The 2020-21 Budget: The Governor's it Project Proposals

The 2020-21 Budget: Governor’s IT Project Proposals Summary Over 30 Budget Requests to Plan, Develop, and Implement Information Technology (IT) Projects. The 2020-21 Governor’s Budget includes several requests for resources to plan IT projects proposed by state government entities, or to develop and implement IT projects approved (or expected to be approved) by the administration’s central IT entity—the California Department of Technology (CDT). The total cost of these requests in 2020-21 is over $200 million, a majority of which is General Fund, with additional one-time and ongoing costs in future years. Several Budget Requests Present Opportunities for Legislative Oversight. Some of the budget requests present the Legislature with opportunities to take action to exercise more oversight of IT projects. We organize the opportunities into three groups based on the specific actions we recommend the Legislature to take. • Evaluate the Proposed Scope of Some Projects Before CDT Approval. Some proposed IT projects requesting planning resources have the potential to be complex and costly projects once approved by the administration. We recommend the Legislature consider some projects’ proposed scope and determine whether it agrees with the administration’s choices among identified alternatives prior to the administration’s approval of the projects. • Define Project Completion and Take Other Actions to Make Legislative Intent Clear About Project Goals. Some approved IT projects are making decisions—such as changing when a project is to be deemed “complete”—that complicate legislative oversight. For this particular decision, the Legislature could exercise more oversight by defining its intent for when a project is complete when it appropriates funding for the project. • Condition New Resources for the Development and Implementation of Some Projects on Legislative Notification and Approval. Some proposed IT projects are requesting resources to start development and implementation in 2020-21, but are still being planned and have not been approved by the administration. In such cases, the Legislature could exercise more oversight through the budget process by adopting provisional budget language that conditions the appropriation of resources for project development and implementation on prior written notification of, and approval by, the Legislature once the project proposal is approved. More Legislative Involvement in Planning and Oversight of IT Projects Suggest New Budget Subcommittee Could Be Warranted. Changes to the budget subcommittee structure, such as a new subcommittee tasked with (among other potential tasks) consideration of budget requests for IT projects, would allow the Legislature to review IT project proposals in a centralized manner to ensure proposals receive similar levels of scrutiny and oversight. GABRIEL PETEK LEGISLATIVE ANALYST FEBRUARY 20, 2020 analysis full gutter 2020-21 BUDGET INTRODUCTION This report provides an overview of the proposed being planned but are expected to be approved in and approved IT projects in the Governor’s 2020-21. (We do not provide an in-depth analysis proposed 2020-21 budget. We first provide relevant of any individual budget request for a proposed or background information on the state’s IT project approved project in this report, and instead include approval process, approaches to development our analyses in other publications organized by and implementation of projects once approved, budget area.) maintenance and operation of IT systems once For purposes of our analysis in this report, completed, and requirements for state government we focus on budget requests for proposed and entities to request resources for projects through approved projects from entities under the authority the budget process. We then identify and of CDT. CDT’s IT project approval process provides summarize the budget requests to plan proposed the Legislature with opportunities to offer input on projects and to develop and implement projects its priorities in the planning of proposed projects. (whether proposed or approved). As a subset of In addition, given many projects are centralized the latter, we highlight budget requests to develop through CDT, this process presents opportunities to and implement proposed projects that are still exercise more legislative oversight of IT projects. BACKGROUND Role of CDT. CDT is a department within the an associated planning document to CDT for its California Government Operations Agency with approval. Collectively, the planning documents from broad authority over all aspects of technology in the four stages provide a complete project plan state government. This report focuses on two of (including the project’s cost, schedule, and scope) the department’s responsibilities: (1) to review and to develop and implement the proposed project. approve IT projects proposed by state government Figure 1 provides a graphical depiction of the PAL entities, and (2) to oversee the development process. and implementation of approved projects until Development and Implementation. Once they are completed. (Some entities and projects CDT approves a proposed IT project (and, are not covered by CDT’s authority under state for most proposed projects, the Legislature statute. Excluded entities include, for example, appropriates funding), the state government constitutional offices.) entities can start to develop and implement their Project Approval Lifecycle (PAL). To review approved projects. Projects can approach the and approve IT projects proposed by state development and implementation of their projects government entities, CDT implemented a new IT in several ways: (1) the traditional approach, project approval process—PAL—in 2016. (For a (2) the “agile approach,” or (3) some combination comprehensive description of the PAL process, of