LAO 2006-07 Budget Analysis: General Government

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Secretary of State (0890)

The Secretary of State (SOS), a constitutionally established office, has statutory responsibility for managing the filing of financial statements and corporate-related documents for the public record. The SOS, as the chief elections officer, also administers and enforces election law and campaign disclosure requirements. In addition, SOS appoints notaries public, registers auctioneers, and manages the state’s archives.

The budget proposes total expenditures of $77 million for the SOS in 2006-07. The two primary ongoing sources of funding are the General Fund ($32 million) and the Business Fees Fund ($34 million). In addition, the current-year budget estimates expenditures of over $253 million in federal funds for the implementation of the Help America Vote Act of 2002 (HAVA). We discuss the implementation of HAVA below.

Special Election Costs. The Governor proposes to augment the current-year budget for SOS by an additional $54 million for the costs of the special election. The administration intends to seek legislation to appropriate these funds. Of this amount, $9 million is for state costs-such as the printing and mailing of voter information guides. Without these additional funds, SOS would have no budgeted funds for these activities related to the June 2006 primary election. The remaining $45 million is to reimburse counties for their election costs such as the printing and mailing of sample ballots, operating polling places, and counting ballots. Under current law, the state is not obligated to reimburse counties for these costs.

HAVA Background

Federal Election Reform

In October 2002, Congress passed and the President signed HAVA. As the state’s chief elections officer, SOS is charged with administering the state’s compliance with HAVA. Recent federal budgets have provided California with more than $350 million to implement HAVA requirements.

HAVA Requirements

The HAVA contains a number of specific requirements for states and counties related to election procedures. Among the requirements of HAVA are:

Federal Funding for HAVA

California’s Share of Funding

To help states implement the HAVA requirements, the federal government has allocated states about $3 billion in funds. Of this amount, California has received more than $350 million. Figure 1 summarizes the state’s spending of HAVA funds.


Figure 1

Spending of California’s HAVA Funds

(In Millions)





Prior to 2004-05


And Latera

Total Funding

Replacement of county
voting machines





Disabled access



SOS administration





Other HAVA activities





Interest earnings









a  Includes funds budgeted for 2005-06 and proposed spending for future years.


Spending Options

In two cases, the federal government has provided funding for specific activities-the replacement of voting machines and disabled access. For the vast majority of the funds, however, the federal law does not mandate how much money should go to implementing each particular HAVA requirement. Rather, each state is responsible for meeting all of the requirements of federal law and may choose how to allocate the funds. While some of HAVA’s requirements are fairly specific, others are much broader. For instance, the law’s requirement to educate voters on election procedures could be implemented in a wide range of ways-from providing additional information in the state voters’ guide to conducting a statewide media campaign. Consequently, the state has a great deal of discretion in allocating the federal funds.

Federal law generally does not place restrictions on the state as to when the HAVA funds must be spent, although the law is focused on the implementation of requirements in time for elections in 2006 or earlier. Unlike most federal programs, the state is able to keep any interest earned while the HAVA funds are in state accounts. This interest must be spent on HAVA-related activities. The SOS currently estimates that roughly $6.7 million in interest has been earned to date.

Status of HAVA Spending

Below, we describe the state’s HAVA spending plan, which allocates the federal funds to various purposes. Then, we detail the current status of spending-both for nondiscretionary and discretionary purposes.

Development of a State Spending Plan

Piecemeal Spending. From the time of HAVA’s passage until the spring of 2005, California’s HAVA implementation operated on a piecemeal spending basis, without the approval of a comprehensive spending plan. From 2002-03 through 2004-05, a total of $71.6 million of HAVA funds were spent, primarily for the replacement of county voting machines. The remaining $16.7 million was spent on:

March 2005 Spending Plan. The 2004-05 Budget Act required that SOS develop a comprehensive approach to HAVA spending with detailed information on each component of spending. In March 2005, a spending plan was submitted by SOS and approved by the Department of Finance (DOF). The plan was endorsed by Secretary McPherson in April 2005 after he assumed his new position as Secretary. In January 2006, the SOS proposed amendments to this plan. At the time this analysis was prepared, the amendments were pending before the Legislature (through a 30-day notification process). The proposed spending plan would leave about $10 million in unallocated funds. Figure 2 summarizes the proposed spending.


