Legislative Analyst's Office
Analysis of the 2003-04 Budget Bill
The Health and Human Services Agency Data Center (HHSDC) provides information technology (IT) services, including computer and communications network services, to the various departments within the Health and Human Services Agency. 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 $332 million for support of the data center in 2003-04, which is an increase of $16 million, or 5 percent, above estimated current-year expenditures. The budget includes a number of increases for workload and the continued implementation of IT projects.
The Health and Human Services Agency Data Center requests an expenditure authority increase of $4.7 million and 15 positions to purchase computer equipment and develop rates for new data center services. Since none of this request relates to new projects, we recommend the Legislature deny the augmentation since the method used to develop the proposal is based on past workload growth trends that are not reflective of 2003-04 demand for services. We further recommend that the data center report at budget hearings on actions that it could take which would lower both costs and rates charged to departments in the budget year. (Reduce Item 4130-001-0683 by $4.7 million.)
The budget proposes an increase in expenditure authority of $4.7 million to purchase computer equipment and develop rates for new data center services.
Request Based on Past Workload Growth Trends. The HHSDC states the increases are needed based on workload growth and new state IT projects. The HHSDC, however, was unable to match proposed expenditure authority increases to specific department activities or projects. Instead, the $4.7 million and 15 positions reflect the data center's growth projections based on historical patterns. In the late 1990s, workload growth trends were an adequate measure to estimate data center funding needs because government services and spending were consistently increasing. With the severe budget problem, however, departments are experiencing reduced budgets and service levels. This means that departments' computing needs are also likely to be declining. As a result, the data center's use of historical workload growth measures appears to seriously overstate budget-year demand for its services. Accordingly, we recommend the Legislature reject HHSDC's augmentation proposal.
HHSDC to Report on Efforts to Lower Costs and Rates. With significant budget reductions expected in 2002-03 and 2003-04, departments will have limited budget flexibility and capability to pay for services. Consequently, it is important for service entities such as HHSDC—whose budget is based on reimbursements from other departments—to be holding the line or even decreasing its expenditures and rates. For example, the Department of General Services (DGS)—another entity whose budget is based on reimbursements—proposes to decrease its expenditure authority by almost $17 million and 23 positions to reflect proposed fee reductions. The DGS will pursue internal efficiencies to reduce its service fees and help departments reduce their costs.
The HHSDC has not followed the approach of DGS. With the exception of current-year reductions related to the statewide elimination of vacant positions and its annual budget adjustment for completed projects, HHSDC does not propose to reduce its expenditure authority. The HHSDC also does not propose to reduce the rates that it charges departments. Through the Supplemental Report of the 2002 Budget Act, the Legislature directed HHSDC to perform a study to identify HHSDC operations that should be improved and would result in reduced rates and costs. However, HHSDC informs us that it will not conduct the requested study because it did not receive additional funding to conduct it. Had the data center complied with legislative intent, it would be in a better position to reduce its costs and rates.
We believe the data center should follow DGS' lead in pursing internal efficiencies to lower costs charged to departments. Accordingly, we recommend that HHSDC report at budget hearings on actions it has taken or will take to reduce its costs and lower its rates. This approach would lower departments' expenditures for HHSDC services and allow them to better adapt to their own reduced budgets. In addition, we recommend HHSDC report at hearings on why it did not conduct the study requested by the Legislature.
The Health and Human Services Agency Data Center (HHSDC) requests an expenditure authority increase of $1.2 million to provide operational recovery services to the Employment Development Department and the Department of Developmental Services. Our review found that the budget request is inconsistent with the project's Feasibility Study Report, and HHSDC did not examine all viable options for these services. For these reasons, we recommend the Legislature deny the proposal. (Reduce Item 4130-001-0632 by $1.2 million.)
The budget requests an expenditure authority increase of $1.2 million to provide operational recovery support to computer systems used by the Employment Development Department (EDD) and the Department of Developmental Services (DDS).
HHSDC's Proposed Funding. Operational recovery allows computer systems that have suffered severe hardware or software failures to be "restored" or returned to normal operation within a few hours. The state has typically contracted for this service. The HHSDC proposes spending in the current and budget years $2 million to provide: (1) $744,000 to support EDD, (2) $120,000 to support DDS, (3) $915,000 for testing, and (4) $180,000 for unspecified consulting activities. The HHSDC currently has a baseline expenditure authority of $437,000 for such recovery activities, and it anticipates that $370,000 of the proposed activities will begin and be billed in the current year. After accounting for this $807,000 in existing resources, the budget proposes an augmentation of $1.2 million.
Request Is Inconsistent With Project Proposal. When a department proposes an IT project, state policy requires the department to prepare a Feasibility Study Report (FSR), which identifies the benefits for the state's investment in the project. The FSR also includes cost details to support any proposed budget request. According to the FSR supporting this request (submitted in November 2002), the data center will annually receive (1) $984,000 from EDD and (2) $240,000 from DDS to pay a contractor to perform operational recovery services. These amounts, however, are inconsistent with the amounts included in the budget request. In addition, the budget request includes $735,000 that is not included in the FSR. Since the FSR should include all project costs, it is unclear how the $735,000 relates to the proposed operational recovery services for EDD and DDS.
HHSDC Did Not Examine Services Available From Other State Data Centers. In reviewing the FSR, we also found that HHSDC did not examine the costs and benefits of having other state data centers perform these services instead of contractors. The state has other data centers—such as the Stephen P. Teale Data Center and the Department of Justice's Hawkins Data Center—that may be able to perform these activities at a lower cost.