the traditional and agile approaches. Using the please see our February 17, 2017 report—The traditional approach, entities develop the entire 2017-18 Budget: The New IT Project Approval scope of the project before it is implemented. Using and Funding Process.) The PAL process divides the agile approach, entities develop some of the IT project approval into four stages: (1) business project scope (often referred to as modules) and analysis, (2) alternatives analysis, (3) solution implement it while the rest of the scope is being development (including procurement analysis), and developed. As entities develop and implement (4) project readiness and approval (including vendor their projects, the initial cost, schedule, and scope selection and finalization of IT project details). Each of the project may change. If entities deviate stage in the PAL process requires entities to submit from the cost, schedule, and scope approved 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Figure 1 Stages of the PAL Process Stage 1 Stage 2 Stage 3 Stage 4 Business Alternatives Solution Project Readiness Analysis Analysis Development and Approval Identify Programmatic Assess Existing Develop Solution Solicitation Release Problem/Opportunity Programming Processes Requirements Select Vendor Establish Business Market Research Develop Solicitation Case/Need Contract Management Develop Mid-Level Identify Objectives Solution Requirements Baseline Project Assess Departmental Identify Solution CDT Decision DOF/Legislative Approval Readiness Alternatives Recommend Solution CDT Decision CDT Decision Financial Analysis = Reject CDT Decision = Rethink and Resubmit = Approve Upon approval, entities AAwwaarrdd CCoonnttrraacctt can request planning resources to complete aanndd the PAL process SSttaarrtt PPrroojjeecctt Upon approval, entities can request resources for development and implementation PAL = Project Approval Lifecycle; CDT = California Department of Technology; and DOF = Department of Finance. by CDT through the PAL process (in an amount Certain CDT-Approved Documents Required or by a percentage set by CDT)—regardless of to Request Resources Through Budget Process, development approach—CDT often requires entities Assisting the Legislature’s Oversight. State IT to submit a revised project plan in a new planning policy requires state government entities to submit document called a Special Project Report (SPR). As certain documents to CDT for approval before of February 2020, a total of 23 IT projects (under requesting resources through the annual budget CDT’s authority) are currently in development process. The administration shares the approved and implementation at a total cost of $2.7 billion documents with the Legislature to assist with its ($1.5 billion General Fund). Figure 2 (on the next deliberations over budget requests, including its page) shows projects currently underway (under consideration of whether additional legislative CDT’s authority) in order of total cost and General oversight of proposed and approved IT projects Fund cost. is warranted. To request resources for planning to Maintenance and Operations (M&O). Once the complete the PAL process, entities must submit and development and implementation of an IT project have approved by CDT a Stage 1 Business Analysis is completed, the project becomes an IT system for the proposed IT project. To request resources and enters into M&O. M&O includes activities and to develop and implement a proposed project (that costs associated with the state government entity’s is expected to be approved by CDT in the budget ongoing upkeep and continuing use of an IT system. year) or an approved project, entities must submit www.lao.ca.gov 3 analysis full gutter 2020-21 BUDGET implement an approved project Figure 2 that has deviated from its initial IT Projects Under CDT's Authority cost, schedule, and scope, entities Already in Development and Implementationa must submit and have approved by CDT a new SPR. (Figure 1 also shows when in the PAL process entities can submit budget General Fund requests.) For each request, the Legislature must decide whether $479,945,117 Other Funds FI$Cal to appropriate additional funding. State Financial Management Total: $1,063,071,368 Fewer SPRs for IT Projects System Approved Through PAL $583,126,251 Process. Historically, IT projects (especially complex and costly ones) required several SPRs. eWIC-MIS Electronic Benefit Each SPR can lead to a budget Transfer System request for additional resources to develop and implement a project CWS-CARESb WellSTAR Child Welfare Fracking above its initial cost. Since CDT Information System Well Database began implementation of the SB 384 PAL process in 2016, however, Tier-Based Sex no project approved through all Offender Registration four stages of the PAL process WMVARS has required an SPR on the basis Mobile Video/Audio SCVS Recording System that the project deviated from its Offender Video Surveillance initial cost or schedule. (Some CBC projects approved through the Online Business Filings PAL process did require SPRs FDRc Federal Medicaid because additional scope was Reimbursement Application added to the project to, for Total: $40,376,495 CROS example, incorporate legislative Tax Collection and Filing System Otherd and regulatory changes made to programs included in the project after the initial scope of the project was approved.) This initial success a Only IT projects under CDT's authority. suggests fewer SPRs might be b A Special Project Report for the Child Welfare Services—California Automated Response and Engagement System required for projects approved (CWS-CARES) IT project has been submitted to CDT for approval, which will likely change the total project cost. c The Federal Draw and Reporting (FDR) IT project is one component of the larger California Medicaid Management through the PAL process in the Information System (CA-MMIS) Modernization IT project. The CA-MMIS Modernization IT project is estimated to future. However, as few complex cost a total of $500 million total funds +/- 20 percent. d Other state IT projects each representing less than 1.5 percent of total state IT project costs. and costly projects have been approved through the PAL process IT = information technology and CDT = California Department of Technology. to date, and as none of the few approved have been completed, one should be cautious about and have approved by CDT a Stage 2 Alternatives drawing firm conclusions from the initial track record Analysis. A nearby text box explains why some of the PAL process. requests to develop and implement projects are submitted prior to completing the PAL process. To request additional resources to develop and 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Budget Requests to Develop and Implement IT Projects Prior to Project Approval The California Department of Technology (CDT) receives, reviews, and acts on documents for proposed information technology (IT) projects year-round through its IT project approval process—the Project Approval Lifecycle (PAL). By contrast, the state’s annual budget process officially starts on January 10th (with the release of the Governor’s budget) and often ends by June 15th. During the remaining six months of the calendar year, the Department of Finance sets deadlines by which state government entities must submit certain documents to CDT for its review and approval in order to request resources through the budget process. These deadlines are supposed to ensure the approved documents are available during the budget process to help the Legislature deliberate over budget requests. To prevent a delay in the start date of a proposed project, however, some requests are made anticipating future actions will be taken by the administration within specific timeframes to approve the project. Specifically, under the administration’s policy, entities with an approved Stage 2 Alternatives Analysis can request resources to develop and implement a proposed project if they expect the project will be approved by CDT in the coming budget year (that is, CDT approval after the budget process for that fiscal year has been completed). As a result, CDT-approved documents for the last two stages of the PAL process that provide important support to justify a budget request—such as the selection of the vendor and the final cost, schedule, and scope of the project—may not be available during the budget process to assist legislative deliberations. In such cases, the administration, nonetheless, has submitted budget requests. GOVERNOR’S 2020-21 IT PROJECT PROPOSALS The Governor’s proposed 2020-21 budget Fund) in 2021-22, and $5.8 million ($5.3 million includes a number of requests for resources General Fund) in 2022-23 and ongoing. (Some to plan, develop, and implement proposed state government entities in this group of budget and approved IT projects. We organize these requests also are requesting ongoing resources requests into three groups: (1) requests for to, for example, improve their internal business planning resources to complete the PAL processes even after their proposed IT projects are process, (2) requests for resources to develop approved by CDT and completed.) Figure 3 (on the and implement projects (whether proposed or next page) lists these requests by state entity and approved), and (3) requests for resources to proposed project name. develop and implement proposed projects that are Requests for Resources to Develop and still being planned but are expected to be approved Implement IT Projects. The Governor’s proposed in 2020-21. As mentioned earlier, for purposes of 2020-21 budget includes 30 budget requests for our analysis in this report, we only include budget resources to develop and implement IT projects requests from entities under the authority of CDT. (whether proposed or approved) with a total cost Requests for Planning Resources to of $213.5 million ($106.2 million General Fund) in Complete the PAL Process. The Governor’s 2020-21, $35.2 million ($17.6 million General Fund) proposed 2020-21 budget includes six requests in 2021-22, $17.1 million ($6.6 million General for resources to complete the PAL process with a Fund) in 2022-23, and $11.6 million ($5.1 million total cost of $18.7 million ($14.4 million General General Fund) in 2023-24 and ongoing. Based on Fund) in 2020-21, $7.9 million ($7.1 million General an initial review of project approval documents, www.lao.ca.gov 5 analysis full gutter 2020-21 BUDGET Figure 3 2020‑21 Budget Requests for Planning Resources to Complete the PAL Processa (In Thousands) 2020‑21 State Government Entities Proposed IT Projects Total Funds General Fund Department of State Hospitals Electronic Health Record—Core Modules $9,606 $9,606 State Controller’s Office California State Payroll System Project 3,449 1,966 Department of Justice Firearms IT Systems Modernizationb 2,352 — Department of Developmental Services Uniform Fiscal System Modernization 1,411 1,344 Franchise Tax Board Enterprise Data to Revenue 2 1,112 1,112 Department of Social Services State Verification Hub 806 323 Totals $18,736 $14,351 a Only IT projects under the California Department of Technology’s authority. Figure only reflects 2020‑21 funding amounts requested. Additional costs in future years vary by proposal. b Planning resources requested prior to starting the PAL process. PAL = Project Approval Lifecyle and IT = information technology. at least 8 of the 30 budget requests are for Fund) in 2023-24 and ongoing. These requests are projects using the agile approach at a total cost highlighted in Figure 4. of $160.5 million ($83.9 million General Fund) …Reflect Misalignment of Budget Process in 2020-21 with additional costs in future years. and PAL Process. State government entities Figure 4 (on