Figure 2

Proposed HAVA Spending Plan—January 2006

(In Millions)




Nondiscretionary Funds



Replacement of county voting machines


Disabled access


Payments to Counties



Voting equipment grants


Training grants



Other Activities






Statewide database



  Interim solution


  New system





Source code review


Registration cards


Voter education



Voting system reviews


Poll monitoring





Unallocated Reserve




a  Legislative review of these proposals was pending at the time this analysis was prepared.

Spending not yet authorized by the Department of Finance.

   Note: Totals may not add due to rounding.


Status of Nondiscretionary Spending

Replacement of County Voting Machines

Regarding the funds allocated to the replacement of county voting machines, federal law specifies how the funds are to be distributed. Each precinct, which used a punch-card voting system in the November 2000 election, is eligible for an equal allocation of the state’s $57 million. Almost 18,000 California precincts in 30 counties meet this criteria-resulting in an allocation of about $3,200 per precinct. Thus far, all but two of the counties have completed their applications. Under federal law, all counties must replace their punch-card voting machines in time for the June 2006 election.

Disabled Access

Originally, $2.4 million was allocated for grants to improve election accessibility and participation by disabled voters. Since that time, the state has received an additional $0.9 million in federal funding for these types of grants. The SOS has allocated the $3.3 million to all counties based on the Proposition 41 voting modernization bond formula (which is weighted by number of voters and polling places). The grants will be used to improve physical accessibility at polling places and increase training and education regarding rights and procedures for disabled voters. To date, 38 counties have signed a contract with SOS and received their allocations.

Status of Discretionary Spending

Payments to Counties

County Voting Equipment Grants. Under the spending plan, $195 million in HAVA funds is allocated to counties for the purchase of voting equipment and related costs. These funds can be used to supplement other funds (nondiscretionary HAVA and Proposition 41 allocations) to upgrade voting equipment or to purchase machines that are accessible to the disabled. The funds are to be allocated in the same manner as the disabled access grants, using the Proposition 41 bond formula. The SOS reports that it recently finalized a contract for these grants and counties are beginning to apply for the funds.

County Training Grants. In addition, the spending plan allocates nearly $10 million over two years for grants to counties for broader purposes. These smaller grants are intended to educate voters and train poll workers and election officials on new HAVA procedures. The SOS, however, reports that no progress has been made this fiscal year in distributing these funds and its future plans regarding the grants are unknown.

SOS Administration

Since 2003-04, SOS has received $1.7 million annually to cover state staff and other administrative expenses. (In past years, a portion of the funds have been unspent and become available for other HAVA purposes.) In 2005-06, the two largest budgeted items in this category were for state staff ($518,000) and a consulting contract with MGT of America to provide assistance to SOS in managing the HAVA program ($400,000). The SOS reports that the contract with MGT was terminated in September 2005 so that SOS staff, rather than the consultants, could perform more day-to-day activities.

Statewide Database

As noted above, one of the major HAVA requirements is that states have a computerized voter registration database in place by January 1, 2006. The SOS has pursued a two-fold strategy to meet this requirement. First, the department is making upgrades to the existing CalVoter system. Concurrently, the department is pursuing the development of a new system, called VoteCal. On November 2, 2005, SOS and the U.S. Department of Justice (U.S. DOJ) signed a Memorandum of Agreement formalizing this approach. The agreement lays out the steps that the SOS will take on both of these projects. In exchange, the U.S. DOJ agreed not to pursue legal action against the state for noncompliance with the HAVA database requirement while VoteCal is under development.

Interim Solution. The existing CalVoter system is county-based, with information primarily entered and stored at the county level. The state has implemented a number of new components to CalVoter in recent months. Among the steps taken to improve the existing system are developing data exchange standards and requiring timely data updates from counties. In addition, the system has been upgraded to meet specific HAVA requirements-such as developing a unique identifying number for each voter and communicating with other state departments regarding drivers’ licenses, death records, and felony convictions. In the opinion of SOS and U.S. DOJ, these improvements are only a stopgap approach until a new system is developed. In their view, the county-based approach of CalVoter inherently limits the state from validating the accuracy of updates. The interim solution has incurred costs of $2.8 million to date.

New System. The SOS submitted a feasibility study report (FSR) to DOF to develop the new VoteCal system. The DOF approved the FSR in January 2006. Although the spending plan initially allocated $47 million for the database project, the FSR estimates spending more than $73 million to develop and operate the system over six years. The SOS proposes to spend $57 million of this amount from HAVA funds, with the remainder coming from the General Fund. The SOS envisions VoteCal as a state-based database, with the information stored at the state level. The plan is to have most counties integrate their existing elections management systems with VoteCal.

