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The California Performance Review

A Government for the People for a Change i

A GOVERNMENT FOR THE PEOPLE FOR A CHANGE

Prescription for Change

A Report of the California Performance Review

VOLUME 1

ALIFORNIA, I BELIEVE, IS AN EMPIRE OF

HOPE AND ASPIRATIONS. NEVER IN

HISTORY HAVE SUCH BIG DREAMS

COME TOGETHER IN ONE PLACE.

NEVER IN HISTORY HAS SUCH

AN ARRAY OF TALENT AND

TECHNOLOGY CONVERGED

AT ONE TIME. NEVER IN

HISTORY HAS SUCH A FREE

AND DIVERSE COMMUNITY

OF PEOPLE LIVED AND

W O R K E D U N D E R O N E

POLITICAL SYSTEM. THIS IS A

WONDERFUL PLACE, CALIFORNIA,

THIS EMPIRE OF ASPIRATIONS.

GOVERNOR SCHWARZENEGGER

C

Table of ContentsPage

Prescription for Change .................................................................................. 1

The California Performance Review ................................................................ 5

Customer Service: The Extra Mile ................................................................... 9

Good People, Good Government .................................................................. 27

Getting the Most Out of Taxpayer Dollars...................................................... 39

Accountable Government .............................................................................. 55

Smart Management Decisions ...................................................................... 69

Tools for the Digital Age ................................................................................ 89

Executive Branch Organization: Start Making Sense .................................... 95

Renew the Dream ....................................................................................... 103

Fiscal Summary .......................................................................................... 105


A Government for the People for a Change i

iv Prescription for Change


A Government for the People for a Change v

Dear Governor Schwarzenegger:

On behalf of the 275 volunteers you assembled to examine state government from “top to

bottom,” we are pleased to present you with the California Performance Review report.

This report—compiled in response to your challenge to change and reform California—

contains more than 1,000 recommendations. If all of these recommendations are

implemented, they have the potential to save more than $32 billion over the next

five years.

The California Performance Review team appreciates the trust you placed in us to meet

this challenge. We feel we have provided a comprehensive plan for reform that calls for

accountability, efficiency and, above all else, a dramatic improvement in the way the state

provides services to its residents. These recommendations are not only common sense

solutions to the problems facing California, they also promote your vision of a more

stable and accessible government.

We targeted duplicative and wasteful overhead costs, and found solutions to deliver

services more effectively in a governmental structure that will be more responsive and

accountable to the public.

The Performance Review was a monumental undertaking. In addition to those employees

who spent four months of their time to engage in this historic effort, more than

1,800 other individuals—including volunteers from academia, the private sector and

nonprofit organizations—gave of their time and talents. Their expertise and enthusiasm

made this remarkable document possible and accessible to all Californians.

Once again, all of us at the California Performance Review are proud to present this work

to you. We look forward to working with you as this document is considered by your

administration and the people of California.

Sincerely,

Billy C. Hamilton Chon Gutierrez

Co-Executive Director Co-Executive Director

1102 Q Street, 6th Floor, Sacramento, CA 95814 Phone: (916) 322-8888 FAX: (916) 322-8164

vi Prescription for Change


A Government for the People for a Change 1

Diagnosis: California

California is the unique Americanstate. Its size, its resources, itsspirit, and its exuberant embraceof the future have made it the last,best destination for people seekinga better life. This California holdsso much promise that we shouldnever fail to meet our people’shighest hopes and expectations.

California’s spirit is alive and well,but in one vital area, the state isailing. Once the envy of the nation,today our state government failsthe people of California, and it failsthe men and women who havegiven their careers to its service.

Today, California is a step behind.The current fiscal crisis is onlythe most obvious and pressingexample of the problems in ourstate government.

• The state’s organizationalstructure is chaotic andcumbersome. It is the productof incremental changes madeover the last five decadeswithout regard to the needfor coordinated leadership ormanagement and withoutthinking about how the changesmight interfere with effectivelyserving the people.

• Our management systems areoutdated and ineffective. Theydon’t provide managementwith the most basic informationin a timely fashion.

• We have programs whose timehas come and gone, but stillthey linger on, wasting valuabletaxpayer dollars.

• We face a potential humancapital crisis as more than a

REPORT OF THE CALIFORNIA PERFORMANCE REVIEW

“I will not rest until our fiscal house is in order. I will not rest until California is a competitivejob-creating machine. And I will not rest until the people of California come to see theirgovernment as a partner in their lives...not a roadblock to their dreams’’

Governor Schwarzenegger

Prescription for Change

ONCE THE ENVY OF

THE NATION, TODAY

OUR STATE GOVERNMENT

FAILS THE PEOPLE OF

CALIFORNIA, AND IT FAILS

THE MEN AND WOMEN

WHO HAVE GIVEN THEIR

CAREERS TO ITS SERVICE.

2 Prescription for Change

third of our state employeesbecome eligible for retirementin the next five years.

• In the nation’s mosttechnologically advanced state,our government’s basic systemsare outmoded at the momentwhen the world is beingconnected by fast, efficientnetworks.

California is not alone in facingmonumental challenges in theyears ahead. All state governmentsconfront a growing demand forservices, increasing costs, revenueproblems and growing taxpayerdissatisfaction. The issueconfronting California stategovernment in the 21st century iswhether it can chart a course tomeet the needs of its citizenswithout draining the state of itseconomic vitality with high taxesand questionable regulations.

We think it can.

We reject a future in whichCalifornia lags behind other statesand fails to achieve its potential.California can once again be atrailblazer, an innovator and amodel for the rest of the nation.This report provides a generaldiagnosis of the challenges facingCalifornia state government and aprescription for how to bring aboutmeaningful improvement.

Our prescription for change is tiedto seven “vital signs” of a healthyand effective government. Thesevital signs are similar to issues thatgood businesses evaluate againand again. They are the questionsgood managers ask of theirorganizations, and they are theissues that the people of Californiadeserve to have clearly addressed.The elements essential to fixingCalifornia state governmentinclude:

• How we serve the people ofCalifornia.

• How we manage our people.

• How we cut costs and savetaxpayer dollars.

• How we make our governmentmore accountable.

• How we manage our businessoperations.

• How we use the power oftechnology.

• How we organize our businessto realize our goals.

California is great, but we can dobetter. No more business as usual.We can cure what ails our stategovernment, and we can do itwith the inventiveness andboldness for which California isknown. We can build somethingnot seen before, the first truly 21stcentury American government. We

CALIFORNIA CAN

ONCE AGAIN BE A

TRAILBLAZER, AN

INNOVATOR AND A

MODEL FOR THE REST

OF THE NATION.



can create a government that isleaner without being meaner; agovernment that supports thestate’s economy and does not holdit back; and a state as innovativeand creative as the people it serves.

To achieve this future, however, wemust chart a new course, a coursethat serves our children andgrandchildren, as well as ourselves.

These recommendations providea prescription for change that isessential if California stategovernment is to regain its formerrole as a leader among the states.

Although these recommendationsalone will not return the state to itstraditional role as a national leader,they set out a clear vision—a roadmap—for recapturing thatleadership.

It won’t be easy to accomplish thetransformation proposed by theCalifornia Performance Review,but we can do it. We can giveCalifornians the government theydeserve: The best government inthe world.

We must act, and we must act now.

WE CAN GIVE

CALIFORNIANS THE

GOVERNMENT THEY

DESERVE: THE BEST

GOVERNMENT IN

THE WORLD.




Governor Schwarzenegger hasaddressed the immediate budgetcrisis facing our state, butCalifornia’s fiscal outlook stillshows signs of ill health. Arecovering state economy will takecare of a portion of the problem.Still, a budget imbalance is asymptom of more fundamentalills. Like a recurring disease, thestate’s budget woes will persistuntil dramatic and fundamentalchanges are made.

When governments face budgetproblems, they typically resort tocutting services or raising taxes.Too often, attempts to cut servicesare random and unfocused. Toooften, they don’t last. California isa growing and diverse state, andstate programs must meet theneeds of Californians.

The other tactic, raising taxes,doesn’t make sense today. Thecardinal rule of medicine is: First,

“We have multiple departments with overlapping responsibilities. I say consolidate them. Wehave boards and commissions that serve no pressing public need. I say abolish them. We have astate purchasing program that is archaic and expensive. I say modernize it. I plan a total reviewof government—its performance, its practices, its costs.”


do no harm. California’s economyis recovering, and governmentshould not limit the ability of thestate’s people and businesses asthey work for a better future.Private investment will helpthe state over the next severalyears. Californians expect thegovernment to get its own housein order before dipping into theirpockets.

The real problem is that the choicebetween higher taxes and cutsin spending is no choice at all.The excess in government isn’tnecessarily in any individualprogram. It can be foundeverywhere within the structureof the government—built not intowhat government does, but howit does it.

There’s a better way. We canbegin to eliminate the fat withinthe government, but we need togo a step further—we need to make

WE CAN BEGIN

TO ELIMINATE THE

FAT WITHIN THE

GOVERNMENT, BUT

WE NEED TO GO A STEP

FURTHER—WE NEED

TO MAKE PERMANENT

CHANGES IN HOW THE

STATE DOES BUSINESS.


permanent changes in how thestate does business. Shedding theproblems with the budget is likelosing weight. You can struggleto lose pounds, but if you don’tchange your eating habits, theweight will come right back. Ifgovernment isn’t fundamentallychanged, it will continue toexperience the boom and bustcycles of spending and taxingwith which Californians are alltoo familiar.

This is the mission of the CaliforniaPerformance Review (CPR). TheGovernor created CPR to bring himrecommendations on how to fixwhat ails California government.And he asked CPR to go a stepfurther: He wanted to create astate government able to meetthe challenges of the 21stcentury. The concept is simple.A 21st century state governmentshould be:

• Innovative

• Responsive

• Compact

• Open and accountable

• Performance-based

• Attuned to customers andemployees

• Productive

• Pro-economy.

By making these principles part ofevery aspect of government, wewill cure the basic ills California’sgovernment faces today.

To complete its work, the CPRassembled a team of more than275 state workers, academics andpublic policy experts. The staff wasdivided into 14 teams. These teamsexamined the key functional areasof government as well as issuesthat cut across all governmentoperations and functions (Exhibit 1).

This report summarizes the resultsof CPR’s recommendations, andaccompanying volumes detail allof the CPR findings. In total, theCPR is making more than 1,000recommendations for theGovernor’s considerationcovering 280 issue areas.

EXHIBIT 1

CALIFORNIA PERFORMANCE REVIEWMajor Review Areas

Functional Teams Cross Cutting Teams

Health and Human Services Information TechnologyEducation, Training and Procurement Volunteerism Personnel ManagementPublic Safety Customer ServiceResource Conservation Budget and Revenue and Protection MaximizationGeneral Government IntergovernmentalInfrastructure RelationsCorrections Financial Audit



Section

General Government

Health and Human Services

Education, Training andVolunteerism

Infrastructure

Resource Conservationand Environmental Protection

Public Safety

Statewide Operations

GRAND TOTAL

Implementing even a fractionof these recommendations willdramatically improve theperformance and productivityof California’s state government.

The recommendations of the 14CPR teams were combined intoseven topical areas as shown in

Exhibit 2. These recommendationscan help the state solve its pressingfiscal crisis. While not all of theCPR’s recommendations areintended to cut costs, many do.Total savings found by thePerformance Review teams amountto $32 billion over five years.

EXHIBIT 2

FISCAL IMPACT OF CPR RECOMMENDATIONS

General Fund Other FundsFive-Year

Total—All Funds

Fiscal Year 2004-2005

Source: California Performance Review.

* Five-year General Fund savings and revenue total $10.8 billion.

$270,250,000 $49,918,000 $12,437,970,000

$815,000 $1,139,000 $4,918,120,000

$133,876,000 $54,554,000 $4,123,748,000

$56,087,000 $24,388,000 $3,363,243,000

$2,204,250 $5,938,750 $349,631,000

$0 $1,200,000 $7,600,000

$218,132,000 $222,626,000 $6,405,768,000

$681,364,250 $359,763,750 $31,606,080,000*



“There are no traffic jams along the extra mile.”

Roger Staubach

Customer Service: The Extra Mile

CPR Diagnosis

• Statewide customer service standards don’t exist. Customer servicetakes a backseat to other issues.

• Services are not readily accessible. The state does not employ themost modern customer service technologies.

• Programs are designed for the convenience of government. Thestate designs programs from a bureaucratic perspective instead of aconsumer perspective.

