The 2019-20 Budget: Department of Consumer Affairs

The 2019-20 Budget: Department of Consumer Affairs GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 2019 Summary In this analysis, we assess the Governor’s 2019-20 budget proposals for the Department of Consumer Affairs (DCA). Specifically, we review and make recommendations regarding the Governor’s proposals (1) for increased funding for Consumer Affairs administration workload and (2) associated with the department’s updated business modernization plan for information technology (IT) projects at Release 3 boards and bureaus. In summary, we recommend the following: • Consumer Affairs Administration Workload Proposal. Reduce the Governor’s budget request to address increased workload across various areas of DCA’s centralized services from $5.2 million to $2.3 million to eliminate the portion of the request proposed to be funded through pro rata because (1) this funding is premature given that the department is currently conducting reviews of pro rata-funded services with the goal of identifying efficiencies and (2) some workload estimates lack justification. • Business Modernization IT Projects. Requiring DCA and Release 3 boards and bureaus to report at budget hearings this spring on their approach to addressing the procurement of new IT systems, particularly to address project delays and lack of updated time frames for some boards and bureaus. DEPARTMENT OVERVIEW The Department of Consumer Affairs (DCA) oversees and bureaus, including human resources, fiscal and 37 boards, bureaus, commissions, and programs. budgeting, and legal services. Together, these entities license approximately 3 million The Governor’s budget proposes $699 million from individuals in roughly 250 professional categories, various funds for support of DCA—including the boards, such as doctors, acupuncturists, and cosmetologists. bureaus, commissions, and programs it oversees—in In addition, these entities license certain businesses, 2019-20, which is a decrease of $5 million, or less than such as auto repair facilities. As part of their regulatory 1 percent, from the current-year estimated expenditures. responsibilities, DCA’s boards and bureaus also This decrease primarily reflects limited-term funding investigate complaints and discipline violators of provided to the Bureau of Cannabis Control in 2017-18 licensing requirements. Additionally, as described below, and 2018-19 for the development of an information DCA provides certain centralized services to its boards technology (IT) solution and facility improvements. analysis full gutter 2019-20 BUDGET CONSUMER AFFAIRS ADMINISTRATION WORKLOAD Background about DCA’s pro rata charges, the 2018-19 Budget Act provided $242,000 to DCA to conduct DCA Allocates Costs of Services Through organizational change management (OCM) reviews Pro Rata and Usage Charges. DCA provides of the centralized services it funds through pro a variety of centralized administrative and other rata charges. The reviews were required to include services to its boards and bureaus. DCA reports an assessment of the department’s business that it allocates the costs of many of its services— processes with the goal of identifying potential such as training, legal, fiscal, human resources, efficiencies. The budget further required that and publications—proportionally among its boards the results of the reviews be reported to the and bureaus based on the number of authorized Legislature. DCA indicates that it is in the process positions at each entity through what is known of conducting these OCM reviews. According as pro rata. However, for other DCA services— to DCA, the first review, which is expected to such as the use of some investigative services, cover the process for promulgating regulations, is correspondence, and professional examination anticipated to be available in March. Subsequent services—DCA allocates costs based on measures reviews are anticipated to cover areas such as of usage by individual boards and bureaus. human resources, IT, and accounting services. Legislature Has Raised Concerns About DCA’s Pro Rata Charges. In the past, the Governor’s Proposal Legislature has raised concerns through its sunset As shown in Figure 1, the Governor’s budget review process about DCA’s pro rata charges. For proposes 24.5 positions and $5.2 million in example, a 2018 sunset review report produced 2019-20 (declining to $4.5 million in 2020-21, by legislative staff noted that actual pro rata costs $3.6 million in 2021-22, and $2.1 million in 2022-23 for every board had increased by an average of and annually thereafter) to address increased 112 percent since 2012-13. The report further workload across various areas of DCA’s centralized stated that “pro rata charges continue to skyrocket services. Of the amount requested, $2.9 million and transparency about how costs are calculated, and 18 positions are for legal, accounting, fiscal, and what services are received for these charges, and human resources services and are proposed