in reduced HHSDC costs and rates and improved services to client departments.

Increased Expenditure Not Justified for IHSS/CMIPS Project

We recommend that the Legislature (1) deny the $376,000 increase for the In-Home Supportive Services/Case Management Information and Payrolling System (IHSS/CMIPS) Project, and (2) approve the extension of three limited-term positions needed to complete the IHSS/CMIPS procurement activities. (Reduce Item 4130-001-0632 by $376,000.)

Background. The In-Home Supportive Services (IHSS) program was established in 1973 in DSS as a program to provide in-home supportive services to qualified aged, blind, and disabled persons. In 1979, DSS contracted with Electronic Data Systems for the development and operation of a system known as the IHSS/CMIPS Project. The IHSS/CMIPS system was implemented statewide in 1979. In 1998, DSS was directed by the Department of Information Technology and the Department of Finance to conduct a competitive procurement for a new contract for the system. As with other DSS-related projects, HHSDC was assigned responsibilities for the procurement activities.

Budget Proposal. Last year, the Legislature authorized an increase of $309,000 for three one-year limited-term positions to enable HHSDC to complete the procurement. The positions were authorized for the period of January 2002 through December 2002. Due to delays in the contracting process, the budget requests an increase of $376,000 to extend the positions for six additional months through June 2003. Procurement activities are expected to be completed and a new contract in place by November 2003.

Analyst Findings and Recommendations. Based on our review, we conclude that the proposal double budgets funds for the IHSS/CMIPS staff positions. This is because in building the 2002-03 budget, the administration failed to reduce the data center's baseline expenditures for the three limited-term positions before adding funds for the extension of these positions. Accordingly, based on our analysis we would recommend that the Legislature deny the proposed $376,000 increase and approve the continuation of the three limited-term positions to complete the procurement activities in the budget year.

Additional Funding for SFIS Not Justified

We recommend that the Legislature reduce the Health and Human Services Agency Data Center's (HHSDC) expenditure authority for the Statewide Fingerprint Imaging System (SFIS) by $464,000 since (1) the proposed consulting services are duplicative of activities that state staff can perform and (2) HHSDC cannot identify specific legal and legislative activities that SFIS legal services are currently supporting or will perform in the budget year. We withhold recommendation on the proposed consulting services pending receipt of additional information justifying these services in the budget year. (Reduce Item 4130-001-0632 by $464,000.)

Background. The SFIS is a system that automates 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 system was implemented statewide in December 2000. The SFIS project is the only DSS county-based project funded entirely from the General Fund.

Budget Proposal. The Governor's budget proposes total funding of $11.4 million for the ongoing maintenance and operations for the SFIS Project. This amount includes a proposed augmentation of $561,000 in 2002-03. The proposed increase has three components:

• Software Independent Verification and Validation (IV&V) Services. Software IV&V is the review of software development processes and practices to ensure compliance with project standards and policies. The budget requests $293,000 to continue IV&V services on the SFIS project.
• Legal Services. The budget proposes to increase HHSDC's expenditure authority by $78,000 for additional legal services resulting in a total of $171,000 for SFIS legal services. (There is currently $93,000 in the baseline.) The HHSDC indicates these additional legal services are needed to support SFIS lawsuits and legislative issues.
• Fingerprint Expert Consulting. The budget proposes to increase HHSDC's expenditure authority by $190,000 for additional consulting services to review proposed equipment replacements scheduled for 2003-04.

Analyst Findings and Recommendations. We have several concerns with this proposal. First, the Legislature approved additional state staff in 2000-01 to review proposed SFIS changes. Based on our review, we conclude that these positions can also conduct reviews to ensure compliance with project standards. Accordingly, we recommend that the Legislature deny the request for additional IV&V services because it is duplicative of activities that should be performed by existing state staff. Second, HHSDC is unable to identify any specific pending lawsuits, or legislative activities that legal staff would work on in either the current or budget years. In view of this, we recommend the Legislature deny the proposed $78,000 increase and further reduce Item 4130-001-0632by $93,000 for the unspecified legal services to the project. Finally, we withhold recommendation on the proposed expenditure authority increase of $190,000 for fingerprint consulting services pending receipt of additional information demonstrating (1) the need to pursue these activities during the budget year, and (2) the consequences to the ongoing support of the SFIS system should these activities be deferred one year.

Undefined Oversight on Statewide Automated Welfare System

We recommend that the Legislature reduce the Health and Human Services Agency Data Center's expenditure authority by $2.3 million for undefined consulting activities on the Statewide Automated Welfare System Oversight Project. (Reduce Item 4130-001-0632 by $2.3 million.)

The purpose of the Statewide Automated Welfare System (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, each of which has chosen to be in one of four consortia. Figure 2 shows the four consortia, the participating counties, and the status of each.

The data center provides oversight for the four SAWS consortia by preparing project documents and budget proposals, reviewing consortia deliverables, managing project risk on the four SAWS consortia, and approving and tracking expenditures. These oversight activities are performed by both state staff and contractors.

Undefined Oversight Consulting Services. The budget includes a total of $7 million for SAWS-related oversight activities, including $2.3 million for consulting services. However, HHSDC is unable to provide details on the consulting services that are to be provided by the contractors. Specifically, the budget request does not indicate what specific activities and tasks will be performed during the budget year. In the absence of this information, the Legislature has no basis for providing the $2.3 million in expenditure authority in the budget year. Therefore, we recommend that the Legislature reduce HHSDC's expenditure authority by $2.3 million.