• Coordination with local government is poor. Many services aredelivered by our partners in local government, but we do a poor jobof collaborating with our partners.

Making state government workbetter for Californians is acentral theme of CPR. All of therecommendations in the reportare directly or indirectly aboutcustomer service. But there are anumber of changes the state canmake that specifically address howthe government interacts with thepeople.

Customer service is at the heart ofsuccessful businesses in America.

There are simply too many optionsavailable to customers today forbusinesses to be anything less thanefficient, friendly and available.Government, though, has fewcompetitors for many of thegoods and services it provides.Government frequently forgets toserve the people first. That is amistake. As management expertPeter Drucker said: “The singlemost important thing to remember

THERE ARE SIMPLY

TOO MANY OPTIONS

AVAILABLE TO

CUSTOMERS TODAY

FOR BUSINESSES TO BE

ANYTHING LESS THAN

EFFICIENT, FRIENDLY

AND AVAILABLE.

GOVERNMENT, THOUGH,

HAS FEW COMPETITORS

FOR MANY OF THE

GOODS AND SERVICES

IT PROVIDES. GOVERNMENT

FREQUENTLY FORGETS TO

SERVE THE PEOPLE FIRST.


about any enterprise is that thereare no results inside its walls. Theresults of a business are a satisfiedcustomer.”

Too often, state employees come tobelieve their primary customers arethe Legislature, elected officials orvarious interest groups. Theyforget that their primary mission isto help and protect Californians—the taxpayers who are their trueemployers and ultimate customers.

Improved customer serviceshould go hand in hand with anew structure and focus forour government. Californiagovernment has traditionally beendesigned for the convenience of thepeople who work in it rather thanfor the people it is meant to serveand who pay for it.

Set Some StandardsIt is ironic that California lawrequires cable television operatorsto establish customer servicestandards and to publishthem regularly, yet Californiagovernment, as a whole, does not.Many governments around theworld have found that settingcustomer service standards,publishing them and continuallyreporting on how they are met isthe key to changing the face ofgovernment. CPR believes thatCalifornia should immediately takea number of steps in the customerservice area.

In 1993, the federal governmentbegan to establish and implementcustomer service standards,customer surveys and customerservice plans. All executive

• Give customers of state government a voice—and a choice. Thatmeans setting standards and listening to the people who use ourservices.

• Make access easier for Californians. Providing better access startswith improving our services and particularly our use of moderntechnology.

• Focus on what the customer needs, not what the governmentneeds. That means thinking in terms of the main places peoplecome in contact with government and doing our best to improvethe experience.

• Work with local government. To succeed in coming years, the statemust forge a close relationship with local government in California.Communication is the place to begin this process.

Prescriptionfor Change



departments and agencies thatprovide significant service directlyto the public were directed to takethe following actions:

• Identify the customers who are,or should be, served by theagency;

• Survey customers to determinethe kind and quality of servicesthey want and their level ofsatisfaction with existingservices;

• Post service standards andmeasure results against them;

• Benchmark customer serviceperformance against the best inbusiness;

• Survey front-line employees onbarriers to, and ideas for,matching the best in business;

• Provide customers with choicesin both the sources of serviceand the means of delivery;

• Make information, services andcomplaint systems easilyaccessible; and

• Provide means to addresscustomer complaints.

The order creating the standardsencouraged federal agencies toprovide customer service trainingto employees who directly servecustomers. The order also directedagencies with high levels of public

contact to publish a customerservice plan within one year.

Various states have followed suit,finding new ways to listen tocitizen needs and make concretechanges in how they perform theirduties with their customers inmind.

Here in California, the FranchiseTax Board has developed astrategic plan that identifiescustomer-centered service asits number-one goal. This goalhas been communicated toindividual employees andhas been incorporated as aperformance measure for theboard’s Collection Call Centeremployees. For example, an FTBCollection Call Center team hasidentified what the customerexpects from them—courteous,professional and flexible service, as well as effective problemsolving. The team has developed acustomer service evaluation formused to evaluate its interaction withcustomers.

Since February 2004, the CaliforniaDepartment of Motor Vehicles(DMV) has reduced wait timesfrom as high as six hours to astatewide average of 30 minuteswithin its 90 major field offices.The department accomplished thisby identifying and adopting thebest customer service practices thatwere in place at outstanding fieldoffices.

IT IS IRONIC THAT

CALIFORNIA LAW

REQUIRES CABLE

TELEVISION OPERATORS

TO ESTABLISH CUSTOMER

SERVICE STANDARDS

AND TO PUBLISH THEM

REGULARLY, YET

CALIFORNIA GOVERNMENT,

AS A WHOLE, DOES NOT.


All California state governmentagencies should adopt similarcustomer-focused approachesin their strategic and budgetplanning. Customer servicemust be a strategic goal of eachdepartment and customersatisfaction must be continuallyassessed to determine how well adepartment is performing. Eachdepartment’s strategic plan shouldaddress identified deficiencies incustomer service.

Action: The state should establish astatewide customer service system thatrequires all state agencies to develop,publish and report on customer servicestandards, and reward those people ingovernment who provide outstandingcustomer service.

We should require agencies to seekfeedback continually from theirconstituents about the quality ofservice they are providing andways to improve their businesspractices.

Improve Access toGovernmentIt is not easy for Californians tocontact state government officesand quickly and efficiently findwhat they’re looking for. Accordingto MCI, one of the contractors forthe state’s telephone contract, thereare more than 1,400 toll-freetelephone numbers operated bystate agencies that use the contract.This number does not includeuniversities, local governments that

use the state’s telephone contract orstate agencies exempt from usingthe state’s contract. Thousands oflocal telephone numbers for stategovernment also are in the “bluepages” of California telephonebooks, and an undetermined, butpresumably large, number of callsare handled outside the toll-freearena.

The state has done little to assistthe public in contacting stateagencies, or to help the publicidentify which state agenciesprovide the services they need.The information that does existhas never been coordinated. Forexample, the last edition of theCalifornia state telephone directory,which is almost four years old, hasa section with listings by agencyor department and another sectionwith an alphabetical listing ofemployees who choose to belisted and is only used among stateagencies and not distributed to thepublic.

An online directory is availablethrough the California Web portal(www.ca.gov). There is, however,no easy way to navigate it, andthere generally is no link to it frommost state Web sites. Like the statetelephone directory, it lacks anylisting organized by services orareas of interest. The agency indexsimply directs the user to theagency Web site, which often hasno telephone contact information.

CUSTOMER SERVICE

MUST BE A STRATEGIC

GOAL OF EACH

DEPARTMENT, AND

CUSTOMER SATISFACTION

MUST BE CONTINUALLY

ASSESSED TO DETERMINE

HOW WELL A DEPARTMENT

IS PERFORMING.



The employee index offers usersthe ability to find telephonenumbers for specific employees;however, there is no indication ofwhich employee to contact forquestions about specific programsor services.

California has four state operatorswho work from 8:00 a.m. to 5:00p.m. Monday through Friday,excluding holidays. The numberfor the state operator is listed inmany major telephone directories.Operators take between 700 and1,000 total calls per day on a widevariety of topics, from both stateagencies and the general public.Their function is referral, givingtelephone numbers to callers andconnecting them. Consideringthe large number of telephonenumbers used by the state and thelimited number of staff to directcallers to the right place, accessingstate government can be difficultand frustrating.

Such frustration is not limited toCalifornia. During his campaignfor mayor of New York, MichaelBloomberg expressed frustrationthat New Yorkers had to siftthrough 14 pages of telephonenumbers to find city servicesand information. As a result, oneof the top priorities for his newadministration was to makecontacting city government easierby using a single telephonenumber—311. Forty call centersand several help lines for city

agencies were combined into the311 number, which has a servicecenter staffed by more than 200 cityemployees, with an overflow centerstaffed by up to 200 more contractemployees. Call centers offeringhighly specialized information,such as tax information during taxseason, were not included in the311 number since those calls cantake up to 30 minutes or longer.

In its first year, New York City’s311 service center fielded6.5 million calls. The city isexpecting that number to jump tobetween 10 and 12 million calls peryear. As of April 2004, the centerwas averaging about 35,000 callsper day.

Technology currently exists toallow call centers to operate ineither a “real” or “virtual” sense.Call center operators may all behoused under one roof or they maybe in several locations, includingtheir homes, and still operateefficiently. Database software alsoallows separate call centers andlocations to share data and managecall load among multiple centers.Call centers often experience peaksand valleys in volume at differenttimes of the year, month or evenday. The ability to spread callvolume among call centersand operators makes for greaterefficiency.

Most call centers use InteractiveVoice Response (IVR) systems to

THE STATE HAS DONE

LITTLE TO ASSIST THE

PUBLIC IN CONTACTING

STATE AGENCIES, OR

TO HELP THE PUBLIC

IDENTIFY WHICH STATE

AGENCIES PROVIDE THE

SERVICES THEY NEED.


automate routing. In the best callcenters, these IVR systems areinvaluable for getting callers to theright person as quickly as possible.They can even automate certainroutine tasks, such as giving callersan account balance. In manyinstances, however, IVRs make itdifficult or impossible for callersto reach a live person, or willsubstitute recorded information forhuman interaction when it may beinappropriate to do so.

Other technologies exist to allowsome automation of call taking.Voice recognition software, forexample, allows an interactive“discussion” with the software todetermine the caller’s needs. Thesoftware allows the caller to bedirected to the right entity, to leavevoice mail or instructs the caller tocall back.

The CPR identified more than 20call centers operated by or forCalifornia state agencies. Withouta thorough audit, however, it isimpossible to know exactly howmany there are, or how muchmoney is spent on them each year.CPR looked at three departmentswith four call centers that handle alarge volume of calls per year tomake some basic assumptions.These operations alone cost thestate more than $100 million peryear and employ 1,600 people. Thecenters and related information isshown in Exhibit 3.

Action: The Governor should directthe Department of General Servicesto establish a central CaliforniaInformation Center to improveinformation and service to Californiansby integrating most existing callcenters operated by the state.

EXHIBIT 3

FOUR MAJOR STATE CALL CENTERS

EDD— EDD—Unemployment Disability Motor ConsumerInsurance Insurance Vehicles Affairs Totals

900 200 475 35 1,610

$60 million $10 million $28 million $3.7 million $101.7million

45 million 8 million 20 million 840,000 73.8million


Number ofStaff

Annual Cost

Yearly Calls



A Gateway to StateServices OnlineThe California Portal is Californiastate government’s central website.It began operating in January 2001and was an instant hit, setting anew standard for governmentwebsites. The California Portal’sdevelopment team receivednumerous awards for its innovativefeatures. Its designers envisionedproviding a single point of accessto all state, local and federalgovernment services, whereusers can access specificgovernment services withouthaving to personally navigate thebureaucratic maze of overlappingcity, county, state and federalagencies (Exhibit 4).

The California Portal was initiallybrought online with fewer thanten percent of state departmentsparticipating. The project teampurchased and built a technicalinfrastructure at the state’s TealeData Center expecting to houseand support all of the state’sdepartmental websites. At theoutset, it seemed like the CaliforniaPortal was on its way to becomingexactly as advertised: a single pointof entry to many California stateand local government services,a user-friendly path to accessinformation and services.

Soon after it began operation,however, the California PortalProject had difficulties unrelated toits services. Financial and staffing

support for the California Portaldwindled amidst controversy.Technical support for the portalwas transferred to the Teale DataCenter staff in January 2004. Whenasked about the status of theCalifornia Portal in April 2004,Teale Data Center managementindicated its staff did not have thetechnical expertise necessary tofully support the portal, and therewas a similar lack of expertiseamong vendors responsible forservicing its software.

The problems facing the CaliforniaPortal are not related to the originalvision of creating a single onlinegateway for California stategovernment, however, theproblems are holding back even asemblance of a chance of realizingthat vision. The information

EXHIBIT 4

THE CALIFORNIA PORTAL


accessible through the portal is notbeing updated. For example, thereare obsolete references (links) toinformation on the portal’s website.When Internet users “click” onobsolete links, they receive amessage that the website or textreferenced on the portal no longerexists.

The goal of providing seamlessInternet access to all state and localgovernment agencies in Californiaremains unfulfilled. Many statedepartment websites still resideoutside the portal’s computersystems and are, therefore,unavailable to the portal’s searchtool. This makes the portal lessuseful.

