Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

Department of Motor Vehicles (2740)

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 streets and highways by issuing and renewing driver licenses. Additionally, the department licenses and regulates vehicle-related businesses such as automobile dealers and driver training schools, and also collects certain fees and tax revenues for state and local agencies. The DMV operates 167 field offices statewide, as well as nine telephone service centers, a headquarters, and several driver safety and investigations offices.

The budget proposes total expenditures of $705 million for support of DMV in 2004-05. This is a reduction of $14 million, or 2 percent, below estimated current-year expenditures. The reduction includes primarily adjustments for one-time administration expenditures in the current year to issue vehicle license fee refunds to certain vehicle owners.

About $382 million (54 percent) of the department's total support will come from the Motor Vehicle Account (MVA) and $269 million (38 percent) from the Motor Vehicle License Fee Account. The remaining support will be funded primarily from the State Highway Account and reimbursements.

Significant Reductions in Staffing; Wait Times at Record Levels

The staffing level at the Department of Motor Vehicles (DMV) has declined by about 1,000 positions in recent years due primarily to hiring freezes and position abolishments. Workload levels, meanwhile, have grown steadily. As a result, levels of service provided to the motoring public have declined significantly. We recommend that the Legislature reexamine the level of service to be provided by DMV. If the Legislature determines that current wait times and overall service levels are unacceptable, we recommend the Legislature restore some of the abolished positions particularly in the department's field offices and telephone centers.

The DMV's various responsibilities require it to engage in a significant amount of contact with the public. The department is charged with licensing 23 million drivers and registering 27 million vehicles, as well as issuing identification cards, transferring vehicle ownership, and providing numerous other services. Each year, over 30 million people are served in DMV's field offices, with the department performing millions of additional transactions for customers by mail, over the phone, and on-line.

Staffing Level Down, Workload Up . . . The DMV's staffing level has declined in recent years as a result of multiple rounds of cutbacks from hiring freezes and position abolishments, as well as the need to hold positions vacant to meet salary savings requirements. As Figure 1 (see next page) shows, after peaking at about 8,900 personnel-years (PYs) in 2001-02, staffing will drop to about 7,900 PYs in the budget year. Most of the reduction is pursuant to Control Section 4.10 and Executive Order D-71-03, which together eliminated about 600 vacant positions from DMV in the current year. These eliminated positions affect all functions of the department, including field operations, the telephone service centers, departmental divisions such as the investigations unit, and headquarters administration. The hardest hit is the field operations division, which suffered the majority of the cutbacks with over 300 positions being eliminated.

As a result of these reductions, there are an average of 12 percent fewer customer service "windows" open at any given time in the field offices today than in 2000-01. In addition, the number of Motor Vehicle Field Representatives (MVFRs) working in DMV's telephone service centers has decreased by about 40 positions (or about 8 percent).

While the staffing level has declined, DMV's workload has increased. For instance, since 2000-01, the total number of drivers licensed by DMV has increased by over 1 million (about 5 percent), to 23 million. The number of vehicles registered has also increased annually and is expected to increase further, by about half a million (or 2 percent) in the budget year. Overall, the department now performs about 44 million transactions a year, about 2 million more than four years ago.

. . . and Service Levels Deteriorating Rapidly. This combination of staffing cutbacks and workload growth has impacted significantly the level of service provided by DMV to the public. As Figure 1 shows, average wait times for walk-in customers have increased dramatically with the staffing decline. Currently, the average wait time at DMV's field of fices is about 60 minutes. This time does not include the initial period when a walk-in customer stands in line to obtain a "queuing number," which can add several more minutes to the overall wait time. At some large-volume urban offices, the wait time can be significantly higher. The DMV reports that at offices such as San Mateo, Glendale, and Fullerton, maximum wait times are up to four hours. Absent corrective actions in the budget year, DMV projects that average wait times statewide will increase to about 80 minutes. These wait times are significantly longer than the statutory intent that customers not be required to wait in line at a field office for more than 30 minutes.

