Statement of Economic Interests Electronic Filing Pilot Program

LAO 70 YEARS OF SERVICE January 18, 2012 Statement of Economic Interests Electronic Filing Pilot Program L E G I S L A T I V E A N A L Y S T ’ S O F F I C E Pursuant to Chapter 96, Statutes of 2011 (AB 182, Davis) Summary As part of legislation authorizing seven local governments to participate in a pilot program regarding electronic fi ling (e-fi ling) of Statements of Economic Interests (SEI) forms, our offi ce was required to submit a report to the Legislature evaluating the pilot program. This report presents our fi ndings. To conduct our evaluation, we used information reported by participating governments and the Fair Political Practices Commission (FPPC). Based on this information, we conclude that e-fi ling can create operational effi ciencies through reduced personnel and other operational costs. We recommend that the Legislature allow participating governments to continue e-fi ling on an ongoing basis, and that it consider allowing other governments to collect SEIs electronically. We also recommend that the Legislature authorize FPPC to establish any guidelines relating to implementation of the e-fi le systems. Background The Political Reform Act of 1974 requires California state and local government offi cials to annually disclose certain personal fi nancial holdings by completing an SEI. The FPPC regulates and oversees the administration of the Act and, among other things, develops the SEI forms fi led by offi cials to satisfy the disclosure requirements. The FPPC indicates that many tens of thousands of public employees and offi cials are required to fi le an SEI under the Act. The SEI fi ling process is decentralized so that most individuals submit their SEI to a “fi ling offi cer” at their own agency. The fi ling offi cer maintains record of the SEI and provides public access to the SEI upon request. The FPPC indicates that it serves as fi ling offi cer for approximately 20,000 statements for certain state and local offi cials. Chapter 96, Statutes of 2011 (AB 182, Davis) authorized six counties and one city to participate in a pilot program permitting the e-fi ling of employees’ SEIs. Specifi cally, the Counties of Los Angeles, Merced, Orange, Santa Clara, Stanislaus, and Ventura and the City of Long Beach were authorized to participate in the pilot. (Stanislaus County did not participate in the pilot for reasons discussed later in this report.) The pilot program began on January 1, 2009 and will expire on December 31, 2012. The pilot program includes the reporting periods of 2008 through 2011. The law required the participating governments to submit reports to the FPPC describing their experiences with the pilot. Specifi cally, the governments were required to report any (1) operational effi ciencies and related savings; (2) implementation and operating costs; (3) safety, security, or privacy issues encountered; (4) feedback from e-fi ling participants; and (5) other relevant infor- mation on the implementation of the pilot. The FPPC was required to transmit to our offi ce the reports it received and any comments it had on the reports. Our conclusions are based on information provided to us from the reporting entities and FPPC. Operational Effi ciencies Fewer Staff Needed to Operate E-File System. The participating governments indicated that the paper-based fi ling process is time-consuming. Governments commit signifi cant amounts of staff time (often resulting in overtime costs or hiring temporary LEGISLATIVE ANALYST’S OFFICE 1 employees) reviewing SEIs, working with fi lers to correct errors, and maintaining the paper fi le systems. After implementing an e-fi le system, all of the governments saw signifi cant decreases in staff hours, overtime costs, and temporary employee costs. The governments reported that the e-fi le systems reduced staffi ng costs by simplifying the review process and signifi cantly reducing the number of errors in fi lers’ SEIs. Pilot Resulted in Operational Savings. Compared with paper fi ling, all of the participating governments indicated that e-fi ling is more effi cient and results in opera- tional savings. Although reduced personnel costs were the most signifi cant source of savings for the participating governments, they also reported other operational savings (such as reduced mailing and supply costs). Most of the governments were able to reduce their operational expenditures associated with SEIs by more than 30 percent by the end of the pilot period. Orange County reported it reduced its operational expenditures by 68 percent with its e-fi ling system. Implementation Costs Implementation Costs. Implementation costs include costs associated with purchasing or developing software, purchasing hardware, acquiring necessary licenses, et cetera. As is generally the case with procuring a new information technology system, the governments that participated in the pilot incurred up-front implementation costs. The participating governments reported that initial implementation costs typically were between $100,000 and $200,000 in the fi rst year of the pilot but much lower in subsequent years. Costs Too High for Two Small Counties. The Counties of Merced and Stanislaus were not able to participate fully in the pilot program citing insuffi cient funds and resources to cover implementation costs. Stanislaus County did not participate in the pilot program at all. Merced County, in contrast, began participating in December 2010 after it negotiated an agreement with a vendor to pay no implementation cost in the fi rst year of the system but $10,000 every subsequent year for the vendor’s services. Security Issues Encountered No Security Issues Encountered. None of the governments reported any security issues with the e-fi le systems. Feedback From E-Filing Participants Mostly Positive Response From Participants. The governments reported that, on the whole, public offi cials and employees who fi led using the e-fi le systems considered e-fi ling to be a useful and easy process. There were, however, some negative responses from participants, primarily related to password and log on requirements. LAO Conclusions About Pilot Program Many Benefi ts Associated With E-Filing. The participating governments cited many benefi ts to adopting an e-fi le system. It is reasonable to conclude that, at least in the case of these governments, e-fi ling is a more effi cient process than a paper-based process. The LEGISLATIVE ANALYST’S OFFICE 2 e-fi le systems reportedly reduced personnel costs and other operational expenditures associated with processing the SEIs. Implementation Costs for Local Governments a Concern. We think it is signifi cant that two of the counties, at least initially, considered the implementation costs of the e-fi le system to be prohibitive. Although there may be signifi cant long-term savings in adopting an e-fi le system, some governments (especially smaller entities) may not be able to afford the initial implementation costs. LAO Recommendations for Legislature Allow Participating Entities to Continue E-Filing. The pilot appears to have been a success in that the e-fi le systems generated savings and improved accuracy. Accordingly, we recommend that the governments that are participating in the e-fi le pilot be allowed to continue their e-fi le systems. Allow Other Entities to E-File. Given the potential savings and improved accuracy, we recommend the Legislature consider giving all governments the option to establish an e-fi le system. Authorize FPPC to Establish Parameters of E-File Systems. As part of its role in overseeing and administering the Political Reform Act of 1974, the FPPC establishes the forms and guidelines used to submit paper SEIs. In its report to the Legislature, the FPPC recommended that it be authorized to establish any guidelines and specifi cations to be followed by governments when developing and using e-fi le systems. We think this recommendation is reasonable. LEGISLATIVE ANALYST’S OFFICE 3 The Legislative Analyst’s Offi ce (LAO) is a nonpartisan offi ce which provides fi scal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an E-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. LEGISLATIVE ANALYST’S OFFICE 4