pages10 and 11) lists the 30 requests can request resources to develop and implement for resources to develop and implement IT projects, proposed IT projects before finishing the PAL by state entity and proposed or approved project process. Specifically, entities with an approved name. Stage 2 Alternatives Analysis can request resources Requests for Resources to Develop and to develop and implement a proposed project with Implement Proposed IT Projects That Are the expectation that it will be approved by CDT Still Being Planned but Are Expected to Be in the coming budget year. By not completing the Approved in 2020-21... Of the 30 budget requests PAL process before requesting these resources, in the Governor’s proposed 2020-21 budget for entities are asking the Legislature to appropriate resources to develop and implement IT projects, funding without the benefit of a complete project ten are for proposed projects that are still being plan that provides valuable information to the planned, but are expected to be approved in Legislature—including an approved cost, schedule, 2020-21. The total cost of these resources are and scope for the proposed project. (For a more $72.8 million ($37.8 million General Fund) in comprehensive analysis of this misalignment, 2020-21, $12.6 million ($9.1 million General Fund) please see our March 14, 2019 budget and policy in 2021-22, $4.9 million ($3.1 million General Fund) post—The 2019-20 Budget: Aligning the State’s IT in 2022-23, and $2.2 million ($1.5 million General Project Approval Process With the Annual Budget Process.) EXERCISING MORE LEGISLATIVE OVERSIGHT OF IT PROJECT PROPOSALS A number of the requests in the Governor’s proposed and approved IT projects. This section proposed 2020-21 budget present opportunities considers some of the opportunities within each for the Legislature to exercise more oversight of of the three groups of budget requests that we 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET identified in the previous section. We also consider proposed California State Payroll System project whether organizational changes would help the provides one example of how the Legislature could Legislature exercise its oversight role through the use these tools through the budget process. budget process. Define Project Completion, Take Other Evaluate the Proposed Scope of Some Actions to Make Legislative Intent Clear About Projects Before CDT Approval. The first group Project Goals. The second group of budget of budget requests we identified in the previous requests we identified in the previous section section is for planning resources to complete the is for resources to develop and implement IT PAL process. Some of the proposed IT projects projects (whether proposed or approved). Some in this group have the potential to be complex of the projects in this group are complex and and costly projects once approved by the costly projects approved by the administration administration. One opportunity for the Legislature that use an agile approach for development and to exercise more oversight of potentially complex implementation. Although the agile approach and costly project proposals is to evaluate the to development and implementation in concept proposed scope of the project when considering allows state government entities to start benefiting planning resources. The purpose of this effort from their projects sooner, using this approach in would be to determine whether the proposed scope practice for complex and costly projects has some is appropriately sized and cost-effective, or if a risks. Specifically, if the project does not commit reduced scope with less cost and risk is feasible. to essential elements of the project scope at the One way the Legislature can consider the outset of the project, the ultimate outcome may proposed scope of a project is to evaluate end up costing more and delivering less than the alternatives. (The text box [on the next page] Legislature intended. Consequently, additional provides an example of how the Legislature can legislative oversight—by statutorily defining project evaluate alternatives for a proposed project.) State completion—is warranted. government entities that are proposing projects For example, our office recently released a report must evaluate alternatives as part of Stage 2 (the on one of the state’s most complex and costly alternatives analysis stage) of the PAL process. projects using the agile approach—the Financial Therefore, once proposed projects are approved Information System for California (FI$Cal). (FI$Cal by CDT through Stage 2, the Legislature could use does not have a budget request in the second these evaluations to determine whether it agrees group we identified in the previous section, and with the administration’s approved alternative. In is used here only as an example.) In our report, assessing the alternatives, the Legislature could we found the new definition of project completion look at which part of the proposed project would in FI$Cal’s most recent project plan—which be completed first and determine whether the removed a number of planned activities and system anticipated benefits from that part is of sufficient functions from the project scope while adding value from the Legislature’s perspective were that additional hours to complete what project scope to be the only part of the project to be completed. remains—was inconsistent with the agile approach The Legislature also could find a part of the and did not account for the significant amount project scope that, if developed and implemented, of work that remains after the project is deemed would demonstrate the ability of a future vendor “complete.” As a result, the administration’s to feasibly complete the entire project scope. new definition of completion for FI$Cal does not This assessment would give the Legislature more reflect all of the costs