Customers wishing to avoid long lines at DMV have the option of making an appointment (by phone or on-line) before visiting a field office. The DMV's scheduling system allows customers to make an appointment up to 30 days in advance. Customers using the appointment service are usually served within ten minutes of their scheduled appointment time. However, due to a high demand for appointments and reduced staffing to accommodate that demand, customers currently must wait an average of two to three weeks to schedule an appointment to register their vehicle or apply for a driver license. Average wait times for drive test appointments are nearly a month long. At offices in San Francisco, Los Angeles, and San Diego, some customers are unable to schedule any type of appointment because there are no available slots within the 30-day scheduling period. The difficulty in setting an appointment as well as the long wait for appointments often provide customers with no options but to visit a field office as a walk-in customer.

Wait times apply to customers trying to access DMV by phone, as well. Customers can use DMV's toll free number to make an appointment or inquiry, request forms, and perform certain transactions such as vehicle registration renewals. Currently, calls by customers to the telephone service centers are placed on hold for an average of about four minutes before being answered by an MVFR. This is almost double the average wait time in 2002-03. Recently, it has become difficult for customers to even get through to DMV's phone system: reduced staffing levels at the telephone service centers have caused some customers to encounter a "busy" signal, sometimes for hours, when dialing the number. As a result, many of these customers must also visit their local field office as a walk-in, which further adds to congestion and wait times.

Recommend Restoration of Select Abolished Positions Depending on Legislature's Assessment of Service Levels. In light of the recent cutbacks, we recommend that the Legislature reexamine the level of service to be provided by DMV. To some extent, DMV can improve services through administrative efficiencies and actions to encourage a reduction in field office visits by customers. (In the following section, we recommend several changes to the driver licensing program to that end.) However, given the magnitude of DMV's workload, it is unlikely that administrative actions alone will reduce wait times to any significant degree. Rather, additional staffing will be needed. Thus, if the Legislature determines that the present levels of service provided by DMV, as reflected in wait times, are unacceptable, we recommend the Legislature restore some of the abolished positions.

In our view, the highest staffing priority for the department is in the field operations division and the telephone service centers, which together lost over 300 positions in the current year pursuant to Control Section 4.10. By adding primarily MVFRs, DMV would be able to serve more customers by phone, and more workstations and appointment slots could be made available for customers in the field offices—thereby reducing wait times. According to DMV, an additional 100 field office staff would reduce wait times on average by about five minutes. We estimate that restoring 100 MVFR positions would cost about $5 million annually. Funding would come largely from the MVA. Because of the substantial balance (over $300 million) the MVA is projected to have by year end, an increase of this magnitude would not have a significant negative impact on the account condition.

If the Legislature chooses to restore some positions to the department, we recommend that it also adopt budget bill language to exempt these positions from the hiring freeze. Otherwise, the department would not be able to fill these positions.

The Driver Licensing Program

State law requires motorists who reside in California to hold a valid driver license in order to drive on public streets and highways. The DMV is responsible for issuing original driver licenses to qualified applicants, as well as renewing expired licenses. Annually, the DMV issues about 850,000 (original) noncommercial driver licenses and renews about 4.7 million noncommercial driver licenses. The fee for original and renewal driver licenses is $24, and both are valid for five years. Department staffing for driver license services totals approximately 2,700 positions, about 400 positions (13 percent) less than levels in 2000-01.

The MVA is the sole source of funding for DMV's driver licensing program. The MVA derives most of its revenue from driver license, identification card, and vehicle registration fees.

Improving Efficiency and Effectiveness in the Issuance of New Driver Licenses

The Department of Motor Vehicles' process of issuing new driver licenses is labor-intensive and costly. Our review finds opportunities to improve the process in terms of customer service, driver safety, and cost effectiveness. We recommend the department report at budget hearings on the viability of making several administrative changes to the written test. We further recommend the enactment of legislation to (1) increase the existing fee on drive test retakes and (2) impose a new fee on drive test appointment "no-shows." Lastly, we recommend legislation to create a pilot project to evaluate the feasibility and cost implications of out-sourcing drive tests.