Recommend Denying Request. Since (1) the budget request is inconsistent with the FSR and (2) HHSDC did not examine all viable alternatives for this request, we recommend the Legislature deny the proposal. The HHSDC could resubmit a request (1) after it has examined all viable operational recovery alternatives and (2) that contains costs for only EDD and DDS operational recovery needs.
The Health and Human Services Agency Data Center (HHSDC) proposes budget bill language that authorizes the Department of Finance to increase HHSDC's expenditure authority to accommodate additional training requests. Since HHSDC already has similar budget bill language for unanticipated workload requests, we recommend the Legislature delete the proposed language.
The HHSDC proposes budget bill language that authorizes the Department of Finance (DOF) to increase HHSDC's expenditure authority during the budget year to accommodate additional training requests.
State IT Training Center. The HHSDC operates the state's IT training center used by both state and local governments. The HHSDC uses contractors to teach the training classes and only purchases contractor services after enough students have enrolled in the proposed classes. Based on past workload growth trends, HHSDC estimates that its current expenditure authority will be inadequate to meet the training needs of government agencies.
Current Budget Bill Language Provides Proposed Authority. The HHSDC already has budget bill language that authorizes DOF to increase its authority for unanticipated workload. If HHSDC is unable to meet its budget-year training needs with its existing expenditure authority, its current budget bill language provides the authority to address unanticipated workload growth. For this reason, we recommend the Legislature delete the proposed budget bill language.
The Health and Human Services Agency Data Center (HHSDC) proposes to increase its expenditure authority by $30 million to upgrade hardware and software used to support the Child Welfare Services/Case Management System (CWS/CMS). Since interest costs would be reimbursed by the federal government, we recommend the Legislature (1) reduce the request by $11 million in hardware costs not proposed to be financed and (2) direct HHSDC to submit a revised request that includes financing of all hardware acquisitions. (Reduce Item 4130-0001-0632 by $11 million.)
The budget proposes to increase HHSDC's expenditure authority by $30 million to upgrade software and hardware used to support the Child Welfare Services/Case Management system (CWS/CMS).The CWS/CMS system provides a statewide database, case management tools, and reporting system for the state's CWS program. The project has completed development, and is now operational in all counties.
HHSDC Proposes Hardware and Software Upgrades. The proposal specifically requests (1) $13 million in additional costs to operate the system, (2) $11 million in new hardware, (3) $6.7 million in software upgrades, and (4) $218,000 for one additional position and HHSDC overhead. These costs are offset by $1.1 million in baseline reductions.
Hardware Purchases Should Be Financed . One of the methods that departments can use to reduce budget-year costs is to finance equipment purchases. Financing increases the overall cost of equipment because interest is an additional cost. For equipment purchased to support federally mandated programs, however, the federal government will reimburse the state for interest costs. The CWS program is a federally mandated program.
For this request, HHSDC proposes to finance only a $100,000 E-mail server. The other equipment (personal computers and telecommunications hardware) could also be financed. Financing all hardware purchases would significantly reduce the budget-year costs of this proposal. For this reason, we recommend the Legislature reduce the proposal by $11 million and direct HHSDC to submit a revised proposal that finances all proposed hardware purchases.
The Health and Human Services Agency Data Center (HHSDC) proposes to increase its expenditure authority by $4.7 million to develop the Child Welfare Services/Case Management System (CWS/CMS) Expanded Adoption Subsystem (EAS). The HHSDC intends to amend the current CWS/CMS contract for the development and implementation of EAS. Since a competitive procurement may result in lower costs, we recommend the Legislature adopt budget bill language directing HHSDC to examine competitive procurements options prior to amending the current CWS/CMS contract.
The budget proposes to increase HHSDC's expenditure authority by $4.7 million to develop the CWS/CMS Expanded Adoption Subsystem (EAS). The purpose of this federally and state-mandated system is to track and record adoption activities for foster care children.
History of Current CWS/CMS Contract. The CWS/CMS is maintained and operated by a contractor. In 1992, the original CWS/CMS contract was roughly $88 million, but it has since been amended several times. The contract, as a result, now has a total value of $400 million. The purpose of these amendments have been for hardware and software upgrades, increased maintenance and operation costs, and system enhancements. In 1997, state control agencies and the federal government directed HHSDC to conduct a competitive procurement for ongoing CWS/CMS maintenance and operation activities. In 2000, the state began this competitive procurement. The procurement was cancelled in 2002, however, since HHSDC was unable to address federal procurement requirements. The HHSDC intends to begin a new competitive procurement in 2004-05 in order to have a new contract in place in 2005-06.
Future CWS/CMS Activities Should Be Competitively Procured. The HHSDC intends to amend the current CWS/CMS contract to include the development and implementation of EAS. This action would result in a contract increase of $7 million. Our review of the Special Project Report submitted to the DOF in January 2003 found that HHSDC did not examine competitive procurement alternatives, where other contractors could bid to perform this development effort. A competitive procurement may result in lower budget-year contract costs. For these reasons, we recommend the Legislature adopt the following budget bill language:
The Health and Human Services Agency Data Center shall examine competitive procurement options as directed by the Department of General Services and the federal government prior to amending the primary contract supporting the Child Welfare Services/Case Management System.