Moreover, the technologyunderlying the portal is outdatedin the rapidly changing world ofthe Internet. Portal technologyhas advanced rapidly since 2001.The Portal has vast and as yetunrealized potential. It shouldbe upgraded to make it a truegateway to California stategovernment.

Action: The state should update andexpand the California Portal. Theportal should be redesigned to make ita central gateway for all state agenciesand for units of local government.

Action: The Governor should directstate departments to keep theirwebsites updated.

The text and the links to otherwebsites and information should

be routinely updated and obsoletereferences eliminated. The stateshould obtain automated tools toassist in this effort. Improving theaccuracy of information accessedthrough the portal will make it amore useful and reliable tool forthe public.

Move CommonServices OnlineCalifornia can see significantimprovements in the quality andavailability of commonly usedservices by making them availableelectronically. In this case, priorityshould be given to state driverslicense renewal and to the statenutritional programs for womenand children.

Drivers License Renewal.Today, the Department ofMotor Vehicles (DMV) has 168standard driver license and vehicleregistration field offices throughoutCalifornia. Field offices providea wide range of services forCalifornians, including initialdriver testing, vehicle registrationand driver license renewals.

In 2004, the DMV expects to renewfive million driver licenses. Sixtypercent (three million) of thesedrivers are eligible to renew theirlicenses by mail if they meet certainage and driving standards. Whiletwo million drivers choose thisoption, nearly one million driverswho are eligible to renew by mailcontinue to visit their field office torenew their licenses. This adds to

IN 2004, THE DMV

EXPECTS TO RENEW

FIVE MILLION DRIVER

LICENSES. SIXTY PERCENT

(THREE MILLION) OF THESE

DRIVERS ARE ELIGIBLE TO

RENEW THEIR LICENSES

BY MAIL, IF THEY MEET

CERTAIN AGE AND

DRIVING STANDARDS.



the field office workload and tocustomer waiting time. TheDMV already offers onlineregistration of vehicles. The sameprocesses can be used to deliveronline drivers license renewalservices.

Eleven other states have initiatedprograms in which drivers mayrenew their licenses online:Georgia, Louisiana, Mississippi,Nevada, New York, Illinois,Tennessee, South Carolina, Texas,Utah, Virginia and the District ofColumbia. In addition, Idaho, NewMexico and Washington are in theprocess of adding online renewals.The results have been favorable.Utah, for example, renews28 percent of its drivers licensesonline. Virginia estimated that10 percent of all its transactionswere accomplished online. Anonline transaction saved 20 percentof the staff time needed forprocessing an application sent inthe mail. Other states reportedsimilarly favorable results.

The DMV considers onlinerenewals to be good customerservice rather than a cost-savingsopportunity. Other states’experiences, however, indicate thatan online renewal program will bepopular and will save money forthe state over time. Tennessee, forexample, was able to promotegrowth of its service by 164 percentin three years. If California’s onlinedrivers license renewal service

receives acceptance similar toUtah’s services, eventually, 840,000California drivers would renewonline. Those eligible for the mailrenewal process who continue torenew in the field office createmuch higher costs for DMV. Basedon DMV cost figures, if 280,000 ofthe one million drivers who renewat a field office can be persuaded tomake the renewal payment on theWeb, in four years, the savingswould reach $2 million. Ascontinued promotion changesdrivers’ behavior, the programcould eventually save more than$6 million yearly.

More importantly, putting driverslicense renewals online wouldbring one of the most commonstate functions touching mostCalifornians into the digital age ofcustomer service. That strategy isbroadly supported by consumers,according to the findings of asurvey reported by the PewFoundation which tracks theimpact of the Internet on America.In a 2002 report, the PewFoundation asked how the publicwas most likely to contactgovernment for information orservices. Thirty-nine percent of allthose questioned said they wouldgo online. If the respondent was an“Internet user,” 58 percent saidthey would go online, in contrast to10 percent of “non-Internet users.”The non-Internet users’ preferredmode for contacting government

MORE IMPORTANTLY,

PUTTING DRIVERS’

LICENSE RENEWALS

ONLINE WOULD BRING ONE

OF THE MOST COMMON

STATE FUNCTIONS

TOUCHING MOST

CALIFORNIANS INTO

THE DIGITAL AGE

OF CUSTOMER SERVICE.


offices was the telephone. Thesame study consistently ranksCalifornia among the highest inall states for Internet use, whichmeans that California residentswill likely use online access togovernment at or above theexpected range for citizens ofother states.

Action: The California Department ofMotor Vehicles should allow eligibledrivers to renew their drivers’ licenseonline.

WIC Improvements. The Women,Infants and Children SupplementalNutrition Program (WIC) is a100 percent federally fundednutrition education and supple-mental food program for low-income pregnant, breastfeedingand postpartum women, andchildren under the age of five whoare a nutritional risk.

WIC is intended to promote propernutrition as a way to decrease therisk of low birth-weights or otherchild-birth complications and toimprove the health of childrenduring the critical early years oftheir lives. A large part of thisprogram is providing eligiblefamilies with access to foods thatare high in protein and/or iron,including foods like peanut butter,beans, milk, cheese, eggs, cereals,infant formula and juices.

WIC is a short-term program, andmost people receive benefits for

about two years. To determineeligibility for the program, “lowincome” includes those with up to185 percent of the federally definedpoverty level of income. Theincome for a family of four isabout $33,485 in annual income.

The California WIC programreceives about $900 millionannually from the federalgovernment. It receives more than$200 million more through rebatecontracts with manufacturers ofjuice, infant formula and infantcereal. In total, the programserved just less than 1.3 millionCalifornians in Fiscal Year 2003–2004.

WIC benefits are deliveredmanually at the local level throughcontracts with 82 local county andprivate nonprofit agencies thatoperate 650 local WIC centers.Clients receive vouchers at the WICcenters that can be redeemed forfood items at 4,189 WIC-approvedgrocers. In Fiscal Year 2002–2003,California’s grocers redeemedabout 69.3 million paper vouchersunder the program. They, in turn,processed the vouchers like acheck, depositing them with a localbank, which in turn redeemed thevouchers with the State Treasury.

Obviously, a huge amount ofadministrative expense goes intothis laborious manual process. Thestate WIC program does not havespecific data on the exact amountof administrative costs associatedwith the program. These costs

WIC IS INTENDED TO

PROMOTE PROPER

NUTRITION AS A WAY TO

DECREASE THE RISK OF

LOW BIRTH-WEIGHTS OR

OTHER CHILD-BIRTH

COMPLICATIONS AND TO

IMPROVE THE HEALTH OF

CHILDREN DURING THE

CRITICAL EARLY YEARS

OF THEIR LIVES.



include expenses such aspurchasing paper check stock,printing, storing, transporting,processing and destroyingvouchers and performing extensiveanti-fraud activities. WIC doesprovide annual information to theU.S. Department of Agriculturefor administrative costs for thecombined activities of voucherproduction and distribution andeligibility determination. In FiscalYear 2002–2003, this totaled $88.3million.

Moreover, the vouchers presentpotential problems for recipients.They must travel to distributioncenters to receive benefits, and thepaper vouchers are always subjectto theft. The use of the vouchers instores sets the recipients needlesslyapart from other shoppers,according to some critics of thepaper-based WIC and Food Stampprograms.

California and most other stateshave made significant progress intransferring Food Stamps andother human service benefitsprograms to a card-basedtechnology, a process known aselectronic benefits transfer (EBT).EBT allows recipients to receivetheir benefits on a card that looksand acts like a credit card. Thisapproach makes the use of thebenefits a more private matter andreduces the potential for theft orfraud. It also can greatly reduce thephysical handling of vouchers andother processing requirements,

thereby creating the potential forcost savings to the state that can bedirected into helping more eligibleCalifornians.

Action: The Women, Infants andChildren Supplemental NutritionProgram (WIC) benefits should beprovided through electronic benefitstransfer (EBT) card technology.

Once it is in full operation, a WICEBT program will save the stateabout $17.5 million a year. Thesesavings would allow 25,000 moreCalifornians to be served by thisprogram.

Services for CaliforniaBusinessesAccess to state licensing, permitsand registrations is important forsmall business, the backbone of thestate’s economy. According to a2002 report by the California SmallBusiness Reform Task Force, smallbusinesses represent 98 percent—or2.5 million—of the companies inthe state, employing more than50 percent of the workforce andgenerating more than half of thegross state product. Streamliningthe business license and permitprocess would, therefore, have asignificant impact on California’sbusiness climate.

Right now, people wanting to dobusiness in California must obtainnecessary permits and licenses,register their businesses, reportinformation and pay taxes. Aperson wanting to open a beauty

ONCE IT IS IN FULL

OPERATION, A WIC EBT

PROGRAM WILL SAVE

THE STATE ABOUT $17.5

MILLION A YEAR. THESE

SAVINGS WOULD

ALLOW 25,000 MORE

CALIFORNIANS TO BE

SERVED BY THIS

PROGRAM.


The CPR report is full of complex recommendations dealing with complex issues.

However, one idea stands out for its simplicity. It is simply a recommendation that

agencies write material for the public in clear, non-technical language.

There is already a state law to that effect, but we found it isn’t enforced. Of course,

at times the law also requires legal precision, but often, information isn’t conveyed

because of the language that’s used. A sample of some of the “bureaucratese”

found on state websites:

“No person shall exercise the privilege or perform any act which a licensee may

exercise or perform under the authority of a license unless the person is authorized

to do so by a license issued pursuant to this division.”

“No meeting shall be conducted with less than a majority of all participating

members, which represents a quorum, and any votes of the Authority will be by a

majority of that quorum.”

“The state agency partners involved in the Unified Program have the responsibility

of providing technical assistance to the local agencies implementing the program.

Additionally in areas where a Designated Agency is not implementing a portion of

the program, the state agencies are responsible for the implementation of that

portion of the program.”

“From policies that better meet the developmental and emotional needs of foster

children to assisting relatives in becoming guardians through financial and support

services to improving the capacity of the child welfare workforce to serve children

and families, these efforts have been significant and were often driven by the foster

youth representatives, who were members of the Stakeholders Group, who could

speak from their own experience.”

“A comment must be in typewritten form and must be clear and permanently

legible. A comment must identify the determination that is the subject of the

comment by referencing the deadline for submitting comments.”

* * *

* * *

* * *

PlainLanguage

Please,

* * *



salon in Sacramento, for example,must register or obtain permits andlicenses from eight different stateentities, and someone wantingto open a gasoline service stationmust register or obtain permitsand licenses from nine statedepartments.

From a business owner’sperspective, state government isnot a collection of independentagencies, but rather one “stategovernment.” As a result, businessowners should be able to expectseamless services from the state.Business owners in California arealso demanding online servicesfrom the state equivalent to thoseoffered in the private sector, andthey want a customer-centeredapproach that provides timely,useful and accurate information.

California has previouslyimplemented programs to improvestate services to small businesses.The Small Business RegulatoryReform Act of 2000 created onerecent program. It established aSmall Business Advocate in theGovernor’s Office of Planning andResearch and required each stateagency to designate at least oneperson to serve as a small businessliaison. Creating the Small BusinessAdvocate was a good idea, but itdid not go far enough in removingthe obstacles small businesses face.

Other states have improved theirservices to small businesses bycreating a consolidated state

business license and permitprocess. For example, in 1980,the state of Washington created aMaster License Service (MLS) toprovide a convenient, accessibleand timely one-stop system forbusiness licenses and permits.The MLS developed one masterapplication for the most commonlyacquired business licenses andpermits. The WashingtonMLS estimates that its masterapplication is used to issue allrequired licenses and permits forabout 80 to 85 percent of businessesin the state.

Washington’s MLS is comprised ofan intake unit, a call center and abusiness liaison section. The intakeunit processes initial applicationsand renewals, maintains recordsand collects associated fees. Thecall center handles all telephone,e-mail and Internet inquiries anddistributes forms, informationalbooklets and brochures. Thebusiness liaison section providestechnical assistance and isresponsible for tracking changesin licensing and permit laws atthe state and local levels, as wellas any changes in fees. The systemis available 24 hours a day andbusiness owners can use it toobtain or update their informationelectronically.

Some consolidation of California’sstate license information systems isalready under way. California’sDepartment of Consumer Affairs

OTHER STATES HAVE

IMPROVED THEIR

SERVICES TO SMALL

BUSINESSES BY CREATING

A CONSOLIDATED STATE

BUSINESS LICENSE AND

PERMIT PROCESS.


processes the bulk of California’sprofessional licenses and isworking to combine all of itsindependent information systemsinto one centralized system.According to the Departmentof Consumer Affairs, additionalenhancements to accommodate amaster application for licenses andpermits issued by the departmentcould be built into the new systemwith little or no additional cost.