Issuance of Driver Licenses Is Lengthy, Labor-Intensive Process. The current process to issue an original driver license requires DMV staff to perform a number of functions with direct contact with license applicants. Unlike the driver license renewal process, most of which can be done by mail, every new driver license applicant must visit a DMV field office at least twice. In many cases, applicants visit a field office multiple times.

Figure 2 summarizes the key steps involved in the issuance of a driver license. An initial visit is required in order for the customer to be issued a learner permit. For that visit, the applicant may choose either to make an appointment (by phone or on-line), or to walk in without an appointment and be served on a "first-come, first-served" basis. Wait times for appointments currently vary from a few days (primarily in rural areas) to over a month (primarily in urban areas).

At the field office's "check in" station, an MVFR provides instructions to the customer on completing the driver license application form. The applicant fills out the form and waits for further assistance. Currently, walk-in customers must wait an average of about one hour; with wait times ranging up to three or four hours at several high-volume urban field offices (for example, Glendale and Escondido). A second MVFR then enters the information from the application form into DMV's computer database. As required by law, the staff member reviews the applicant's age, identity, and legal status documentation. The authenticity of this documentation is also verified by a supervisor. After collecting the fee from the applicant, the MVFR administers a vision test.

Next, the applicant moves to the photo station, where another MVFR takes the applicant's thumbprint and picture. Afterwards, the applicant is sent to another section of the field office, where a fourth MVFR administers the written test. The test is corrected by hand. If the applicant passes, the MVFR issues a learner permit so that the applicant can practice for the behind-the-wheel drive (road) test.

During the period between the written and drive test, DMV staff at headquarters electronically verifies the citizenship and legal immigration status of driver license applicants with the Social Security Administration and, if applicable, the Immigration and Naturalization Service. Cases of suspected fraud are investigated by department staff.

The applicant must call to make an appointment in order to take a drive test. Currently, applicants have to wait about a month for a drive test appointment at many field offices. If the applicant fails the 20-minute drive test, he/she has two more chances to retake the test. When the applicant passes, an MVFR enters the applicant's score into the computer system and issues an interim license. Staff at headquarters completes the processing of the application, and mails a photo license to the applicant within four to six weeks.

High Costs to Issue New Driver Licenses. This labor-intensive process results in significant costs to the department. In fact, DMV estimates that it costs about $67 in direct costs to issue a new driver license. These costs include mailing and printing charges, as well as paying staff to process the applications and to administer the written and drive tests. Given that about 850,000 people apply annually for a driver license, it costs DMV about $57 million a year in direct costs to issue original driver licenses. This cost is only partially offset by $20 million in license fee revenues, resulting in net costs (over revenue) of approximately $37 million annually.

Opportunities Exist to Improve Testing. Our review finds that given the costs of certain equipment, the logistics of serving hundreds of thousands of customers, and the need to safeguard the integrity of the process and prevent fraud, the department's procedures in processing driver license applications are warranted. For example, for logistical reasons multiple staff members are needed to process the application, verify legal documentation, and take the customer's photograph and thumbprint. However, we find that there are a number of opportunities to improve the process, particularly in terms of the written and drive tests, as discussed below.

Written Test Marked by High Failure, Retest Rates; Recommend Changes to Improve Learning of Traffic Laws, Reduce Costs. Currently, if an applicant fails the written test, he/she can retake it two more times without paying another $24 fee. Except for minors, there is no minimum waiting period before the applicant can retake the test. This retesting policy contributes to the heavy workload the department faces. The DMV estimates that it spends over $11 million annually to correct millions of written tests (including tests for original and renewal licenses).

According to the department, the success rate for the written test is about 50 percent. A key reason for failure among examinees is that they did not study enough beforehand. In fact, many examinees do not obtain and review the 80-plus-page book until the day they visit a field office to apply for a driver license.

Our review finds that another group of examinees do not study the handbook at all. Currently, most examinees are given back their corrected tests. Some examinees take advantage of this policy by obtaining corrected copies of the test from friends or family and committing to memory the answers. In addition, as there are multiple versions of the test (ten in English, but only five in Spanish, and three in the other foreign languages), some examinees take and retake the test (sometimes in the same day) until they get a version that they have seen before. Of course, these practices defeat the purpose of the test, which is to ensure drivers' knowledge of traffic laws in order to promote road safety. It also increases staff time to administer retests, and causes additional congestion in the field offices.

