LAO 2005-06 Budget Analysis: General Government

Analysis of the 2005-06 Budget Bill

Legislative Analyst's Office
February 2005

Health and Human Services Agency (0530)

Secretary for Health and Human Services

The Secretary oversees the Health and Human Services Agency (HHSA). This agency, through its various departments, boards, offices, councils, and commissions, is responsible for administering various state and federal programs for health services, social services, public assistance, and rehabilitation. The following departments and organizations are under HHSA:

The budget requests $230 million from all fund sources for the Secretary in 2005-06, an increase of $223 million, or 33 times larger than the revised budget for the agency for the current fiscal year. This significant change in the agency spending level is due entirely to the proposal, discussed below, to transfer several large information technology (IT) projects, and their associated special funds and staffing, from the Health and Human Services Agency Data Center (HHSDC) to HHSA. General Fund support for HHSA would remain level in the budget year at about $4.9 million

Office of System Integration

The administration proposes to transfer several large IT projects from HHSDC to HHSA. This transfer is the result of the proposed consolidation of HHSDC and the Stephen P. Teale Data Center into the new Department of Technology Services (DTS) (please see the "General Government" Chapter for a discussion of this proposal). Specifically, the budget requests to transfer to HHSA: (1) ten projects (nine social services projects and one unemployment insurance project), (2) the HHSDC revolving fund with a balance of $223 million, and (3) 176 positions.


Department of Social Services (DSS) Projects. Prior to 1995, DSS managed all of its own IT projects. Due to numerous project management problems on the largest DSS projects, however, the 1994-95 Budget Act transferred five projects (another project was also transferred but later terminated) to HHSDC. These projects were:

Since that time, the state has transferred four additional DSS projects to HHSDC. Figure 1 identifies the nine DSS projects currently managed by HHSDC, the projects' status, and proposed budget-year costs.

Figure 1

Department of Social Services Projects
Managed by Health and Human Services Agency
Data Center

(In Millions)


Project Name


Current Activities

2005-06 Costs

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

Provides a statewide data base, case management tools, and a reporting system for the state’s CWS program.

Status: project undergoing major

·   Transferring CWS/CMS equipment to Department of Technology Services.

·   Conducting procurement for new software maintenance contract.

·   Maintaining and operating current CWS/CMS.


Electronic Benefit Transfer

Uses debit card technology and retailer terminals
to automate benefit authorizations, delivery,
redemption, and financial settlement for food stamp program.

Status: implementation.

·   Completing implementation within counties.


In-Home Supportive Services (IHSS)/
Case Management Payrolling System

Provides case management and payroll services for the IHSS program.

Status: development.

·   Conducting procurement for the development, maintenance, and operation of replacement system.


Statewide Automated Welfare System

Consists of four separate projects. Provides uniform information technology capability to county welfare offices. Counties belong to one of four consortia.

Status: implementation, and
maintenance and operations.

·   Implementing new system in
certain counties.

·   Maintaining and operating
remaining consortium systems.


Statewide Fingerprint Imaging System

Automates the collection, interpretation, and
storage of fingerprints for persons applying for public benefits.

Status: maintenance and operation.


Welfare Data Tracking Implementation Project

Determines time-on-aid for CalWORKS program.

Status: maintenance and operation.


a    Some of these costs are included in the Department of Social Services' budget.

HHSDC Oversees Employment Development Department (EDD) Project. Chapter 157, Statutes of 2003 (AB 1765, Oropeza), appropriated $85 million in federal funds to EDD to implement the Unemployment Insurance (UI) Modernization Project. Chapter 157 requires the project to include (1) a redesign of the UI continued claims system, (2) an upgrade of the UI call centers, and (3) implementation of fraud detection in UI computer systems. To meet federal requirements, EDD entered into an agreement with the federal government to (1) encumber $85 million in the HHSDC revolving fund and (2) require HHSDC to oversee the project. Under the agreement, EDD provides the day-to-day project management, manages the project's governance structure, and provides the policy and program guidance to the project. The HHSDC participates in one of the project's steering committees and helps ensure that the project uses best practices. Upon project implementation, EDD plans to maintain and operate the completed system.

Governor Proposes to Transfer Projects to HHSA

Under the administration's proposal, DTS' primary purpose would be the day-to-day operation of computers and telecommunications systems. The administration, therefore, proposes to transfer the project management responsibilities for HHSDC projects away from the new data center. According to the administration, the reason it selected HHSA for project placement is that some of the DSS projects interface with other departments' programs under HHSA's oversight. The administration asserts that placing the projects at HHSA offers the best solution to minimize project disruptions and ensure the ongoing success of the projects.

Below, we first discuss the placement of the EDD project and then the placement of the DSS projects.

EDD's Project Should Remain With Data Center

Since the Employment Development Department (EDD) project funds need to remain encumbered consistent with the federal agreement and the Health and Human Services Agency does not have program oversight responsibility for EDD, we recommend that the Unemployment Insurance Modernization Project remain with the data center.

EDD's Special Circumstances. The UI Modernization Project's agreement with the federal government creates a unique circumstance that needs to be considered when placing the project. The project funds need to remain encumbered consistent with that agreement. If the terms of that agreement are not met, EDD possibly could lose the federal funds. In addition, EDD reports to the Labor and Workforce Development Agency, rather than the HHSA. Unlike the other projects, therefore, HHSA does not have any program responsibilities for EDD's project.