This service could be funded withan MLS application fee and aperiodic renewal fee.

Action: The state should create amaster license service within theDepartment of Consumer Affairs.

Action: The Governor should appointa third-party business advocate toprovide oversight of services toCalifornia businesses with licensingand regulatory issues.

Focus on ServiceState government does not doenough to focus on customerstoday. While there are some statedepartments that have separatecustomer service units, there is nocustomer service job classificationused across state agencies.There are more than 4,000 jobclassifications used in stategovernment, but only two havethe words “customer service”in their title. Yet there aredepartments, such as theEmployment Development

Department, the Department ofHealth Services, the Departmentof Motor Vehicles and theDepartment of Consumer Affairsthat have millions of face-to-face,telephone, e-mail and other writtencontacts with the public each year.

A few departments use specializedclassifications to answer incomingcalls from the public and to workat public counters, but most useclerical, program technician,and analyst classifications. Theemployees in these classificationsoften possess enough programknowledge to perform their jobduties adequately, but may nothave the skills necessary to providecustomer service in an efficientmanner.

With the state budget deficit andstaffing shortages that California iscurrently experiencing, it ismore critical than ever to havecompetent and skilled customerservice professionals on the “frontline.” Despite the limitations, webelieve California needs to domore in this area. These front-lineemployees are usually the first andsometimes the only contact thepublic has with government.The ability of these employees toeffectively assist the public directlyaffects whether government isperceived positively or negatively.According to Laura French, aprincipal with Words Into Action,Inc.: “People call in a panic mode.The customer service rep needs to

THERE ARE MORE

THAN 4,000 JOB

CLASSIFICATIONS USED

IN STATE GOVERNMENT,

BUT ONLY TWO HAVE

THE WORDS “CUSTOMER

SERVICE” IN THEIR TITLE.



comfort and calm the caller. Thecaller needs to feel that he or shehas called the right place and istalking to an expert who can solvetheir problem.”

Mark Wallace, vice president ofDCI, an organization dedicated toinformation technology educationand consulting, stated, “...customersupport in government needs toquickly become more proactive,customer-focused, efficient andeffective.... The responsivenessof front line support to customer’sexpectations is the key to successin the public sector. This needcontinues to be amplified ascustomer expectations continueto soar.” The same is true forCalifornians who expect to receivebetter customer service fromgovernment, which increasinglyrequires qualified state employeesto interact with the public. Suchinteractions occur every day in avariety of settings such as callcenters, e-mail, correspondenceand in person.

It is not only good government toserve the public effectively andefficiently, it is good business. Asurvey of consumers conducted byHarris Interactive in 2000 indicatedthat a company’s economic statusis directly tied to effective customerservice. The findings also stressthe importance of resolving acustomer’s service issue on theinitial contact.

While government is generallynot in the business of making aprofit, it must not waste its limitedresources by being ineffective orunresponsive. Multiple interactionswith government to resolve aproblem, such as repeatedtelephone calls, letters and face-to-face visits cost both the public andthe government. Each contacthas a cost, and the longer it takesto resolve an issue, the higher thecost. For example, three stateagencies with high call volumes,answer more than 70 milliontelephone calls per year at anannual cost of about $100 million.If even a small percent of thesecalls are attributed to “call backs,”because the issue was not resolvedduring the first contact, theadditional costs are significant.

The private sector has recognizedthat excellent customer service is critical to the survival andviability of the organization.PriceWaterhouseCoopers surveyed427 CEOs of fast–growingcompanies and found that“virtually all CEOs of the nation’sfastest growing companies(87 percent) single out quality ofcustomer service as being veryimportant to the growth of theirbusiness over the next 12 months.”

The importance of good customerservice and the role of the customerservice representative havebeen gaining importance in thepublic sector. Many government

IT IS NOT ONLY GOOD

GOVERNMENT TO SERVE

THE PUBLIC EFFECTIVELY

AND EFFICIENTLY, IT IS

GOOD BUSINESS.


A lack of coordinated planning among state, federal and local governments results

in conflicts between development projects and natural resource conservation. The

results can be frustration, delay and higher costs. The tale of the Stephen’s

kangaroo rat in Riverside County is an example of how the process can work

successfully. CPR used this and other examples—both good and bad—as a basis

for a series of recommendations for better coordination and integration of

environmental decision-making in the infrastructure planning process.

The Stephen’s kangaroo rat story involves road and housing projects in Riverside

County. In California, transportation projects require multiple federal and state

agency reviews and permits. The median time to process environmental

documents on major highway projects is 4 1/2 years. On average, it takes 13 years

from initial planning to completion to open a new highway.

In this case study, Riverside County was blocked from completing housing and

transportation projects by successful efforts to address federal concerns about

one protected animal species in the area, the Stephen’s kangaroo rat. County

taxpayers spent $42 million in local funds to secure 41,000 acres for habitat, yet

the other 145 affected species in the area were not addressed. As a result, the

time-consuming state and federal environmental review processes failed to

accomplish their very own legal intent, which is to conduct comprehensive habitat

protection.

Officials in Riverside County adopted a different approach. They developed a

comprehensive multi-species habitat conservation plan along with a Riverside

County General Plan update and two major transportation corridor studies.

The Riverside County Integrated Project was scheduled to coordinate federal and

state agency reviews. Three years later, a comprehensive habitat plan covering

146 species was adopted and approved by the federal agencies. Local developers

now have a streamlined environmental review process and will know in advance of

land investment where they can build. A habitat reserve of 500,000 acres is set

aside. Two transportation corridors that will ease the commute to jobs have been

approved for the environmental review phase, and the U.S. Department of

Transportation has designated the projects for streamlined approval.

TheStephen’sKangaroo

Rat



agencies across the country use acustomer service representativeclassification. Examples of thisinclude the states of Arizona,Ohio and Idaho; and the cities ofBellevue, Washington; Alexandria,Virginia; and Alameda, California.

It is time for California stategovernment to act upon what theprivate sector and many otherpublic agencies have come torecognize: customer service andthe customer service professionare key ingredients to anorganization’s effectiveness. Astatewide customer service jobclassification should be developedand used across state agencies. Thiswould help to ensure that skilledemployees are placed in the criticalpositions that deal directly with thepublic. This is a small, butimportant, step in changingCalifornia’s approach to provid-ing services to its citizens. Itdemonstrates a commitment to—and focus on—providing the rightinformation to our citizens at theright time and in the right way.

Action: The Governor should directthe California State Personnel Boardto establish a Customer ServiceRepresentative statewide classificationto be used by all state agencies.

Cooperating withLocal GovernmentLocal governments are bothcustomers of state governmentand partners in delivering

services to the people of California.As such, intergovernmentalrelations are particularly criticaland will only become more criticalin the years ahead.

Governmental relations inCalifornia involve several levels oflocal governments, including cities,counties, regional governmentsand special districts. In addition,government-to-governmentrelationships exist at the state levelwith bordering states, nations,tribes and the federal government.

The Governor’s Office ofPlanning and Research serves localgovernments in two ways. First, itis the state point of contact for localgovernment review for compliancewith the California EnvironmentalQuality Act. Second, it isresponsible for the analysis ofstate legislation that affects localgovernments.

Recent negotiations on the statebudget pointed to the need fora local governmental relationsmechanism to open a clear channelof communication amongstdifferent levels of government.A representative of theadministration who has otherduties in addition to overseeinglocal government issues facilitatedthis negotiation.

Because of the importance ofcoordination, cooperation andconsultation among all levels ofgovernment, it is vital for local

IT IS TIME FOR CALIFORNIA

STATE GOVERNMENT TO

ACT UPON WHAT THE

PRIVATE SECTOR AND

MANY OTHER PUBLIC

AGENCIES HAVE COME TO

RECOGNIZE: CUSTOMER

SERVICE AND THE

CUSTOMER SERVICE

PROFESSION

ARE KEY INGREDIENTS

TO AN ORGANIZATION’S

EFFECTIVENESS.


governments to have a contactwithin the Governor’s Officeto maintain good workingrelationships and to addressissues as they develop.

Action: The Governor’s Office shouldcreate a Local Government RelationsOffice to fortify relations with all levelsof government.

Californians HelpingCaliforniansCalifornians are a giving, service-oriented people. Whether theyare coaching Special Olympians,mentoring elementary schoolstudents in reading or takingScouts camping, our state’s citizensare willing to share the benefits ofliving the “golden dream by thesea.” Many people arrive inCalifornia with high hopes forthe future. Through their initiativeand rugged determination, theysucceed in finding their dreams.Their successes, in turn, imbuethem with a desire to help thosewho are less fortunate or whoare in need.

Given the pressing challengesfacing the state, Californiansshould be called to action to restorethe state’s strength, vitality andprosperity—making it the bestplace in the nation to live. TheCalifornia Performance Reviewrecommends that the Legislatureremove statutory impediments to

volunteerism to position thestate to lead the nation in civicparticipation and volunteerism.

Action: The state should establish acentral clearinghouse, the CaliforniaService Corps, to coordinate volunteersand match them with the needs ofgovernment, schools and charitableorganizations.

Action: The state should remove legalbarriers to volunteering and civicparticipation in California.

According to First Lady MariaShriver, “Every Californian canserve their state. Every Californiancan strengthen and support thisstate in invaluable ways. TheCalifornia Service Corps wants you—each and every one of you—to beproud, to bear responsibility foryour state. As Gandhi said, ‘Thebest way to find yourself is to loseyourself in service to others.’”

THE CALIFORNIA

PERFORMANCE REVIEW

RECOMMENDS THAT THE

LEGISLATURE REMOVE

STATUTORY IMPEDIMENTS

TO VOLUNTEERISM TO

POSITION THE STATE TO

LEAD THE NATION IN CIVIC

PARTICIPATION AND

VOLUNTEERISM.



“Surround yourself with the best people you can find, delegate authority and don’t interfere.”

Ronald Reagan

Good People, Good Government

Numerous reports have beenwritten about the impending“human capital crisis” that willaffect the nation’s workforce in thenext several years. The crisis stemsfrom the wave of retirementsexpected as the “baby boom”generation reaches retirement age.

By one estimate, there are morethan 70 million baby boomersin the workforce versus about40 million in the generationfollowing them.

The phenomenon affects thepublic and private sectors, but

CPR Diagnosis

• California state government faces a human capital crisis. In the nextfive years, the state will lose 34 percent of its current workforce.

• The personnel system is fragmented and divided. Personnel issuesare split between the State Personnel Board and the Department ofPersonnel Administration.

• Recruitment efforts for new workers are a shambles. The state hasno systematic program to recruit the best and the brightest.

• Training for existing workers is sporadic. The state does notstrategically invest in improving the knowledge, skills and abilitiesof its workers.

• Employee evaluations are ineffective. The state does not routinelyevaluate the performance of all employees and in those evaluationsdoes not set concrete performance goals.

ACCORDING TO THE STATE

PERSONNEL BOARD, 34

PERCENT, OR MORE THAN

70,000 STATE WORKERS,

WILL BE ELIGIBLE TO

RETIRE IN THE NEXT

FIVE YEARS. SOME

INDEPENDENT STUDIES

HAVE ESTIMATED THAT

THIS NUMBER COULD

BE MUCH HIGHER,

RANGING AS HIGH AS 49

PERCENT, OR AS MANY

AS 100,000 WORKERS.


government will be hardest hitbecause on the whole, governmentworkers, including California’s, areolder than those in the privatesector. Moreover, in California,various labor agreements havelowered the eligibility age forgovernment workers to retire.

According to the State PersonnelBoard, 34 percent, or more than70,000 state workers, will beeligible to retire in the next fiveyears. Some independent studieshave estimated that this numbercould be much higher, ranging ashigh as 49 percent, or as many as100,000 workers. The “age bubble”in the workforce is clearly shown inExhibit 5, which shows adistribution of state employmentby age bracket.

The “age bubble” is travelingquickly through the state’sworkforce. The baby boom agebubble is reaching retirement age,and California should be prepared.If we wait to act, we will find stategovernment “hollowed out”—itsbest and most experienced workersgone with no plan to deal withtheir absence or build a well-qualified workforce for the future.The result could well be a poorlystructured hiring binge or thefurther deterioration of stateservices in those areas where wesimply don’t have the people tomake the engine of governmentwork.