continues to be lacking.” to be funded by DCA’s boards and bureaus via pro The Legislature has also raised concerns about rata. (The legal services staff is proposed for DCA the pro rata charges assessed on some specific to establish a dedicated unit to assist boards and boards and bureaus. For example, concerns bureaus with the promulgation of regulations.) The raised about the high and quickly growing pro rata remaining $2.3 million and 6.5 positions are for charges assessed to the Bureau of Real Estate investigation and examination-related services and (CalBRE) were a main reason why the Legislature are proposed to be funded by boards and bureaus passed Chapter 828 of 2017 (SB 173, Dodd), based on their usage of those services. which removed CalBRE from DCA and established it as the Department of Real Estate (DRE). Notably, LAO Assessment a committee analysis of the bill cited that CalBRE’s Resources for Pro Rata-Funded Services pro rata charges had grown from $1.8 million in are Premature Pending OCM Reviews. The 2013-14 to $5.2 million in 2016-17, resulting in Legislature funded OCM reviews of DCA’s pro pressure on CalBRE to either raise fees or reduce rata-funded services with the goal of identifying other services. efficiencies. As these reviews have not yet Legislature Provided Funding for been completed, we find that DCA’s request for Assessments of DCA Processes to Identify additional positions funded through pro rata is Efficiencies. In response to concerns raised premature. The full level of requested staffing may 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET not be necessary if the OCM reviews result in the year. However, this does not appear to take into identification of improved business processes that account that DCA’s legal staff already do work require fewer staff. related to promulgating regulations, so some of Resources for Pro Rata-Funded Services the proposed work is not new and should not Also Lack Sufficient Justification. The lack require additional staff. We note that we do not of client usage information for pro rata-funded have specific concerns with the requests for the services makes it difficult to assess appropriate usage-based services. staffing levels. Based on the limited information LAO Recommendation that is currently available, some portions of the request appear inflated. For example, the Reduce Request to Eliminate Additional Governor’s proposal does not appear to account Staffing for Pro Rata-Funded Services. We for reductions in workload from the removal of recommend that the Legislature reduce the CalBRE. Specifically, to help transition CalBRE to Governor’s proposal from $5.2 million and its own department, DCA is scheduled to provide 24.5 positions to $2.3 million and 6.5 positions various services (such as fiscal, accounting, in 2019-20 ($2.1 million ongoing) to eliminate the human resources, examination, and education portions proposed to be funded through pro rata. services) to CalBRE through 2019-20. The value We find that our recommended level of funding is of these services totals $1.5 million in 2018-19 more appropriate because the portions proposed and $1 million in 2019-20. Once DCA is no longer to be funded through pro rata are premature providing these services, we would anticipate there and lack sufficient justification. If, after the OCM would be some decline in its workload. However, reviews of the relevant pro rata funded services these reductions do not appear to be reflected in are completed, the department determines that DCA’s future workload estimates. additional resources are still necessary, it can return Additionally, the request for legal services staff with a budget request in the future. This additional for the creation of a unit devoted to promulgating time will also give the department an opportunity regulations was based on DCA’s estimate of to develop a more fully justified proposal for the amount of time necessary for it to complete requesting any additional resources necessary for its work on all the regulation packages that it these activities. estimates boards and bureaus will propose in a Figure 1 Governor’s 2019-20 Proposal for Consumer Affairs Administration Workload Amount Position 2022-23 and Function Authority 2019-20 2020-21 2021-22 Ongoing Funded Through Pro Rata Legal/regulations 8 $1,670,000 $1,470,000 $1,470,000 — Accounting and fiscal 7 1,200,000 943,000 — — Human resources 3 46,000 46,000 46,000 $46,000 Subtotals (18) ($2,916,000) ($2,459,000) ($1,516,000) ($46,000) Funded Based on Usage Investigations 4.5 $1,980,000 $1,790,000 $1,790,000 $1,790,000 Examinations 2.0 287,000 271,000 271,000 271,000 Subtotals (6.5) ($2,267,000) ($2,061,000) ($2,061,000) ($2,061,000) Totals 24.5 $5,183,000 $4,520,000 $3,577,000 $2,107,000 www.lao.ca.gov 3 analysis full gutter 2019-20 BUDGET UPDATE ON BUSINESS MODERNIZATION INFORMATION TECHNOLOGY PROJECTS Background on the progress of Release 3 entities’ transition to a new licensing technology platform by BreEZe Project History. When