Analysis of the 2008-09 Budget Bill: Transportation

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 driver licenses. Additionally, DMV licenses and regulates vehicle–related businesses such as automobile dealers and driver training schools, and collects certain fees and tax revenues for state and local agencies. The department operates 215 facilities, which include customer service field offices, telephone service centers, commercial licensing facilities, a headquarters, and driver safety and investigations offices.

The budget proposes total expenditures of $958 million for support of DMV in 2008–09. This represents an increase of $19 million, or 2 percent, above the estimated current–year expenditures. This increase is mostly the result of increases for employee compensation, the full–year cost of prior–year budget adjustments, and facility consolidation and relocations. The budget proposes a staffing level of 8,250 personnel for 2008–09, which is a slight decrease compared to the current year.

About $526 million (55 percent) of the department’s total support will come from the Motor Vehicle Account and $359 million (37 percent) from the Motor Vehicle License Fee Account. The remaining support will be funded primarily from the State Highway Account and reimbursements.

Update on Federal Real ID Act

In January 2008, the United States Department of Homeland Security released its final regulations for implementation of the federal Real ID Act. In this piece, we briefly summarize highlights of the final regulations and recommend the Department of Motor Vehicles report at budget hearings on specific actions California must take if the state decides to implement Real ID.

Background. In 2005, federal legislation, known as the Real ID Act, was signed into law. The act mandates states to modify driver licenses and identification cards to meet federal standards by May 2008. It also requires the states to follow certain procedures in the issuance of these documents. The law stems from the recommendations of the 9/11 Commission, and is intended to strengthen national security by making it more difficult for terrorists to gain access to certain services. Under the act, a state may choose not to meet the federal requirements; however, its citizens would not be able to use the state–issued driver license and identification cards for federal purposes, such as receipt of federal services or air travel.

Amid growing opposition to the Real ID act by states, including some states that refused to implement the act, the federal Department of Homeland Security (DHS) in March 2007 issued draft regulations and solicited nationwide input from various stakeholders. During the 60–day public comment period, stakeholders raised numerous concerns regarding the requirements of Real ID. These concerns mostly related to privacy and security of personal information, the lack of federal funding, unreasonable timelines, and increased customer wait times at DMV offices. After consideration of the issues raised during the comment period, DHS released its final regulations in January 2008, five months before the federal statutory deadline for state compliance with the act.

Final Real ID Regulations Provide States More Time, Some Issues Unresolved. The final regulations generally provide states greater flexibility with regard to certain provisions of the act, and more time to implement the required changes. However, some key implementation issues remain unresolved, most notably how state DMV data systems are to be configured to comply with the document verification requirements of the act. We discuss these issues in more detail below.

Figure 1 shows the federal compliance time line adopted by DHS in the final regulations. As the figure shows, states have until 2017—as compared to 2013 under the draft regulations—to fully comply with the act.

Immediate Request For Extension Necessary. It is important to note that while the final regulations provide states more time to fully implement the act, states are required to immediately file for an extension to be exempt from the May 2008 deadline. This first extension is good through December 2009. According to DMV, it has already requested this extension.

As a condition of receiving a second extension, which is good through May 2011, states are required by October 2009 to certify that certain “benchmarks” have been met. For example, a state may be required to show that it has taken steps to incorporate certain information into its driver license and identification cards, or that it has begun to implement security standards at the offices that issue license and identification cards as required by the act. States that fail to meet those benchmarks would not be eligible for a second extension, and potentially risk limiting the usefulness of their driver license and identification cards for purposes of commercial air travel and entry to federal facilities. Beginning in May 2011, states must begin issuing Real ID–compliant cards.

Overall, states have up to approximately three years—from May 2008 to May 2011—to make all of the necessary process and card feature modifications required by the act. Then, for up to the next six and one–half years (from May 2011 to November 2017), states are required to issue Real ID–compliant cards.

Age–Based Issuance of Real ID Compliant Cards. The most significant change from the proposed regulations relates to the issuance of Real ID–compliant driver license and identification cards. Under the original proposal, states would have been required to issue new driver license and identification cards to all cardholders within five years (by May 2013), a requirement DMV estimated would cost California about $300 million. The final regulations provide states about nine years to implement the provision. Specifically, states have until 2014 to issue new cards to individuals born after December 1, 1964, and until 2017 for those born before that date. Giving state DMVs more time to issue the Real ID cards significantly eases the fiscal and operational impacts of the federal act. Since fewer cardholders will be required to visit a DMV field office in any given year to apply for the new driver licenses, fewer staff resources and infrastructure changes will be required, and customer wait times will not be as long.