associated with the project confidence that a proposed project would use the (including additional costs in the Governor’s funding the Legislature appropriates to complete proposed 2020-21 budget). The absence of an the project on time and within budget or, if the accurate total project cost warrants additional project is not completed, to deliver at least a part legislative oversight, including the potential of the project that would be of value. Our text box adoption of statutory language that defines the (on the next page) on the State Controller’s Office’s completion of the project from the Legislature’s www.lao.ca.gov 7 analysis full gutter 2020-21 BUDGET Scope of Proposed SCO IT Project Merits Legislative Review The State Controller’s Office (SCO)’s California State Payroll System (CSPS) is a proposed information technology (IT) project currently in Stage 2 (the alternatives analysis stage) of the Project Approval Lifecycle (PAL) process, with approval through Stage 2 anticipated in fall 2020. Stage 2 approval—a critical juncture in the planning process—provides an opportunity for the Legislature to exercise oversight of CSPS by evaluating the proposed scope of the project. Payroll for State’s Workforce. SCO is responsible for issuing pay to the state workforce, including state employees, California State University, and the Judicial Council. SCO issues payroll and manages human resources for about 260,000 employees using a legacy IT system. After a decade-long attempt to replace the legacy IT system failed, SCO renewed its effort in a new proposed project known as CSPS. SCO has 11 objectives for the new system, most of which are related to improving SCO’s own operations and administration of the system. Governor’s Budget Requests $3.5 Million for Continued CSPS Activities. In recent years, the Legislature authorized a number of requests for planning resources for CSPS as SCO has worked through the PAL process. As of 2019-20, the CSPS team includes 17 permanent positions and 1 limited term position. The 2020-21 Governor’s Budget requests about $3.5 million and 8 positions in 2020-21 ($1.7 million and 7 positions ongoing) to continue to support the proposed CSPS project. A majority of the requested resources support the continued implementation of the PAL process, while some are dedicated to supporting other related payroll workload. SCO Anticipates Submitting Stage 2 Alternatives Analysis in July 2020. SCO anticipates it will submit its Stage 2 Alternatives Analysis package to CDT for approval in July 2020. The transition between the second and third stage of the PAL process will be critical. Upon completion of Stage 2, SCO will have finished evaluating the various project alternatives and will identify its recommended alternative. As such, once this analysis is complete, moving to the third stage requires departments to begin procuring a solution for the project based on the alternative selected in Stage 2. SCO Has Two Alternatives Still Under Consideration. When SCO first began Stage 2, it had at least six possible alternatives under consideration. SCO recently indicated it has narrowed the alternatives down to two: (1) using commercial off-the-shelf software that would involve modifying existing software as necessary to address the state’s payroll needs (thereby creating a new payroll system) or (2) modernizing and improving the existing payroll system. SCO has stated that the estimated vendor cost of the first alternative could range from $350 million to $700 million (additional state costs also would be required) and they do not yet have an estimated cost for the second alternative. Stage 2 Approval Presents Opportunity for Legislature to Exercise More Oversight. Once SCO evaluates the various project alternatives, recommends one of the alternatives for approval, and is approved through Stage 2 of the PAL process by CDT, the Legislature has an opportunity to determine whether it agrees with the administration’s approved alternative. Were the Legislature to disagree with the approved alternative, the Legislature could work with the administration to agree on a new project scope and/or technical solution that might (for example) reduce the cost, risk, and schedule of the proposed project. To trigger this evaluation, the Legislature could adopt provisional language directing SCO to present each of the alternatives (and their associated cost, schedule, and scope) in an oversight hearing or report once the proposed CSPS project is approved through Stage 2 of the PAL process. 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET perspective. (For a more comprehensive analysis In the 2019-20 Budget Act, the Legislature of the FI$Cal project’s most recent project plan, adopted this type of provisional language for please see our January 8, 2020 report—FI$Cal IT several proposed projects. One proposed Project Update—Special Project Report 8.) project received approval through Stage 4 after Another complex and costly project using the its estimated start date, and provided written agile approach that is requesting resources in the notification to the Joint Legislative Budget Governor’s proposed 2020-21 budget is the Child Committee. Other proposed projects will not start Welfare Services - California Automated Response in 2019-20 as expected, or were withdrawn from and Engagement System (CWS-CARES) project. the PAL process. Figure 5 (on page 14) lists the CWS-CARES faced a number of challenges using proposed projects with this type of provisional the agile approach at significant cost to the state, language in the 2019-20 Budget Act, their and is now proposing to fundamentally change expected project start dates at the time the its approach in a new SPR. We plan to publish an provisional language was adopted, and their actual analysis of the new SPR for CWS-CARES (once it or expected project start dates as of February is approved