first initiated, the December 31 of each year. The 2017-18 budget BreEZe project was proposed to be an integrated, also provided $1.3 million in special funds for DCA web-enabled enforcement and licensing system to conduct reviews of the business activities of that would replace various systems that have Release 3 boards and bureaus in order to prepare been in place at all of the boards and bureaus them to transition to new IT systems. These reviews within DCA. It was proposed to be completed were intended to identify and document existing in three phases (or “releases”), with roughly half “as-is” business processes and recommend of the boards and bureaus in the third release. changes, as relevant. The $1.3 million was made In November 2009, the BreEZe project was contingent on DCA’s submission of a notification approved with a budget of $28 million and an specifying the department’s plan and proposed time expected completion date of June 2014. DCA line for completing reviews of business activities, as selected Accenture as the vendor for the project in well as agreements of Release 3 entities that they September 2011. The first release was launched were committed to participate according to the in October 2013, but experienced various proposed plan. implementation challenges. Notably, according to 2017 and 2018 Business Modernization a report by the California State Auditor, executive Plans. In response to the above requirements, officers for most of the Release 1 boards and DCA produced a business modernization plan bureaus reported that BreEZe decreased their in December 2017 that identified the anticipated regulatory entity’s operational efficiency. In January timing of activities related to development of IT 2015, the administration informed the Legislature of systems for Release 3 boards and bureaus, such its intent to cancel the contract with Accenture after as completing reviews of business activities, Release 2 due in large part to rising project costs, completing the Project Approval Lifecycle which had grown to $96 million for Releases 1 procurement process, and going live with the new and 2 alone. The Legislature concurred with the systems. The 2017 business modernization plan administration’s proposed approach in March also identified challenges and opportunities facing 2015, but expressed a desire for closer oversight each entity and assessed their organizational over the project and for a plan for development readiness. (More information on the Project of IT systems for Release 3 boards and bureaus. Approval Lifecycle procurement process can be In January 2016, DCA launched Release 2 and found in our report The 2017-18 Budget: The New has since reported that the second release has IT Project Approval and Funding Process.) proceeded successfully. In December 2018, DCA submitted an updated Legislature Required an Annual Business business modernization plan, which provided some Modernization Plan. In 2017, DCA had not updated information on the anticipated timing of yet proposed a plan for Release 3 boards and activities related to the development of IT systems bureaus, including a time line for the completion for Release 3 entities. Unlike the 2017 plan, the of cost-benefit analyses that would be used to 2018 business modernization plan did not include inform decisions about whether entities previously an assessment of each entities’ challenges and slated for Release 3 would come onto BreEZe or opportunities or organizational readiness. Instead, another system. In response to concerns about the 2018 plan provided descriptions of the business lack of information on the plan for Release 3, the activities and other actions taken thus far by each 2017-18 Budget Act and Chapter 429, Statutes entity. In addition, the 2018 business modernization of 2017 (SB 547, Hill) required DCA to report 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET plan identified several budget change proposals in Figure 2, some entities are now reporting delays (BCPs) that it anticipated requesting to enable in completing certain activities and lack clear time entities to move forward with their IT projects. The lines for proceeding with their projects. Specifically, Governor’s 2019-20 budget requests funding for two entities—the Professional Fiduciaries Bureau two of these BCPs, which would provide funding and the Speech-Language Pathology and for additional staff at the Board of Pharmacy and Audiology and Hearing Aid Dispensers Board— Board of Accountancy to support business process report that they have postponed business activities reviews and other planning activities necessary for and new schedules for their projects will be transitioning these two boards to new IT systems. developed at some point in the future. Additionally, (We do not have specific concerns with these another three entities—the Board of Professional BCPs.) Engineers, Land Surveyors, and Geologists; the Board of Chiropractic Examiners; and the Bureau of LAO Assessment Private Postsecondary Education—report that