Fix the Personnel SystemCalifornia’s human resourcemanagement system is split

• Fix the personnel system. Our current system is outmoded andproduces as many conflicts as it solves.

• Plan for future workforce needs. Rapid change in the workforce inthe future means a need for a government-wide strategy.

• Recruit skilled workers for the future workforce. To workeffectively and cost efficiently, we must recruit and retain the bestworkers California has to offer.

• Give workers the skills to do their jobs. The need for life-longlearning and skill development is a common theme in modernbusiness. It should apply to state workers as well.

• Hold workers accountable for their work. Our employees need toknow what to do and how to do it. Then they should be heldaccountable for their performance.




primarily between two controlorganizations, the State PersonnelBoard (SPB) and the Department ofPersonnel Administration (DPA).This division has led to juris-dictional disputes, as well asdelays in services to client statedepartments.

Created in 1934, SPB was chargedwith overseeing the state’s civilservice system and ensuring thatit is free from political patronage.In this role, SPB enforces the meritsystem, and its five-member boardhears merit-related appeals (forexample, examination anddisciplinary appeals).

Over a period of several decades,labor unions representing stateemployees sought a formal andexclusive process for negotiatingthe terms and conditions of

Source: State Personnel Board.

employment. The enactment ofthe Dills Act in 1977 and thecreation of DPA in 1979 establishedthe modern context fornegotiations between the unionsand the Governor over wages,hours and working conditionsfor state employees. Today, DPAoversees collective bargaining andhears non-merit statutory appealsand contract grievances.

This dual management systemhas caused confusion about SPB’sand DPA’s roles. They often havedifferent responsibilities for thesame personnel processes, andtheir roles are unclear to clientstate departments. Thedepartments do not agree onwhich areas of personnel aredefined by merit law andwhich can be negotiated at thebargaining table. For example,

EXHIBIT 5

CALIFORNIA STATE EMPLOYEES BY AGE GROUP, 2002 AND 2004

13,065

21,38426,583

23,202

34,17434,12536,876

13,094

5,686 12,705

21,504

34,088

37,72935,585

28,872

23,251

8,796

15,372

-5,000

10,00015,00020,00025,00030,00035,00040,000

< 24 25-29 30-34 35-39 40-44 45 49 50-54 55-59 60+2004 2002


SPB is responsible for creatingclassification plans, but DPAsometimes revises classificationsduring collective bargaining,without SPB’s input. The twodepartments also disagree ontransfer rules.

SPB estimates it spendsapproximately 50 hours a monthon litigation with the DPA. Over afive-year period, DPA estimatedit spent nearly 1,100 hours onlitigation against SPB. Thissenseless conflict should beeliminated. The goal is not toreduce anyone’s rights but to makehuman resource management moreefficient and effective.

Action: The Governor shouldseek legislation to consolidatethe Department of PersonnelAdministration and the non-constitutionally mandated functionsand staff of the State Personnel Boardinto a single entity.

Planning the FutureWorkforceThe changes in organization andmanagement CPR is proposingoffer an opportunity to use ourexisting workforce strategically.By revamping our organizationalstructure and employing moderntechnology, we can work our waythrough the natural attrition in thelabor force and give Californiaa government that is leanerand makes the best use of itsemployees. We can change crisis

into opportunity—making thegovernment better, our workforcemore effective with better skills,while we cut costs.

Right now, the state has insufficientinformation to estimate the depthof its workforce needs. Agenciesmake their own recommendations,which are reconciled in the budgetprocess. There is, however, nooverall planning for staffing needs.The state makes workforceprojections for the various regionsof the state, but it doesn’t fullygrasp what it needs to meet its ownworkforce demands.

In this case, the state shouldaggregate and routinely analyzeworkforce needs by employmentcategory. The periodic shortage ofinformation technology workershas been well publicized nationally,but the data suggest that otherjob categories, including lawenforcement, lawyers and healthcare workers are also likely to behit by high retirement andseparation rates in the years ahead(Exhibit 6).

The state must decide how to copewith these potential needs—andwhich are most critical to the stateproviding services to its citizens.But without reliable informationabout workforce trends and needs,decisions affecting the state’sworkforce will not be made inany consistent, coherent way.

BY REVAMPING OUR

ORGANIZATIONAL

STRUCTURE AND

EMPLOYING MODERN

TECHNOLOGY, WE

CAN WORK OUR WAY

THROUGH THE NATURAL

ATTRITION IN THE

LABOR FORCE AND

GIVE CALIFORNIA

A GOVERNMENT

THAT IS LEANER

AND MAKES THE

BEST USE OF ITS

EMPLOYEES.



EXHIBIT 6

AGE TRENDS FOR SELECTED STATE JOB CATEGORIES 2002 and 2004

Percent Percentover 50, over 50,2002 2004

Agriculture and Conservation 22 28

Office and Allied 32 35

Custodian and Domestic 39 42

Education and Library 62 67

Engineering 30 34

Fiscal, Management, Staff Services 33 36

Legal 47 50

Mechanical and Construction 39 42

Medicine 39 42

Emergency 52 59

Public Safety 24 25

Social Security and Rehabilitation 25 26

Career Executive Appointment 44 67

TOTAL 31 34

Source: State Personnel Board.

Action: The Governor shouldestablish a centralized unit withinthe Department of PersonnelAdministration to plan for thestate’s future workforce needs.

Once we have a projection ofthe overall needs of the stateworkforce, we should managethe size and shape of the workforce

on an enterprise basis. That is, wecan control the growth of thegovernment as part of the state’soverall fiscal planning, and usingthe information about workforcedemands, we can direct any hiringthat does occur to those placesacross state government wherehiring is most critically needed.


RECRUITMENT IS THE

FOUNDATION OF ANY

PERSONNEL SELECTION

PROGRAM. YOU CAN’T

HIRE THE BEST

EMPLOYEES UNLESS

YOU ATTRACT THE BEST

CANDIDATES FOR THE JOB.

Action: The state should plan forand manage its workforce on anenterprise-wide basis.

Recruiting the FutureWorkforceAccording to Carl DeMaio of thePerformance Institute, “Successfulrecruitment in government boilsdown to a complex formula: getthe right people...in the rightposition...at the right time...withthe right skills...to perform theright role...to achieve the agency’smission.” Recruitment is thefoundation of any personnelselection program. You can’t hirethe best employees unless youattract the best candidates for thejob. Despite its very real andgrowing importance, this is a stepthat often receives little attentionby government managers.

In 1999, the Little HooverCommission noted that, “the statedoes virtually no recruiting in goodtimes or in bad to draw young,energetic graduates from its ownuniversity system into itsworkforce.” The state has failed tomake even a small investment inrecruiting new workers. As a resultof fiscal problems in recent years,most state departments have eitherabandoned or curtailed theirrecruitment efforts. Those effortsthat do exist are sporadic anduncoordinated. Today, the stateonly considers those candidateswho actually seek employment.

At a time when the labor force isdwindling and fewer young peopleare willing to consider governmentjobs, this poses a serious problem.

Senate Bill 1045, passed by theLegislature in 2003, requires allstate departments to engage inbroad and inclusive recruitment forentry classifications. Departments,however, need guidance to carryout this mandate. Instead ofdeveloping brief explanatoryrules, the State Personnel Boardapproved a new section of theMerit Selection Manual entitled,“Recruitment for Civil ServiceExaminations” in September 2003.Despite departments’ desire toreceive this new section, it hasn’tyet been released due to the needfor approval from the Office ofAdministrative Law.

According to Dr. John Sullivan,Professor of Human ResourcesManagement at San FranciscoState University, “all recruiting ismarketing, and a marketing-basedstrategy is the foundation ofeverything we do” in recruiting.The private sector has longrecognized this maxim andtypically fuses recruiting effortswith advertising and publicrelations efforts. The state facesstiff recruiting competition fromthe private sector and federal andlocal governments. The state mustdo a better job of highlighting stateemployment’s “selling points.” Itmust use demographic research



TODAY, MOST OF THE

INFORMATION ON

RECRUITMENT AND

RETENTION IS ANECDOTAL

AT BEST. THE STATE

SHOULD DEVELOP

STATISTICAL MEASURES

ON STATE JOB

RECRUITMENT.

and other data to find the best-qualified candidates.

As part of its limited marketingefforts, the State Personnel Boardhas developed general pamphletsand publications such as “TheRoad to Employment with the Stateof California, State Civil ServiceEmployment Information.” Aseparate publication, “RecruitmentSources Directory,” providesresource information to all statedepartments, but it should beexpanded and updated regularly.

The current level of resourcesdedicated to recruiting a qualifiedworkforce is insufficient tomeet current or future needs.Occupation- and geographic-specific recruitment materialsshould be developed to use inconjunction with other recruitmentstrategies such as advertisements inprofessional journals, attendance atcareer fairs and community events.Additionally, the state shoulddevelop partnerships with groupswhose members have the skillsneeded in state government, suchas health care, informationtechnology and engineers.

Automation should also be used toits fullest advantage, especially forhigh volume hiring. Increased useof the Internet will enable the stateto reach more potential applicantsand provide comprehensiveinformation faster and at less cost.

Finally, departments are notusing any tools to measure theeffectiveness of their recruitmentefforts. Today, most of theinformation on recruitment andretention is anecdotal at best. Thestate should develop statisticalmeasures on state job recruitment.Only by evaluating what workswill state departments realize agood return for their investmentof taxpayer dollars to improverecruitment practices.

While the needs of individualdepartments change from year toyear, the state’s overall recruitmenteffort should be consistent andconsolidated. An improvement incentralized coordination of thesebasic human resource functionsmakes more sense and will helpindividual agencies. Agenciesknow best their needs for jobs indepartment-specific categories.However, recruitment for jobs thatare essentially service and supportpositions, as well as marketing ofthe state as an employer, is bestconducted centrally, thus freeingup departmental staff to recruitfor department-specific classes.This is an effective strategy thatcan produce long-term costsavings.

Action: The state should establish andstaff a centralized state recruitmentprogram to provide leadership andcoordination for departmentalrecruitment efforts.


CPR also recommends that thestate do a better job of recruitingand retaining the best and brighteststudents coming out of our highereducation system. Right now, weare largely failing to actively recruitand employ large numbers oftalented college graduates. Theseindividuals typically excel inanalytical and problem-solvingskills, know and understandmodern business technology andcan respond to changes in workmethods quickly.

As part of this recruitment effort,the state should establish a formal,paid college intern program, anddepartments should use this tool asa source of talented, well-educatedemployees. The Department ofPersonnel Administration shouldalso work with departments toexpand the use of the StudentAssistant and Graduate StudentAssistant classifications and todevelop mechanisms to facilitatestudents’ entry into permanentstate employment upongraduation.

Placing more emphasis on collegerecruiting and providing betterways to integrate students into thefull-time workforce can help toturn this situation around. Withonly a modest investment ofresources, the Department ofPersonnel Administration canhelp state departments hire moreproductive workers, which evenin lean times can benefit the state

through greater productivity formany years to come.

Action: The state should reestablish acentrally coordinated statewide collegerecruitment program and provideadequate resources to ensure itseffectiveness.

Give Workers the Toolsto Do Their JobsEven the best workers can’t dotheir jobs without training andprofessional development. Ifwe are going to recruit the bestworkers to replace those we arelosing and expect them to be moreproductive, it is necessary to givethe employees the training andclear performance expectationsthey need to succeed in their jobs.

In a 1999 report, the Little HooverCommission underscored thenecessity of a well-trainedworkforce when it said, “Statepolicy makers and programmanagers need to use trainingprograms to improve theeffectiveness of their organizations,to support re-engineering effortsand prepare workers for newassignments.” To address this needmore effectively, the state mustimprove and coordinate its trainingprograms.

Currently, several departmentsoffer training to state employeesacross all departments. Thistraining is on essential topics,systems and processes used by all

EVEN THE BEST WORKERS

CAN’T DO THEIR JOBS

WITHOUT TRAINING AND

PROFESSIONAL

DEVELOPMENT.



The“StateworkerStereotype”

and Other Storiesof the CPR

To gather information and input on California state government, CPR offered acentral e-mail box. We received many comments. CPR teams searching for ideasand insights looked at all of the e-mails and answered as many as time permitted.Many were anonymous. One particular group of correspondents was stateemployees. Below are some of their comments.