State Requirements for Real ID Verification Processes Still Unknown. One of the major requirements of Real ID is that states use several national databases to verify the authenticity of identification documents presented in applications for driver license and identification cards. However, since the databases had not yet been developed, it was impossible for states to comply with the act by the required date. To address this issue, the regulations simply require states to become compliant as the systems become available.

The regulations provide no further guidance as to the technology requirements for complying with the data verification provisions of the act. However, DHS has indicated that it is working with states, other federal agencies, and the American Association of Motor Vehicle Administrators (AAMVA) to define requirements for a network and “hub” to support data verification and the state–to–state data check requirements. The technology solution currently under consideration is AAMVAnet, the network system operated by AAMVA to support the Commercial Driver’s License Information System on behalf of the US Department of Transportation.

Real ID Privacy Concerns Still to Be Addressed. Various requirements of Real ID raised concerns regarding the privacy and security of personal information. For example, the act requires states to share certain information to ensure that no individual holds more than one driver license. It also requires the cards to use machine–readable technology, which potentially enables private vendors—for example, a grocery store—to collect the personal information of its customers from the card.

In response to privacy concerns, DHS indicates in its final rules that it plans to issue “privacy and security best practices to help guide states in protecting the information collected, stored, and maintained pursuant to Real ID.” The regulations also require states to prepare a security plan for state facilities and information systems. The department further indicates that it is working with various federal and state entities to develop a governance structure for information sharing between the systems that allows states to protect the autonomy and security of information in their respective databases. Finally, the federal department also suggests that if cardholders experience abuses regarding third–party misuse of the cards,

Congress and the states can determine later whether and how to address these abuses.

Still No Serious Federal Plan to Fund Real ID. The DHS estimates it will cost states about $4 billion to implement Real ID, significantly less than the $11 billion estimate derived from a nationwide survey by the National Governor’s Association, the National Conference of State Legislatures, and AAMVA. The DHS largely attributes the difference to the longer compliance time lines and state discretion adopted in the final regulations. However, until states have an opportunity to closely review the regulations, it is too early to know if the $4 billion estimate is realistic.

The federal government has appropriated a total of $90 million to support Real ID implementation in the states. Of this amount, only $6 million has been awarded, and California did not receive any of the funds. Additionally, states are allowed to use up to 20 percent of their State Homeland Security Grant Program funds for this purpose. In the final regulations, DHS states that the Bush administration is “continuing to work with Congress on the availability of additional funding to the States for this purpose.”

To date, the Legislature has provided DMV approximately $27.5 million related to Real ID. The funds have been used to enhance DMV’s ability to efficiently manage the higher volume of field office customers that would be required to fully implement the act within the time lines initially contemplated by the federal government. For example, the department is in the process of upgrading its Web site infrastructure to allow more customers to transact business without having to visit a field office; thereby, freeing up resources in the field offices to handle the increased workload anticipated to result from Real ID. For 2008–09, DMV expects to spend $2.5 million to continue these efforts.

Department Should Report on Revised Implementation Plan and Costs. In 2006, DMV’s preliminary estimate pegged the state cost at about $500 million over five years for additional staff, facilities, and technological improvements required to implement the act in California. In light of the longer time lines for Real ID compliance, and other changes included in the final regulations, we recommend the Legislature direct the department to report at budget hearings on (1) the specific actions that the state has to take to meet the benchmarks required for certification under the federal regulations, and (2) its revised cost estimate. Based on our initial review of the final regulations and discussions with DMV, we think it is reasonable to expect the overall cost to be lower than DMV’s preliminary estimate of $500 million.

We would also note that Real ID implementation will require statutory changes to conform state law to federal law and regulations. As yet, no explicit statutory authority exists to implement the act. We would further recommend that the department report at budget hearings on the statutory changes that will be required to implement the act.

No Report on Information Technology Modernization Project

The budget requests $33 million for the third–year funding of a multiyear project to update the Department of Motor Vehicles’s technology infrastructure. We withhold recommendation on the request pending receipt and review of the overdue report on the project’s status.

In 2007–08, the Legislature provided $24 million for the second–year funding of a multiyear project to update the technology infrastructure that supports DMV’s core functions. The DMV estimates the project will cost approximately $240 million when completed. The 2007–08 Budget Act also contains language requiring DMV to report annually in December on the status of the project. Specifically, the department is required, at a minimum, to report on its progress toward planned milestones, planned versus actual expenditures, and any variations from the original scope of the proposal.

The budget requests $33 million for the third year of the information technology modernization project. Prior to receipt of the report, there is little information upon which to determine if the funds requested are reasonable and consistent with DMV’s current schedule and costs. We therefore withhold recommendation on the request pending receipt and review of the required report. The report will allow the Legislature to determine if the project is on schedule and budget before committing the additional funds.