they 2018 Business Modernization Plan Reflects have experienced delays and indicated that revised Uncertain Time Lines for Some Entities. Based schedules will be developed pending approval of on our discussions with DCA, our understanding BCPs. (These BCPs have not yet been submitted to is that DCA is allowing Release 3 entities to the Legislature.) proceed with addressing their IT needs at their Lack of Clear Time Lines Hinders Legislative preferred time lines, recognizing that they each Oversight of the Progress of Projects. In have different levels of organizational readiness and enacting reporting requirements, the Legislature operational priorities. As a result, as reflected in the sought more certainty about the department’s plan 2018 business modernization plan and summarized for addressing the IT needs of Release 3 boards Figure 2 Anticipated Schedules for Release 3 Entities in 2017 and 2018 Business Modernization Plans Business Process Mapping Completion Datea Planned Launch Date Entity 2017 Plan 2018 Plan 2017 Plan 2018 Plan Accountancy 8/2019 8/2020 9/2022 9/2023 Acupuncture 11/2018 Completed 1/2022 1/2022 Architecture/Landscape Architect 10/2019 10/2019 11/2022 11/2022 Athletic Commission 3/2020 3/2020 10/2023 10/2023 Automotive Repair 12/2019 12/2019 12/2022 12/2022 BPELSG 12/2017 Completed 11/2020 Delayed Cemetery and Funeral 8/2019 8/2019 1/2023 1/2023 Chiropractic Examiners 2/2018 Completed 7/2021 Delayed Contractor State Licensing 3/2020 3/2020 1/2024 1/2024 Court Reporters 2/2019 Completed 6/2022 6/2022 Household Goods and Servicesb 1/2020 1/2020 1/2024 1/2024 Pharmacy 10/2021 10/2021 7/2025 7/2025 Private Postsecondary Education 1/2018 Completed 7/2021 Delayed Professional Fiduciaries 6/2018 Delayed 1/2022 Delayed SLPAHAD 9/2018 Delayed 3/2022 Delayed Structural Pest Control 10/2018 10/2018 1/2022 1/2022 a Identifies business processes that would need to be incorporated in new information technology system. b Previously known as the Bureau of Electronic and Appliance Repair Home Furnishings and Thermal Insulation. BPELSG = Board of Professional Engineers, Land Surveyors, and Geologists and SLPAHAD = Speech-Language Pathology and Audiology and Hearing Aid Dispensers Bureau. www.lao.ca.gov 5 analysis full gutter 2019-20 BUDGET and bureaus. The lack of clear time lines for LAO Recommendation some boards and bureaus, as reflected in the Require DCA and Boards and Bureaus to 2018 business modernization plan, runs counter to Report at Budget Hearings. We recommend this purpose. This lack of information is problematic that the Legislature require DCA and boards and because it makes it difficult for the Legislature to bureaus that have experienced delays to report oversee these projects and ensure that they are at budget hearings. Specifically, we recommend completed in a timely manner. Furthermore, boards that the Legislature require (1) DCA to report at and bureaus postponing business activities and budget hearings on the rationale for its approach not providing clear time lines calls into question of allowing boards and bureaus to proceed at their level of commitment moving forward with their preferred time lines and not requiring them implementing IT improvements. The Legislature has to provide updated completion dates in the an interest in ensuring that these projects continue 2018 business modernization plan and (2) boards to move forward because Release 3 entities and bureaus that are of particular concern to will continue to rely on a patchwork of multiple report at budget hearings on the reasons they have outdated IT systems until they transition to new IT postponed or delayed their work towards new IT systems. Consequently, long turnaround times for systems. licensing and enforcement activities will continue to Together, the information from DCA and be problems for many of the boards and bureaus. individual boards and bureaus would allow the Additionally, the lack of clear time frames reduces Legislature to evaluate whether it is comfortable potential opportunities to bundle the procurements with DCA’s current approach to coordinating the of IT systems for more than one entity together IT projects for the Release 3 boards and bureaus. because it is not clear if they will be ready to move Additionally, the information would help explain why forward at the same time. In some cases, such as some entities have delayed their IT-related business when IT needs of multiple entities are similar, such activities—for example, whether they have other bundling could provide some efficiencies or cost operational priorities or other challenges to moving savings. forward. Based on this information, the Legislature could determine if it wants to direct DCA or the boards and bureaus to proceed more quickly with developing their IT systems. LAO PUBLICATIONS This report was prepared by Helen Kerstein and reviewed by Brian Brown. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal 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. 6 LEGISLATIVE ANALYST’S OFFICE