Other Approved HAVA Activities

Audits. The spending plan allocates $1.5 million for the DOF’s Office of State Audits and Evaluation (OSAE) to audit counties and vendors who receive HAVA funds. The SOS, however, now reports that federal requirements may preclude OSAE from performing the audits using HAVA’s funds. Consequently, expenditure of the funds is on hold.

Source Code Review. The SOS’s spending plan proposes spending $1.2 million to review the computer source code used to run election equipment. At the time of the plan’s approval, however, SOS failed to provide sufficient justification to gain DOF’s approval. The SOS still has not provided sufficient justification and the spending, therefore, is not authorized at this time.

Other Activities. The remaining activities approved in the spending plan account for less than $3 million. These activities include paying for the printing of HAVA-compliant voter registration cards and SOS expenses related to voter education.

2006-07 Proposal

Administrative Costs Budgeted. The Governor’s budget proposes the continuation of $1.7 million for SOS administrative costs in 2006-07. To date, SOS has not provided a workload justification for this amount of funding. The only detail provided is that $1.1 million would be used for personnel costs, with the remainder used for other operating expenses. With HAVA requirements generally implemented by January 1, 2006, it is unclear whether these ongoing administrative expenses are warranted. The administrative costs for implementing the VoteCal project are funded separately, within the costs of the FSR.

No Other Funds Budgeted. As noted above in Figure 2, the spending plan anticipates more than $60 million in additional HAVA expenditures in the budget year. Yet, the budget includes no authority for the expenditure of these funds. Presumably, in the spring, the administration will request appropriation authority for this spending.

Continuing LAO Concerns on HAVA Implementation

Over the past several years, we have raised a number of serious concerns with the state’s approach to implementing HAVA. In our view, a number of these concerns continue to pose risks to the state, as we discuss below.

Lack of Required Information Continues to Cause Problems

As a result of the piecemeal and delayed approach to implementing HAVA, the 2004-05 Budget Act required the development of the spending plan and the inclusion of specific information in that plan. As submitted and approved, the plan failed to provide most of the required information. Consequently, the Legislature has received minimal detail on the proposed spending activities in many cases. The 2006-07 Governor’s Budget fails to provide the information the Legislature needs to assess proposed HAVA spending in 2006-07. As noted above, the budget submission provides no justification for its administrative expenses and no information regarding other expected expenditures. While the Legislature has approved HAVA spending to date in order to avoid further delaying HAVA implementation, the lack of complete information continues to cause problems. As described above, a number of the HAVA components are behind schedule and/or are not being implemented. Providing the information would have required SOS to fully develop each spending proposal-with objectives, implementation strategies, and timelines.

Delays Impair Meeting June 2006 Election Deadline

The SOS’s delays in delivering the $195 million in voting equipment monies-combined with ongoing delays in making voting equipment certification decisions-have impaired counties’ ability to acquire and install HAVA-compliant equipment for the upcoming June 2006 primary election. Furthermore, the delayed timing of the disabled access and the training grants could reduce county effectiveness in these areas.

Plan Exposes General Fund to Database Costs

Developing a state-based database and successfully integrating 58 counties as envisioned in VoteCal will be a significant undertaking. The costs of state information technology projects of this scope-particularly when involving all 58 counties-have tended to significantly exceed initial estimates. The estimate has already risen from $47 million to $73 million before even beginning the project. Under SOS’s proposal, the project will cost the General Fund millions of dollars. The projected balance of unallocated HAVA funds would provide only minimal protection from the General Fund being responsible for any additional cost overruns.

Outstanding Liabilities From Federal Audit

The prior SOS administration’s misuse of HAVA funds has exposed the state to potential financial liabilities to repay the federal government. A recently completed audit by the U.S. Election Assistance Commission questioned the legitimacy of $3.8 million of California’s HAVA spending. While SOS is still disputing some of these amounts, the state is likely to have to repay the federal government some portion of these funds.

SOS Needs to Update Its Budget

The Secretary of State will need to update its budget to reflect proposed spending in the budget year. We withhold recommendation on these amounts pending the submittal of detailed justifications.

As noted above, the budget currently contains no funding for HAVA activities other than administrative costs. The administration will need to update its budget to reflect proposed spending in the budget year. We withhold recommendation on these amounts pending the submittal of detailed justifications. Unless SOS provides detailed justification for its administrative costs, we recommend the Legislature delete this funding.

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