By encouraging more studying, and discouraging strategies such as "exam shopping," DMV can reduce the number of written test retakes—thereby reducing costs—as well as improving the exam's integrity. Our review shows that there are a number of actions DMV can take administratively to that end. We recommend that the department report to the Legislature at budget hearings on the feasibility and fiscal impact (cost and savings) of implementing the following actions as well as other actions it is considering:

• Make driver handbooks more available by placing them in public places (libraries, community centers, post offices, et cetera).
• Increase the number of versions of written tests in each language to ten in order to reduce the incidence of exam shopping.
• Retain all written tests after sharing the results with the applicant. Some field offices already have an internal policy of not returning written tests in foreign languages other than Spanish.
• Require a minimum waiting period for all applicants before they can retake the test. This would encourage examinees to take more time to study.
• Rewrite the Spanish language handbook and written tests to make them more accessible to applicants. The current material is written in the formal "Castilian" dialect, which makes it difficult for some examinees to understand some of the vocabulary.
• Provide the test on "touch screen" computers, such as those used in North Carolina and Wisconsin. This option would allow DMV to free up staff from correcting tests and reassign them to other activities, reduce paper waste, and eliminate the problem of cheating and "test sharing."

Create Incentive to Pass Drive Test; Recommend Higher Fee for Retests. Of the approximately 1.1 million drive tests given annually by DMV, about 33 percent result in a failing score. The primary reason why applicants fail the road test is that they did not spend enough, if any, time practicing their driving skills. Current law allows applicants to take up to three drive tests before they have to reapply and pay another $24 fee. The department charges a nominal $5 fee for each drive retest. We think that a higher fee would be more effective in encouraging applicants to practice more before taking the drive test, thereby reducing the need for retesting. In addition, a higher fee for each drive retest would offset a larger portion of the $32 in direct costs that DMV incurs to administer each drive test. Accordingly, we recommend the enactment of legislation to increase the retest fee to encourage applicants to practice more and to more fully cover costs. A $15 retest fee (an increase of $10), for example, would generate about $5 million in revenue.

Reduce Drive Test No-Shows; Recommend New Fee. As stated earlier, drive test examinees must schedule an appointment for a drive test. Department staff arrange for a date and time that is convenient for the applicant, subject to availability by a drive test examiner. However, our review finds that there is a considerably high no-show rate among examinees. While DMV does not compile records on the incidence of drive test no-shows, field office staff suggests that about 20 percent of appointments (over 200,000 annually statewide) are not kept by applicants. No-shows reduce the efficiency and productivity of drive test examiners as they must wait for applicants who never appear, and make unavailable a slot that another applicant might have filled. We recommend the enactment of legislation to impose a new fee on applicants who fail to cancel their drive test appointments ahead of time. In so doing, DMV might be able to reduce the incidence of no-shows, as well as collect additional revenue from those whose behavior is not changed by such a fee.

Recommend Pilot Project on Out-Sourcing Drive Tests as Way to Improve Customer Service, Reduce Costs. Under current law, third parties such as licensed privately owned driving schools and public high schools are authorized to provide driving classes (in the classroom and on the road) to individuals seeking a noncommercial driver license. Only trained DMV staff are authorized to conduct the actual drive tests. (The DMV allows certified companies to test their own drivers for a commercial license.) With staffing cutbacks due to hiring freezes and position abolishment pursuant to Control Section 4.10 and Executive Order D-71-03, wait times for drive test appointments average about one month long.

A potential solution to reduce the long wait time for customers would be to authorize third parties to conduct drive tests, similar to what is done in other states such as Colorado and Michigan. In Colorado, residents can choose either to schedule a test with a DMV examiner, or, for faster service, to pay a third party tester directly for the cost of the test. In Michigan, all drive tests are given by third parties, which are bonded and regularly monitored by the state. In order to evaluate the workability of using third party testers for the drive test, we recommend the enactment of legislation that directs DMV to pilot test third-party testing at select field offices for a period of time, such as two years, and to report to the Legislature on the pros and cons and cost implications of implementing the project statewide.