by the administration), which likely will 2020. include opportunities for the Legislature to exercise Continued use of this type of provisional more oversight of this project through the budget language is one way the Legislature can ensure process. proposed projects are vetted by the budget Condition New Resources for the committees before the administration begins to Development and Implementation of Some develop and implement them. Projects on Legislative Notification and Organizational Changes to Legislature’s Approval. The third group of budget requests we Budget Oversight Could Be Warranted. All identified in the previous section is for resources of our recommended approaches for oversight to develop and implement proposed IT projects would benefit from developing dedicated that are still being planned but are expected to be legislative expertise on IT projects. Currently, the approved by CDT in 2020-21. We acknowledge Legislature considers most IT budget requests that each proposed project should be considered through subcommittees organized by program by the Legislature on a case-by-case basis and area. For example, the health and human services some may warrant approval prior to completing subcommittees will review the CWS-CARES a project plan. But by not completing the PAL proposal mentioned earlier. As a result, the process before requesting these resources, state Legislature has no venue to vet the entire IT government entities are asking the Legislature portfolio, including related changes in policy, to appropriate funding without the Legislature processes, and technology. Charging an existing having the benefit of a complete project plan subcommittee or creating a new subcommittee (including an approved cost, schedule, and scope in each house and assigning it the responsibility for the proposed project). If the Legislature wants to consider all budget requests for IT projects to provide resources to develop and implement could allow for more direct involvement in project proposed projects before they complete the planning and provide oversight over the entirety of PAL process, one opportunity to exercise more IT projects. oversight through the budget process is to adopt Our text box (on pages 12 and 13) on the provisional budget language that conditions the Employment Development Department’s proposed resources on prior written notification of, and Benefit Systems Modernization project (for which approval by, the Legislature once the proposal is there is a budget request in the second and approved through Stage 4 (the project readiness third groups) provides one example of how the and approval stage) of the PAL process. We Legislature could exercise more oversight through recommend written notification at a minimum the current subcommittee budget process or how include the key details from the complete project a new IT-focused budget subcommittee could be plan, including the approved cost, schedule, and more effective in exercising this oversight. scope of the project. www.lao.ca.gov 9 analysis full gutter 2020-21 BUDGET [Insert Text Box 3: Accelerated EDD IT Figure 4 Project Proposal Limits Legislative Oversight] 2020‑21 Budget Requests for Resources to Develop and Implement IT Projectsa (In Thousands) 2020‑21 State Government Entities Proposed or Approved IT Projects Total Funds General Fund California Health and Human Services Agency (Office of Systems Integration) Child Welfare Services b ‑California Automated Response and $54,000 $27,200 Engagement System Department of Social Services Employment Development Department Benefit Systems Modernization 46,000 23,000 Department of Tax and Fee Administration Centralized Revenue Opportunity System 24,523 10,557 Department of Corrections and Rehabilitation Statewide Correctional Video Surveillance Project 21,550 21,550 Department of Developmental Services Cooperative Electronic Document Management System 6,357 6,174 Department of State Hospitals Department of Transportation Transportation System Network Replacement 5,424 — Department of State Hospitals Pharmacy Modernization 5,378 5,378 Department of Consumer Affairs Business Modernization Cohort 1 5,231 — Department of Justice Firearms: Precursor Parts (AB 879)c 5,000 5,000 Legal Division Accounting and Work Management System EntHR LMS Statewide Data Reporting Department of Human Resources 4,223 2,197 EntHR LMS Data Share CalCareers Website Enhancement Department of Justice Criminal Records: Automatic Relief (AB 1076)c 3,637 — Department of Social Services County Expense Claim Reporting Information System 3,467 1,597 State Controller’s Office CalATERS Replacement 3,096 1,764 Department of Alcoholic Beverage Control Business Modernization and Responsible Beverage Service 3,054 — California Health and Human Services Electronic Visit Verification Phase II Agency (Office of Systems Integration) 2,874 291 Department of Toxic Substances Control Cost Recovery Management System 2,710 — Department of Public Health Laboratory Field Services—Electronic Tissue and Biologics System 2,600 — (Continued) 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET 2020‑21 State Government Entities Proposed or Approved IT Projects Total Funds General Fund Department of Justice Firearms: Transfers (SB 61)c 2,440 — Franchise Tax Board VRC System Modernization Project 1,903 — Department of Justice Legislative Workloadc 1,641 150 Department of Justice Assembly Bill (AB) 528: Controlled Substance Utilization Review 1,567 — and Evaluation System (CURES) Department of Veterans Affairs CalVet Electronic Health Record 1,195 1,195 Department of Managed Health Care Independent Dispute Resolution Process Portal Modernizationd 1,163 — California Public Utilities Commission Electric Rates, Tariffs and Programs (AB 1362)c 1,021 — California Energy Commission Modernized Appliance Efficiency Database System 2.0 1,000 — Department of Industrial Relations