“California needs employees who are willing to accept ownership of the problemspresented to them and do their best to find a solution. I’m well aware that as anemployee, there is no way that I can solve every problem that is presented to me.When I am unable to resolve a problem, I feel that I have a duty to assist mycustomer in finding either the correct person or department who can help them solvetheir problem. . . . There are a good number of people that do perform to the best oftheir ability and are eager to provide help when they can. If that were the case everytime, would we have the ‘Stateworker Stereotype’?”

“The other day I was at a job site assisting a drilling crew out of Sacramento. I waspicking up a closure but was told I was going to be delayed. I asked why and wastold they had more equipment on site than people.”

“I will have worked for the State nearly 27 years [as a registered nurse]. We have asevere shortage of nursing personnel especially RNs. Our state hospital meets orexceeds its ‘Salary Savings’ goals by keeping the level of care positions vacant forgross periods of time. Unfortunately, this causes untold amounts of overtime thatmore than eliminates any supposed salary savings.”

“Junk the state civil service system, which is too cumbersome and unresponsive.You can’t hire the best and the brightest and retain the good people you have underthis system. There are too many sections, branches, units that NEVER talk to eachother. Even experienced State employees don’t know how to navigate the system.”

“Remember Lily Tomlin’s ‘Ernestine’ routine? ‘We’re the phone company. We don’tcare. We don’t have to.’ Substitute ‘public employees’ for ‘the phone company’ andyou’ll see why taxpayers are fed up. How about this: Every department that dealswith the public should have postcards that the consumer fills out and mails to theCPR people regarding the general work ethic and relative efficiency of theirencounter, with the names of the employees involved.”

“I am glad there is finally somebody up there in Sacramento working for uscommon people.”

* * *

* * *

* * *

* * *

* * *


IN ADDITION TO PROVIDING

AVAILABLE TRAINING

INFORMATION, A STATE

TRAINING PORTAL COULD

BE USED TO REGISTER

EMPLOYEES FOR ANY OF

THE TRAINING OFFERED

THROUGH THE PORTAL

AND TRACK AGENCY USE

OF TRAINING COURSES

AND EMPLOYEE TRAINING

HISTORY. IT COULD ALSO

BE USED TO PROVIDE

ONLINE TRAINING.

agencies such as procurement andcontracting, supervision andmanagement, informationtechnology, personnel and budgets.

As a first step, the training coursesshould be offered through onecentral training organization. Thequickest and most efficient step inthis direction would be to create a single state training portaladministered by the State TrainingCenter. This website could bedeveloped into a comprehensiveportal for training and careerplanning for all state employees.This website could provide accessto a comprehensive catalog ofstate and university courses forprofessional development for stateemployees.

Here are two examples of how thetraining portal concept has alreadybeen implemented by a stateagency and a private corporation.The Franchise Tax Board (FTB)designed the “EmployeeOpportunity Network” (EON)on its intranet. Although FTB has6,600 employees, the usage of thesite passed 50,000 hits within a fewweeks of implementation. In theprivate sector, Cisco Systemsdeveloped a website to orientnew employees to its large andgeographically dispersed company.The company found that the sitealso was popular with employeeswho wanted to know more aboutthe company.

In addition to providing availabletraining information, a statetraining portal could be used toregister employees for any of thetraining offered through the portaland track agency use of trainingcourses and employee traininghistory. It could also be used toprovide online training. This is agrowing area for providingtraining to employees, particularlyas computer systems become fasterand more flexible. This approachcan save time for employees,because it isn’t necessary to travelto any of the state’s trainingcenters. It can also save money forthe state by making more trainingavailable to more employees at alower cost.

Action: The state should create acentral online training portal for stateemployees.

We should take the training issue astep further. One of California’smost important resources is itsextraordinary higher educationsystem. State government shouldwork with the colleges anduniversities of the state to providethe best educational opportunitiesfor the state’s workforce.

Action: The state should work withhigher education institutions todevelop appropriate learning strategiesand programs for state employees.



Hold Workers AccountableAnother section of the CPRreport recommends moving toperformance-based budgeting.Under this budget managementsystem, the state would set outconcrete strategic plans andwould budget and allocatefunds to meet specific goals andachieve specific outcomes. Budgetdecisions could thus be moreclosely tied to actual performance.

In conjunction with this concept,the state should develop evaluationprocesses for supervisors andmanagers that includeaccountability for results anda requirement to conduct

performance appraisals oftheir subordinates.

The state should work with unionsto develop performance standardsfor rank and file employees.The state should also developmanagement reward systems torecognize outstanding performanceand contributions to achievingorganizational goals.

Action: State agencies shouldincorporate performance goalsand expected outcomes into employeeevaluations.

THE STATE SHOULD

WORK WITH UNIONS TO

DEVELOP PERFORMANCE

STANDARDS FOR RANK

AND FILE EMPLOYEES.

THE STATE SHOULD ALSO

DEVELOP MANAGEMENT

REWARD SYSTEMS TO

RECOGNIZE OUTSTANDING

PERFORMANCE AND

CONTRIBUTIONS TO

ACHIEVING ORGANIZA-

TIONAL GOALS.



“Thrift is of great revenue.”

CPR Diagnosis

• Eligibility processes for public assistance are inefficient. Paper-based and face-to-face eligibility determinations don’t get the job done.

• Valuable assets lie idle. The state owns millions in surplus propertiesthat should be liquidated to generate cash and reduce maintenancecosts.

• Tax enforcement efforts fall behind. The state leaves millionsuncollected due to personnel shortages.

• California is entitled to more federal funds. State programs seekingfederal funds are not coordinated leaving money in Washington, D.C.

Getting the Most Out ofTaxpayer Dollars

Cicero

Despite the work done to date bythe Governor and the Legislature todeal with the state budget crisis,the state still has important work todo. The state needs to continuemaking progress on makingcurrent ends meet, and it needs towork to eliminate the long-termstructural problems that put thestate in this position to begin with.

In the past, a simple expedient todeal with budget problems was toraise taxes to close the revenue andspending gap. Today, that shouldbe the last resort. It is unfair to askhard-pressed California taxpayersto do more until the state has doneeverything to squeeze the most itcan out of the dollars the taxpayersalready provide.

IN THE PAST, A SIMPLE

EXPEDIENT TO DEAL

WITH BUDGET PROBLEMS

WAS TO RAISE TAXES TO

CLOSE THE REVENUE

AND SPENDING GAP.

TODAY, THAT SHOULD

BE THE LAST RESORT.

IT IS UNFAIR TO ASK HARD-

PRESSED CALIFORNIA

TAXPAYERS TO DO MORE

UNTIL THE STATE HAS

DONE EVERYTHING IT CAN

TO SQUEEZE THE MOST

OUT OF THE DOLLARS THE

TAXPAYERS ALREADY

PROVIDE.


In its review of governmentoperations, CPR found numerousopportunities for the state to saveor raise funds without new taxes orfees. These opportunities can helpclose the budget gap, and they canhelp the state maintain criticalservices on which Californiansdepend. Some of the ideas produceone-time, short-term savings.Others produce ongoing gains.Together, they can help the state getit current financial house in order,and they can also help safeguardagainst future crises.

Controlling Personnel CostsBy reorganizing government to bemore efficient, by introducing newproductivity-enhancing technologyand by being more strategic inour workforce planning andmanagement, the state should beable to get by with a smallerworkforce than it currentlyemploys. Given the upcomingbulge in retirements, this reductioncan be accomplished withoutlayoffs or hiring freezes.

By managing the governmentmore efficiently, California canhold down the growth in stateemployment. Since a big part ofthe cost of state government ispersonnel, this should result inlarge dollar savings for taxpayers.

Arriving at these savings will notbe an easy process. Broad-brushstatewide policies like hiringfreezes and layoffs are self-

defeating, demoralizing andineffective. By better managing theworkforce statewide and hiring andtraining skilled workers we caneffectively manage an evolvingstate workforce without a loss ofservices.

By allowing natural attrition totake its course, and by exercisingcare in the hiring and training ofnew employees, the state should beable to save literally hundreds ofmillions in personnel costs over thenext five years. We believe the statecan get by with more than 12,000fewer workers than it has now.The estimated cost savings versusthe way the state currently doesbusiness is estimated at $4.3 billionbetween Fiscal Years 2005–2010.

For this approach to work, stategovernment must operate more asthough it is what it is—a singlelarge employer, rather than anarchipelago of independent islanddepartments and agencies thatact in their own interests ratherthan in the interests of the stategovernment and the citizens theyserve.

Action: The state should achievebudget savings by controlling andbetter planning for its workforce.

Save PublicAssistance DollarsOne of the largest and fastestgrowing areas of the state budget ishealth and human services. Today,

BROAD-BRUSH STATEWIDE

POLICIES LIKE HIRING

FREEZES AND LAYOFFS

ARE SELF-DEFEATING,

DEMORALIZING AND

INEFFECTIVE. BY

BETTER MANAGING THE

WORKFORCE STATEWIDE

AND HIRING AND TRAINING

SKILLED WORKERS WE

CAN EFFECTIVELY MANAGE

AN EVOLVING STATE

WORKFORCE WITHOUT

A LOSS OF SERVICES.



these programs account for32 percent of state spending orabout $24.6 billion a year. Theservices these programs provideare vital to many of our neediestcitizens.

For example, Medi-Cal,California’s federal Medicaidprogram, is estimated to have6.7 million participants. Medi-Calprovides health coverage to low-income Californians who aremembers of families withdependent children, and to low-income aged, blind and disabledpersons. CalWORKs paysassistance to families with

dependent children and helps theseindividuals toward employment.

An estimated 1.2 million peoplequalify for both CalWORKs andMedi-Cal. A third program, thefederal Food Stamps program,provides food for 1.9 million low-income Californians. About61 percent of Food Stamp recipientsalso participate in Medi-Cal andCalWORKs (Exhibit 7).

County welfare departmentsdetermine who is eligible forbenefits. California’s 58 countywelfare departments processeligibility applications through


• Control future personnel costs. Much of the cost of anyorganization is in its employees. We are working to build a better,more skilled workforce. We should leverage those skills to cut costs.

• Use technology to cut costs. Technology, strategically applied, canreduce the work in state programs, cutting costs while improvingservice.

• Eliminate fraud. Fraud costs the state hundreds of millions ofdollars every year. We should redouble our efforts to find the peoplewho abuse our programs.

• Better manage assets. The state owns millions of acres of land andsquare feet of real estate. If it’s not in use, we should sell it and allowits most productive use.

• Improve tax administration. We should make every taxpayer paytheir fair share of state taxes and not a penny more.

• Increase California’s share of federal aid. Californians pay billionsof dollars in federal taxes each year. The state should get its fairshare of funds from Washington, D.C.


EXHIBIT 7

CALIFORNIANS ELIGIBLE FOR STATE PUBLICASSISTANCE PROGRAMS

Program Eligible Persons

Medi-Cal 6.7 million

CalWORKs 1.2 million

Food Stamps 1.9 million

Source: California Department of Health Services.

face-to-face interviews.Applications affecting Medi-Calonly are received by mail. It takes16,921 county eligibility employeesto handle this outmoded system.

By contrast, the state’s HealthyFamilies program, which provideschildren’s health insurancecoverage for low-income families,uses modern, Internet-basedeligibility determination as wellas applications through the mail.

Compared to Healthy Families, thecounty-based eligibility system is atechnological relic. It takes toolong, it isn’t customer friendly, andit is often inaccurate. For example,the counties use at least 19 differentsystems to handle eligibilityprocessing. Even though thestatutory limitation for determiningMedi-Cal eligibility is 45 days, thatdeadline is often exceeded by 30to 60 days. Healthy Families incontrast can process a completeapplication in a maximum of sevendays with an additional 10 days for

the effective date of coverage in themanaged health plan.

The worst effect of the system,however, is on the citizens itsserves. Calls to welfare officesin three counties with largepopulations by a mother with asick child seeking assistance with aMedi-Cal application resulted inthe caller being directed to thewelfare offices to pick up anapplication and receive a pre-application screening. Theapplicant wasn’t told she couldapply by mail. Waiting times in thewelfare offices, when the applicantdid arrive, ranged from one tothree hours, and office hours weregenerally 7:00 a.m. to 3:00 or 4:00 p.m.

This county-based process,which made sense in an earliertime, should be scrapped andreplaced by a system modeled onthe Healthy Families approach.There is precedent for thisinnovation. Several other states,including Pennsylvania, Florida



and Michigan, have partiallyimplemented a Web-based systemusing a common computerplatform. Texas is in the process ofdeveloping an integrated eligibilitysystem that mirrors what CPR isproposing.