Reducing Office Congestion and Costs Associated With In-Person Renewals

While the majority of motorists are eligible to renew their driver licenses by mail, a large number of them opt instead to renew in person. In so doing, these customers contribute to congestion in the field offices, and significantly increase costs to the department. We recommend the department report to the Legislature at budget hearings on ways of reducing unnecessary in-person renewal visits. We further recommend the enactment of legislation to allow the Department of Motor Vehicles to impose new fees on photos and temporary licenses under certain circumstances.

The DMV renews about 4.7 million driver licenses annually. Approximately 40 percent of renewal customers (about 1.9 million) are required by DMV to visit a field office to renew their driver license in person for a number of reasons. For example, they may have received multiple traffic tickets during the previous renewal period. Renewal customers who will be over age 69 on the license expiration date, and those with certain medical conditions, must also renew in person. These customers are often required to take a written test, and in some cases, may be required to take a drive test as well. License holders who were eligible to renew by mail the previous two five-year periods are also required to visit a field office to take an updated photo and eye exam.

Many Renew Driver License in Person Instead of by Mail, Increasing Office Congestion and Costs. The remaining 60 percent of renewal customers are eligible to renew by mail. However, DMV estimates that of the 2.8 million applicants who are eligible to do so, about 750,000 (27 percent) opt instead to renew in person. Reasons that these customers cite for their field office visit include:

• Unhappy with the current driver license photo and wish for a replacement.
• Want to pay with cash.
• Prefer in-person visits to the mail system.
• Did not receive a renewal form because DMV mailed it to an old address.
• Need for a temporary license because missed renewal deadline and license expired.

Regardless of the reason, by renewing in person rather than by mail, this group of applicants increases wait times for customers who have no option but to conduct their business in-person. In-person license renewals also increase the department's costs significantly. Specifically, the department estimates that it costs about $3 to renew a driver license by mail, but about $18 for an in-person renewal. This difference is due, in part, to the different way the department processes a mailed-in renewal versus an in-person renewal. Currently, for renewals by mail, staff at headquarters simply process the renewal notice and mail out a new driver license using the applicants' photo on file. In contrast, the department requires all in-person renewal customers—including those who are eligible to renew by mail—to take a new photograph and vision test and to submit another thumbprint. As a result, the 750,000 customers who renew in person add about $11 million in additional costs to DMV.

Recommend Measures to Reduce In-Person Renewals. As in the case of new driver license issuance, our review shows that there are a number of administrative actions which DMV can take to encourage customers to renew their driver license by mail. We recommend that DMV report at budget hearings on the feasibility and fiscal effect (cost and savings) of the following actions as well as other actions that it is considering:

• Installing "express boxes" for driver license renewal and directing customers who appear in-person at field offices to drop off renewal applications instead of waiting in line. (Currently, express boxes are already in use for vehicle registration renewal purposes.)
• Advising customers who prefer to pay with cash to use a check or money order instead (and to use the express box) in order to avoid a substantial wait time.
• No longer require a new photo, thumbprint, and vision test from applicants who are eligible to renew by mail but who insist on renewing in person. This would avoid the higher cost of renewing these licenses as well as reduce wait times of customers.
• Linking DMV's vehicle registration and driver license databases so that a change of address reflected in one system is automatically updated in the other. Because vehicle registrations are renewed annually, that database is more up-to-date than the driver license database. Linking the two systems would significantly reduce the incidence of DMV mailing renewal forms to an incorrect address. However, it would likely involve significant one-time costs for the department to link the two databases.

In addition, to defray some of the additional cost imposed by in-person renewals and to encourage prompt driver license renewal, we recommend the enactment of legislation to authorize DMV to charge a fee (1) to customers that are eligible to renew by mail who want to take a new photo and (2) for a temporary license in cases where a licensee failed to renew on time.