Electronic Adjudication Management System Modernization 864 — Project Office of Statewide Health Planning and Hospitals: Procurement Contracts (AB 962)d Development 790 — Office of Statewide Health Planning and Hospital Community Benefits Plan Reporting (AB 204)d Development 519 — Department of Housing and Community Community Development Block Grant (CDBG) / CDBG‑Disaster 184 — Development Recovery Procurement Project State Controller’s Office Performance and Management Learning System 123 123 Totals $213,534 $106,176 a Only IT projects under CDT’s authority. Some resource requests include a combination of planning, development, and implementation resources. Highlighted projects are projects requesting resources for development and implementation that are still being planned but are expected by the administration to be approved in 2020‑21. Figure only reflects 2020‑21 funding amounts requested. Additional costs in future years vary by proposal. b Also referred to as the Child Welfare Services ‑ New System. c Proposed IT project names not available, so budget change proposal description used instead. d CDT anticipates that these proposed IT projects requesting resources for development and implementation before completing the PAL process will be delegated back to the entities that proposed them. IT = information technology; EntHR = Enterprise Human Resources; LMS = Learning Management System; CalATERS = California Automated Travel Expense Reimbursement System; SB = Senate Bill; VRC = Vehicle Registration Collection; CalVet = Department of Veterans Affairs; CDT = California Department of Technology; and PAL = Project Approval Lifecycle. www.lao.ca.gov 11 analysis full gutter 2020-21 BUDGET Accelerated EDD IT Project Proposal Limits Legislative Oversight Role of Employment Development Department (EDD). EDD administers the state’s unemployment, paid family leave, and short-term disability insurance programs. EDD has three separate information technology (IT) systems for these benefit programs, two of which—unemployment insurance and disability insurance—were partially upgraded in recent years. Benefit Systems Modernization (BSM). In 2016, the administration proposed an IT project—BSM—to replace the three existing IT systems with a new consolidated and modern system. According to the administration, the state needs a new system because the partial upgrades in prior years relied on a patchwork of complex fixes that is difficult to maintain and update. The administration proposed, and the Legislature approved, funding and staff positions in 2017-18 and 2018-19 to plan the proposed BSM project. Governor’s Proposed 2020-21 Budget Asks Legislature to Approve Significant Amount of Resources to Begin Development and Implementation of BSM. The Governor’s proposed budget requests $46 million total funds ($23 million General Fund) and 147.5 staff positions in 2020-21 to begin development and implementation of BSM. The proposed IT project currently is in Stage 4 (the final stage) of the Project Approval Lifecycle (PAL) process, and expects to complete Stage 4 by September 30, 2020. Administration Sped Up PAL Process for BSM to Accelerate Changes to Paid Family Leave Program, Limiting Legislative Oversight. As part of the 2019-20 budget agreement, the state lengthened paid family leave from six weeks to eight weeks. The Governor also indicated an interest in broader changes, including a flexible benefit to be shared among parents or caregivers. At the time, our office noted that technology issues could limit near-term changes to the paid family leave program and broader changes, such as those envisioned by the Governor, likely would require several years to implement. In light of this limitation, the administration has accelerated the expected start date for the proposed BSM IT project by nearly one year—from July 1, 2021 to September 2020. One of the primary ways EDD was able to accelerate the expected start date of the proposed project is by using a new pilot approach to procurement—the challenge-based procurement. Unlike traditional procurements, a challenge-based procurement is conducted in multiple phases. The first phase of the procurement is the issuance of a problem statement (instead of a detailed list of requirements, like in a traditional procurement) that describes, at a high level, the business problem(s) the state government entity wants to solve. Vendors respond to the problem statement, and a small number (expected to be between three and five) are selected to move onto the next phase. Selected vendors are then asked to demonstrate their ability to solve the business problem(s) using pilots, product demonstrations, proof of concepts, and prototypes. The vendor with the highest score on their demonstration enters into negotiations with the state over (among other topics) the final cost, schedule, and scope of the proposed project. Once negotiations are completed, the state enters into a contract with the vendor. As a result of using the challenge-based procurement approach, the administration’s accelerated budget proposal asks the Legislature to appropriate funding to begin development and implementation of BSM before the California Department of Technology (CDT) has approved, or made public, the proposed project’s cost, schedule, and scope. (Based on preliminary market research, the administration expects the project will cost hundreds of millions of dollars.) 