Action: Eligibility processing forMedi-Cal, CalWORKs and FoodStamps should be centralized at thestate level.

Fighting Fraud. One concernwith a change in the large publicassistance programs like Medi-Caland CalWORKs is the potential forfraud. In fact, the struggle againstfraud and abuse in these programsis continual. The LegislativeAnalyst’s Office has put theestimated loss due to fraud in theMedi-Cal program at $1.8 billionannually. Some other estimatesgo as high as $3 billion. Californiahas taken steps to detect potentialfraud before paying claims, butmost of the state’s current anti-fraud efforts are based on a post-payment strategy. The types offraud are shown in Exhibit 8.

Technology is now an effective toolin the battle against fraud in thepublic assistance programs. Thattechnology is “smart cards.” Smartcards are identification cards withimbedded computer chips. A cardthat costs about $3 can store clientdemographic information,biometric information (such asone or more fingerprints), healthinformation and security

information. They can maintainstored value—basically act likea credit card—to allow clientsto make co-payments. In somestates, they are being consideredas enhanced replacements ofelectronic benefits transfer cardsthat store state payments for FoodStamps and the equivalent of theCalWORKs program.

Used correctly, smart cardtechnology can be an effective wayto detect fraud prior to payment,the most effective means of findingand eliminating fraud. Thetechnology used in these cards hasbeen refined by widespread usein the private sector and by thefederal government. The cost ofindividual cards, which used tobe a major barrier, has decreasedto the point where they are anexcellent option for Medi-Cal.

Action: The Health and HumanServices Agency should use smart cardtechnology for Medi-Cal recipients.

Although there would besome upfront cost for the newtechnology and computer systemsto manage it, this system could,over a five-year period, save thestate at least $80.3 million.

Eliminate Surplus AssetsThe State of California ownsmillions of acres of real estate, plusmore than 22,000 structures. Itowns golf courses. It owns astadium. It owns fairgroundsacross the state, some located on

TECHNOLOGY IS NOW

AN EFFECTIVE TOOL IN THE

BATTLE AGAINST FRAUD IN

THE PUBLIC ASSISTANCE

PROGRAMS. THAT

TECHNOLOGY IS “SMART

CARDS.”


patches of the state’s choicest land.The Governor has already directeda comprehensive review of thestate’s asset portfolio for potentialhigh-value urban properties tosell. The state’s existing surplusproperty sales program hasgenerated $334 million in saleswith another $175 million inescrow.

Despite these actions, CPR believesthe state should go further. Giventhe current budget crisis, the statecan’t afford to have unused, non-performing or underused assets onits inventory. However, when state-owned property is declaredsurplus, the process for its disposalis lengthy and cumbersome.Moreover, the state does notcurrently have an accurate

EXHIBIT 8

TYPES OF FRAUD FOUND IN CALIFORNIAPUBLIC ASSISTANCE PROGRAMS

EstimatedType of Fraud Annual Cost Description

Phantom claims More than Billing for services that were not$400 million actually provided.

Claims for $3 million Billing for alleged services forservices to deceased persons.deceased clients

Card swapping Unknown Loaning cards to ineligiblepersons; selling ID informationto fabricate claims; using stolencards to obtain services.

Misrepresenting Unknown Fraudulent reporting of serviceservice dates dates to allow a provider to

claim services for which aMedi-Cal beneficiary was noteligible on the date that theservice was actually provided.

Provider number Unknown Stolen provider numbers arestolen used to bill for services for

which the authorized provideris unaware.




inventory of the properties itactually owns or their fair marketvalue.

Changes in existing laws to clearout bureaucratic undergrowthcould result in more property salesand increased revenue for the state.As importantly, the state wouldrelinquish a large portion of thisproperty to the private sector,returning it to the property tax rollsand allowing for its furtherdevelopment.

Action: The state should undertakean inventory of its real property assets.

Under current law, decisions todeclare an asset surplus requirean affirmative approval from theLegislature. Individual agenciesmake the decisions to declare aproperty surplus, and theDepartment of General Services(DGS) only acts to facilitate thosedecisions—nobody has theauthority to dispute an agency’sdecision to keep a property. Thestate should establish centralizeddecision-making within theExecutive Branch regarding thedetermination that real propertyhas become a surplus asset.Surplus property decisions shouldcontinue to be subject to publicreview, but this recommendationwill allow these surplus salesdecisions to be expedited.

Action: The Department of GeneralServices should be authorized todeclare and sell surplus assets forthe state.

Under the current approach, eachproperty sale must be funded on aspecific project-by-project basis,and funding requests must bemade as long as 18 months prior toreceiving funds for the study.Given the size of the state’s realproperty inventory and continualchanges, this makes no sense andunnecessarily slows the process.An annual appropriation of$3–6 million for staffing andconsulting services would returndividends for the state. Some ofthis funding could come from thesale of other parcels of land.

Action: The Department of GeneralServices should be given a clear rolein the oversight of real propertymanagement.

Current law allows sales at lessthan fair market value, which oftenmeans properties are disposed ofwith little or no benefit to the state.In many cases, the properties areliterally given away.

Action: State law should be amendedto require the sale of state property atfair market value.

Current law gives any non-stateagency, such as local governmentsor certain nonprofit organizations,a right of first refusal for surplusproperties. This right of first refusalcan significantly delay the promptdisposition of surplus properties.While these entities shouldcontinue to have access to surplussales, eliminating the right of first

CHANGES IN EXISTING

LAWS TO CLEAR

OUT BUREAUCRATIC

UNDERGROWTH COULD

RESULT IN MORE

PROPERTY SALES AND

INCREASED REVENUE

FOR THE STATE.


refusal would significantly speedup the sales cycle.

Action: State law should be amendedto eliminate the right of first refusal forsurplus property.

Taken together, CPR estimatesthat the improvements in thestate surplus property law canspeed up sales, netting the state anadditional $47–95 million annuallyfrom sales. These funds would bebetter directed to solving the state’sfunding problems or to deliveringneeded services to Californians.

Smarter Business Practicesto Cut CostsAmong its cost saving ideas, CPRtook a hard look at state businesspractices for ways to cut costs.Some of those ideas have beendiscussed earlier in the report, buttwo additional recommendationsare worth noting. There aresignificant cost savings to begained by changing the state’sbonding and insurancerequirements for large publicprojects, and the state can savemoney on its telecommunicationsbills by better cost monitoring.

OCIPs. When contractors bid onlarge public works projects, theyare required to have sufficientinsurance to guarantee successfulcompletion of the project.Insurance coverage can includegeneral liability, builder’s risk,worker’s compensation, design

errors and omissions, as well asother special coverage. The costof this coverage is part of thecontractor’s administrative costsand is reflected in the cost of theproject.

There is a less expensive alternativethat can be used in many cases.Owner Controlled InsurancePrograms (OCIPs) allow thegeneral contractor to purchase theappropriate insurance that coversall of the parties involved in theproject, including subcontractors.This allows the subcontractors toeliminate their own insurance costsfor the project, thus saving thegeneral contractor money that canbe reflected in lower costs to thestate.

OCIPs are available to the statenow through the Department ofGeneral Services’ (DGS) Officeof Risk Management and havebeen used in some projects. DGSrealized savings of more than$3 million on one project by usingan OCIP. While OCIPs may notmake sense for every project,industry experience generallyreflects the DGS experience, withsavings estimated at 1 to 3 percentof construction costs.

Action: The state should make greateruse of Owner Controlled InsurancePrograms for public works projects.

CPR analysis indicates that usingOCIPs could save the state $22

AMONG ITS COST SAVING

IDEAS, CPR TOOK A HARD

LOOK AT STATE BUSINESS

PRACTICES FOR WAYS TO

CUT COSTS.



Among the many suggestions and comments CPR received, a number wound up

being addressed by CPR recommendations. Here are just a few of the actual

suggestions we received and a brief description of the ideas we came up with in

response:

Comment: “Accountability, a percentage of people that work for the state have no

accountability for their work. Accountability is a huge issue. Nothing gets done or it

gets done very slowly. People are put into positions that are open without any

regards to educational requirements and experience. You have a person in a

position without any education in that field and experience. This creates a huge

burden in that department whether or not they will admit it.”

CPR: State law and regulation currently allow state employees who meet certain

requirements to be appointed to classifications for which they have not been tested

and may not meet minimum qualifications. To ensure the state has an effective and

efficient workforce, CPR is recommending that employees be required to meet

minimum qualifications before they are appointed to any civil service position. This

will require a change in state law, and we recommend that the Governor work with

the Legislature to get this done.

Comment: “I too share the frustration of expensive textbooks. When I first heard

about CPR and how it could change something in my life I thought of all the

textbooks I have bought over the past few years. Seems like something should

be done.”

CPR: Expensive textbooks were a recurring theme in higher education comments.

Our recommendations (found in the detailed version of this report) suggest that the

university systems give consideration to textbook costs in their selection decisions,

that they inform students when earlier editions might be available and encourage

the selection of textbooks where the textbook is “unbundled” from various

supplemental, and often unused, material. We also encourage the university

systems to examine textbook rental systems as are already used in some state

universities and suggests that the universities help students use the Internet to sell

or swap used textbooks.

Comment: “Consider an overhaul of our education system. During the 9th grade,

teacher(s), the parent and student discuss the student’s future. Two options should

be available: (1) Full-time academic environment or (2) Career path with vocational

education courses and a part-time work environment. The emphasis in the

academic environment would be college prep courses with the student furthering

his/her education in college. The emphasis on the vocational path would be

Asked andAnswered


continued education and completion of an apprenticeship. No student should leave

school without the training or a degree with which to support him/herself.”

CPR: Career technical education (CTE), formerly known as vocational education, is a

pathway to employment in skilled jobs that comprise up to 33 percent of California’s

labor market. CTE is offered in occupational fields including information technology,

business, health services and construction. High school CTE students go on to higher

education at least as often as other students, are less likely to drop out of high school

and have better employment potential than comparison groups. Despite these

advantages, CTE course offerings and enrollment have declined over the past decade

as California’s high schools have focused increasingly on college preparation.

This trend should be reversed. California high schools should offer rigorous,

challenging career technical coursework integrated with academic education to

prepare high school students for both higher education and the workplace. This can

be done by providing alternative paths to high school graduation—one that prepares

students for university admission and another for either employment or college-level

study in a skilled occupation. Our report recommends that California adopt high

school graduation requirements allowing a choice of courses of study, including

university preparation and academic/career technical education.

Comment: “I drive for UPS. In the past, when I delivered to a State Department, they

would order thousands of dollars in new computers. Then three months later they

would order thousands of dollars more. When I asked out of curiosity about the

second set, the reply would be that they had to spend it prior to the end of the fiscal

year or their funding would be cut the next year. In other words, they would be

punished for staying under budget and fiscally responsible.”

CPR: There are reforms in the CPR report moving agencies toward performance-

based budgeting and better measurement of performance to see that such budget

strategies don’t continue. In addition, we are recommending a whole series of reforms

in the purchasing area that will allow the agencies to make smarter purchases through

centralized contracts that get the state the best deal using the leverage of the state’s

enormous combined buying power.



million a year on largeinfrastructure projects. These fundsare not General Fund revenue, butthe savings could be more usefullyapplied to other infrastructureprojects.

Cutting the Phone Bill. Anotherarea where the state should focusattention is telecommunicationcosts. The state spends about$120 million annually ontelecommunication services.Because of the size and extent ofthe state’s telecommunicationexpenditures, there is a continuingpossibility of mistakes that couldcost the state millions a year.Moreover, the state frequentlycontracts for enhanced phoneservice that is later abandonedwithout discontinuing paymentsfor the service. This is frequentlyfound in the case of high-speeddata lines.

An example of these problemscomes from the CaliforniaDepartment of Transportation(Caltrans). A Caltrans review earlyin 2004 uncovered a double-billingproblem amounting to $220,000over a six-month period. Thisfinding led to a more extensiveaudit by Caltrans that producedeven more savings through theelimination of unneeded cellularphones and land lines no longerused by the department.

Many states and private businesseshave recognized savings totaling

millions of dollars a year fromaudits of their telecommunicationsbills. California should also take acomprehensive look.

Action: The Department ofGeneral Services should audit statetelecommunications bills to discoveroverpayments or unnecessary linecharges.

Using the Caltrans experience as ameasure, the state should be able tosave as much as $2.5 million a yearon its current telecommunicationscosts from this audit.

For additional savings, a similarprocess could be applied to otherstate utility bills.