EDD's Project Should Remain With Data Center. In recognizing the unique circumstances of EDD's project, we believe the best alternative for this project is to place it at DTS. Since EDD performs the day-to-day project management functions, the project should not affect the DTS consolidation efforts. In addition, by placing the project at DTS, the Legislature would continue the federal agreement.

Remaining Projects Should Be Placed at DSS

We recommend that the Legislature transfer the remaining projects to the Department of Social Services (DSS) rather than the Health and Human Services Agency because DSS should be held accountable for the projects' success and agencies are designed to provide policy direction and oversight rather than carry out day-to-day operational responsibilities.

For the DSS projects, we considered placing the projects at DTS, HHSA, and DSS. We discuss these options below.

Placing Remaining Projects at DTS Is Not a Good Choice. One alternative would be to place the projects with the new consolidated data center. According to the administration's DTS proposal, in 2005-06 the primary focus of the DTS executive team will be managing the consolidation effort. This could detract from the guidance provided by DTS executives to the DSS projects. In addition, DTS is proposed to be placed in the State and Consumer Services Agency, which does not have oversight responsibility for DSS programs.

Concerns With Projects at HHSA. We have two concerns with the administration's proposal to place the DSS projects at HHSA:

Place Projects at DSS. One of the important factors in project success is ensuring program accountability. The Legislature holds departments accountable for ensuring that computer systems meet the state's program and policy needs. Given the need to hold departments accountable for project success and the concerns described above, the best solution for the remaining HHSDC projects would be to transfer them to DSS. This solution would provide the most program accountability and recognizes that agencies do not have particular expertise in managing state IT projects or operating programs on a daily basis. For this reason, we recommend that the Legislature transfer the remaining HHSDC projects to DSS.

While DSS unsuccessfully managed some of these projects roughly a decade ago, the projects' HHSDC management structure would also be transferred to the department which should ensure project continuity. Under this recommendation, we would also expect HHSA to perform its traditional oversight role and ensure that DSS coordinated with other affected departments. To address any remaining risks to a successful transition, we recommend that the Legislature take two actions. First, we recommend that the Legislature adopt budget bill language that requires DSS to provide on a quarterly basis copies of project status reports and independent oversight reports. (The projects already file these reports with DOF.) In addition, we recommend that the Legislature direct DOF's Office of Technology, Oversight, and Security to review the projects over the next year to ensure that DSS is providing adequate guidance and direction to the projects consistent with state policies and procedures. This type of review has been requested by the Legislature in the past for high-risk projects. This review should be completed and a report provided to the Legislature by March 2006 in order for the Legislature to address any deficiencies during 2006-07 budget hearings.

Other Project Issues

Child Welfare Services/Case Management System Go Forward Plan

We withhold recommendation on the Child Welfare Services/Case Management System Go Forward Plan pending the review of the cost/benefit analysis of meeting federal requirements.

The budget proposes $48.8 million ($24.4 million General Fund) for the Child Welfare Services/Case Management System (CWS/CMS) Go Forward Plan. The CWS/CMS provides a statewide database, case management tools, and a reporting system for the state's CWS program. The system has been in operation for eight years and is currently maintained and operated by an independent contractor for about $70 million annually. (These annual CWS/CMS maintenance and operations costs are funded separately.)

CWS/CMS Federal Funding Background. In 1993, the federal government offered funding to any state that agreed to develop a Statewide Automated Child Welfare Information System (SACWIS). A SACWIS system performs certain functions such as processing child abuse investigations and preparing foster care case plans. If a state chose to develop such a system, then the federal government provided "incentive funding" at 75 percent of total costs for the first three years of the project's development and then 50 percent for the subsequent years. In 1994, California received federal approval to develop CWS/CMS as SACWIS-compliant. In 1997, the state announced the completion of the CWS/CMS system when it became operational in all counties.

Federal Government Expresses Concerns About CWS/CMS. The federal government, however, did not consider CWS/CMS complete because the system did not meet all the SACWIS requirements. Starting in 1999, the federal government raised concerns about the inability of the CWS/CMS system to meet SACWIS requirements. In June 2003, the federal government notified the state that it did not consider CWS/CMS to meet SACWIS requirements. As a result of that decision, the federal government reduced its share of funding for CWS/CMS from roughly 50 percent to 30 percent. In addition, the federal government notified the state that it would not provide any federal funding for the current contract after August 2005.

Go Forward Plan Is State's Strategy to Address Federal Concerns. Starting in March 2004, the administration began developing a strategy to address the federal government's concerns about achieving SACWIS compliance. In August 2004, the administration provided its SACWIS compliance strategy—the Go Forward Plan—to the federal government. The total costs for the Go Forward Plan are currently estimated to be $82 million (all funds) over four years. The plan consists of three components:

In October 2004, the federal government approved the CWS/CMS Go Forward Plan and restored SACWIS funding to the project. In addition, the federal government retroactively provided SACWIS funding for July 2003 to September 2004.

Withhold Recommendation Pending Review of TAAA. The 2004-05 Budget Act requires the administration to complete the TAAA by April 1, 2005. The budget assumes that a SACWIS compliant alternative will be proposed. Since the TAAA will provide additional information about the costs and benefits of the SACWIS and non-SACWIS compliance alternatives, we withhold our recommendation on the Go Forward Plan funding pending the review of the TAAA and its proposed alternatives.

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