12 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET Meanwhile, the Governor has not proposed changes to the paid family leave program that require technology upgrades, and the Legislature has not yet considered any further changes. As a result, the Legislature has not had the opportunity to determine whether the potential risks of accelerating the BSM project—under this new procurement method—are outweighed by the need to accelerate major, albeit unknown, changes to the paid family leave program. Potential risks include less time to plan the transition from EDD’s current IT systems for these programs to a new system (including how data will be shared and transmitted) and missed requirements for the new system that, if added later to the project scope, could result in higher costs and schedule delays. Some Opportunities to Exercise More Legislative Oversight Through Budget Process. For proposed IT projects requesting resources for development and implementation before completing the PAL process, we often recommend that the Legislature adopt provisional budget language that conditions the resources on prior written notification of, and approval by, the Legislature once the proposal is approved through Stage 4 of the PAL process. At a minimum, we recommend the Legislature adopt this type of provisional language for BSM. Provisional language alone, however, would not provide the Legislature with enough information regarding the proposed project given the accelerated approach to planning, the project using a new procurement approach, and the absence of any major proposed changes to the state’s paid family leave program. If the Legislature wants to provide resources to begin development and implementation of BSM before the proposed project completes the PAL process, we recommend the Legislature also consider other opportunities to exercise more oversight including (but not limited to): • An oversight hearing to review the approved project cost, schedule, and scope of the project once it is approved by CDT through Stage 4. • Adoption of supplemental reporting language that requires EDD to explain what broader changes to the paid family leave program could be accelerated by BSM and provide more information about their associated costs and timeline. • Adoption of trailer bill language to define the completion of the proposed project, including objectives for the future IT system and measures of success during its development and implementation. BSM Proposal a Good Example of How a New Budget Subcommittee Could Be Valuable. A new subcommittee focused on IT issues could be valuable in exercising oversight in the circumstances of the BSM proposal. Such committee could be in the position to: • Collection Information Across Departments. Hear requests from all departments, including EDD, that are using the new challenge-based procurement approach to determine whether the benefits of the new approach outweigh the additional resources it requires from CDT and its compression of the planning process by, on average, one year. • Reduce Risks When Project Scope Changes. In the case of BSM, California will be the first state to consolidate its unemployment, paid family leave, and short-term disability insurance programs into one IT system, which is itself a risk for a proposed project of this complexity and (likely) cost. EDD also is implementing each of the programs in the system one at a time (to accelerate changes to the paid family leave program, which is likely to go first), rather than the department’s preferred approach during its initial planning (from a risk perspective) of implementing them all at once. The Legislature, to reduce the risk associated with the proposed project, might have considered reducing the project scope to a single program such as paid family leave (if the Legislature agreed with the administration on its prioritization). www.lao.ca.gov 13 analysis full gutter 2020-21 BUDGET Figure 5 IT Projects With Provisional Language in the 2019‑20 Budget Act Expected Actual or Updated State Government Entities Proposed or Approved IT Projects Start Date Expected Start Date Department of Social Services Intensifying LPA Field Time With Data (Part 1: December 2017a July 2020 Protecting History: Data Migration for Legacy Systems) Department of Public Health Surveillance, Health, Intervention, and Environmental July 2019 November 2020 Lead Database Department of Toxic Substances Control Cost Recovery Management System August 2019 October 2019b California Health and Human Services Medi‑Cal Eligibility Data Systems Modernization February 2020 Withdrawn from PALc Agency (Office of Systems Integration) Department of Developmental Services Reimbursement System Project July 2020d July 2020 a At the time the provisional language was approved, the expected start date for this project was December 2017. It was our understanding at the time that this proposed project was connected to the Child Welfare Services–California Automated Response and Engagement System (CWS‑CARES) project, and would be rescheduled once a new Special Project Report for CWS‑CARES was approved. The expected start date for this proposed project has since been rescheduled to July 2020. b The department complied with the provisional language and provided written notification to the Legislature with the requested information. c The Office of Systems Integration transferred sponsorship of the Medi‑Cal Eligibility Data Systems Modernization to the Department of Health Care Services. This decision led to a withdrawal of the proposed project from PAL. d Provisional language was approved for the Reimbursement System Project because the department requested development and implementation resources during the 2019‑20 budget process, even though the project expected to start in July 2020. The Legislature ultimately only approved planning resources to complete the PAL process in 2019‑20, and added provisional language as a precautionary measure. IT = information technology; LPA = Licensing Program Analyst; and PAL = Project Approval Lifecycle. 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2020-21 BUDGET www.lao.ca.gov 15 analysis full gutter 2020-21 BUDGET LAO PUBLICATIONS This report was prepared by Brian Metzker, and reviewed by Mark C. Newton and Carolyn Chu. 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. 16 LEGISLATIVE ANALYST’S OFFICE