Improve State TaxAdministrationWhile state taxpayers oppose newtaxes, particularly when theeconomy is struggling, theygenerally support the idea thatpeople and businesses should paythe taxes they owe now. There isclear evidence that the state islosing millions of dollars becauseof non-compliance with the state’smajor taxes. At times, this non-compliance is willful evasion of thetax laws. In other cases, individualtaxpayers—and at times wholeindustries—are not fully informedof their tax obligations.

The state’s tax administratorsstruggle with these problemsevery day. Under California’s tax

MANY STATES AND PRIVATE

BUSINESSES HAVE

RECOGNIZED SAVINGS

TOTALING MILLIONS OF

DOLLARS A YEAR

FROM AUDITS OF THEIR

TELECOMMUNICATIONS

BILLS. CALIFORNIA

SHOULD ALSO TAKE A

COMPREHENSIVE LOOK.


system, though, they are hamperedby several factors. First, taxadministration is divided amongthree different agencies—theFranchise Tax Board (incometaxes), the Board of Equalization(sales and business taxes) andthe Employment DevelopmentDepartment (state unemploymenttaxes). This problem is addressedby CPR’s proposed reorganizationwhich is discussed later in thisreport. It would combine the threeagencies into a single CaliforniaTax Commission.

Other problems will remain despitethe reorganization unless the statetakes action. One of these problemsis outmoded technology. There arenew technologies available to taxadministrators that allow moreeffective identification of taxpayernon-compliance and maximizestate spending on audit andcompliance activities. TheFranchise Tax Board (FTB) hasbeen a notable success storyin using this technology, yetincongruously, FTB’s innovationshave not been adopted by theother tax collections agencies.Best practices should be usedgovernment-wide.

A system similar to the FranchiseTax Board’s could be developed ona performance basis, meaning thevendor is paid from the gains madeon added taxes collected by thedepartment. The FTB pioneeredthis approach, and it relieves the

state of most upfront developmentcosts. The approach has also beenused successfully in several otherstates, including Iowa and Texas,with proven revenue gains.

Action: The Board of Equalizationshould use an advanced databasesystem to more effectively identifytaxpayer non-compliance with statetax law.

The other problem area in state taxadministration is people. One ofthe themes of CPR has been tomanage the size of the workforceas an overall enterprise. Thiseliminates the need for broad-based and often self-defeatinghiring freezes or layoffs. Moreimportantly, it allows the state torecognize where it needs peopleto effectively manage its business.Tax administration is one of thoseplaces.

Hiring freezes have severelyrestricted the ability of theFranchise Tax Board and the Boardof Equalization to employ auditand compliance staff. In the lastyear, these organizations have lostmore than 1,000 staff years fromcritical tax collection activities. Thisis shortsighted and unfair to thestate’s honest taxpayers. It meansthat dishonest taxpayers avoidpaying the taxes they owe thestate. The revenue agencies aresignificantly understaffed to dealwith California’s large taxpayerpopulations. We believe that

WHILE STATE TAXPAYERS

OPPOSE NEW TAXES,

PARTICULARLY WHEN

THE ECONOMY IS

STRUGGLING, THEY

GENERALLY SUPPORT THE

IDEA THAT PEOPLE AND

BUSINESSES SHOULD

PAY THE TAXES THEY

OWE NOW.



expanding the number of skilledaudit and compliance personnel,coupled with improvements intechnology, could significantlyincrease state revenue collections.

Recruitment of workers could takeplace in two critical areas initially.First, the state should hire morestaff to cover phone collectionoperations. These workers are usedto call delinquent taxpayers toremind them that they have taxdue. The workers are normallyless costly than regular compliancestaff, and they can yield significantrevenue gains for the state.

Second, more auditors should behired to cover the income and salestaxes. By expanding staffing in thethree departments, the state canrealize a net gain of $73.8 million ayear from delinquent taxpayers.

Action: The state should authorize thehiring and deployment of additionalrevenue collection personnel forthe Employment DevelopmentDepartment, the Franchise Tax Boardand the Board of Equalization.

Tax AmnestyThe state can also help its currentbudget problems by offeringtaxpayers the opportunity to settlepast debts with the state through atax amnesty program. Typically,such programs involve a shortwindow of time when taxpayerscan pay delinquent taxes owed to

the state with a waiver of penaltyand interest.

Since the mid-1980s, the Districtof Columbia and 35 states haveconducted tax amnesty programs.Eleven states and New York Cityenacted amnesty legislation in2003 alone. Florida, for example,completed a four-month amnestyprogram in October 2003. Thestate spent about $600,000 on theprogram, mainly in staff time.The return to the state treasurywas $268 million. A tax amnestyconducted by Texas in March 2004,netted the state $379.1 million instate taxes and an additional$58.9 million in local sales tax.

California has had several amnestyprograms in past years; however,only one has been undertaken sinceFiscal Year 1984–1985—an amnestyfor Californians using illegal taxshelters that has produced anestimated $1.3 billion thus far. Withthe proposed improvements intax administration CPR isrecommending, the timing isright for a more general taxamnesty. Taxpayers who fail toremedy past problems will soonconfront a better-equipped andenlarged audit staff. By CPRestimates, an amnesty programshould bring in an additional$220 million the state would nototherwise collect. It would alsospeed up some other collectionsinto Fiscal Year 2004–2005.

THE STATE CAN ALSO

HELP ITS CURRENT

BUDGET PROBLEMS BY

OFFERING TAXPAYERS THE

OPPORTUNITY TO SETTLE

PAST DEBTS WITH THE

STATE THROUGH A TAX

AMNESTY PROGRAM.


Action: The Legislature shouldauthorize a general tax amnestyfor major state taxes, including thepersonal income tax, business taxesand sales tax. It should allow forpartial wavier of penalty and interestand should extend the amnesty to pasttax periods up to and including taxyear 2003.

The window for the amnestyshould be fairly brief to avoidinterfering unduly with normalstate tax administration activities. Itshould be followed up by rigorousenforcement actions againsttaxpayers who continue to bedelinquent in their tax payments.

Resolving TaxpayerDisputesA final aspect of state taxadministration that needs to befixed is the tax settlement process.Both the Franchise Tax Board andthe Board of Equalization havethe authority to settle tax issuespending with taxpayers when itis in the state’s best interest.

There are a number of reasons formaking such settlements, but inmany cases, the cost of litigationmay be higher than the value of theamounts in dispute, or the statemay be at risk of losing keylitigation if an issue is challengedin court. The settlement processallows tax administrators to makethe best decisions to protect thestate revenue base and clear out thetax caseload. The process can also

benefit taxpayers since it allowsthem to reach an agreement withthe state when issues are indispute, saving time and moneyin a potentially unsuccessfulchallenge to state policy.

Although both tax departmentscan settle cases, the process isnot currently used to the state’sadvantage. Presently, at the FTB,there are almost 900 personalincome and bank and corporationtax appeals with a total value ofapproximately $2.4 billion. At theBoard of Equalization, more than1,200 cases are pending with atotal value of $320 million. Thesebacklogs are not being cleared. Bymaking a stronger effort to settleas many of these cases as possible,the state can improve its financialposition and can end disputes thatmight otherwise linger for anumber of years.

Action: The Franchise Tax Boardshould be directed to make a concertedeffort to clear tax settlements asquickly as possible consistent with fairadministration of the tax law and thebest interests of the state and thetaxpayers. The Board of Equalizationshould also more actively work to settleexisting tax cases.

The savings from this change couldbe substantial, given the value ofthe backlog of cases involved. If,for example, half the dollar valueof the cases were cleared, with thestate receiving only half of the tax

THE SETTLEMENT

PROCESS ALLOWS

TAX ADMINISTRATORS

TO MAKE THE BEST

DECISIONS TO PROTECT

THE STATE REVENUE BASE

AND CLEAR OUT THE TAX

CASELOAD. THE PROCESS

CAN ALSO BENEFIT

TAXPAYERS SINCE IT

ALLOWS THEM TO

REACH AN AGREEMENT

WITH THE STATE WHEN

ISSUES ARE IN DISPUTE,

SAVING TIME AND MONEY

IN A POTENTIALLY

UNSUCCESSFUL

CHALLENGE TO STATE

POLICY.



assessment, the state would realizea one-time revenue gain of anestimated $675 million.

A Fair Share ofFederal DollarsThe federal governmentdistributed more than $362 billionin various formula-driven andspecial grant funds to state andlocal governments in 2002.California’s total share of thesefederal grants and paymentsamounted to $42.7 billion or11.8 percent. In the same year,Californians paid $58 billion moreto the federal government in taxesthan it received in federal aid.

Partly, this is a result of formulafunding deficiencies written intofederal law that do not allocatefunds as fairly as they should.The state should attempt toaddress that problem throughCongressional action, butrealistically, it is a difficultproblem to rectify.

However, a part of the issue withfederal funds is the complexity offederal programs and the laws andregulations governing theiradministration. Many states havediscovered that a close, expertexamination of programs the state administers, particularlyin the human services area, canfrequently lead to increases infederal funding.

Presently, the Office of Planningand Research operates a StateClearinghouse that is the singlepoint of contact for review offederal grants received by the state.The review covers completeness,timeliness and accuracy. TheClearinghouse also reports toagencies as funding opportunitiesbecome available.

The Department of Finance (DOF)coordinates the federally fundedagencies in the preparation of anannual indirect cost rate plan.Federal grants typically cover aportion of a department’s generaloperating costs—its costs relatedto the program but not directlyinvolved in it. The indirect costreports are actually prepared by theindividual agencies and reviewedby DOF. DOF does not have theauthority to impose penalties onagencies that aren’t timely in filingtheir reports, and at the time CPR’sanalysis was conducted, the singleDOF position dedicated to theindirect cost plan was vacant.Collections for Fiscal Year 2002–2003 amounted to only eightpercent of the actual amountlegitimately recoverable by thestate.

States like New York and Texas,which have focused time andexpert attention on maximizingfederal funds to their states, haveexperienced great success. Thisnormally requires focusing thetask of making sure the state is

THE FEDERAL

GOVERNMENT

DISTRIBUTED MORE

THAN $362 BILLION IN

VARIOUS FORMULA-

DRIVEN AND SPECIAL

GRANT FUNDS TO

STATE AND LOCAL

GOVERNMENTS IN 2002.

CALIFORNIA’S TOTAL

SHARE OF THESE FEDERAL

GRANTS AND PAYMENTS

AMOUNTED TO $42.7

BILLION OR ELEVEN AND

EIGHT TENTHS PERCENT.

IN THE SAME YEAR,

CALIFORNIANS PAID $58

BILLION MORE TO THE

FEDERAL GOVERNMENT IN

TAXES THAN IT RECEIVED

IN FEDERAL AID.


receiving all of the federal dollarsit deserves in one central agencyand may even involve hiringprivate sector experts who areknowledgeable of the arcaneaspects of federal fundingformulas. It also means givingcareful scrutiny to the state’sindirect cost rate plan to ensurethat the state isn’t shortchangingitself on these costs.

Action: The Governor shouldimmediately consolidate all activitiesrelated to determining the eligibilityfor and receipt of federal funding in aspecial unit within the Governor’sOffice of Planning and Research.

The federal grant unit shoulddevelop aggressive strategies toensure the state is receiving allof the federal aid to which it isentitled. This may include revisingcurrent spending policies at thestate level to comply with federalregulations, allowing Californiato qualify for more federal dollars.The state should also make a moreconcerted effort to identify andreport federal indirect costscorrectly. Agencies should bedirected to comply with staterequirements for indirect cost rateplan reports.

STATES LIKE NEW YORK

AND TEXAS, WHICH HAVE

FOCUSED TIME AND

EXPERT ATTENTION ON

MAXIMIZING FEDERAL

FUNDS TO THEIR STATES,

HAVE EXPERIENCED

GREAT SUCCESS.



"A popular government without popular information or the means of acquiring it, is but aprologue to a farce or a tragedy or perhaps both."

James Madison

Accountable Government

CPR Diagnosis

• The current budget system promotes unmanaged growth. Baselinebudgeting makes effective management of the budget nearlyimpossible.

• Performance metrics and measures are not employed. Budgets arenot tied to performance measures, and performance results are notmeasured or tracked.

• Meaningful budget and financial information is not available.The state lacks enterprise-wide budget and financial systems that arenecessary to produce the information managers need to plan andmanage. Existing technologies are dated and fragmentary.

California’s state governmentshould reflect the decency, integrityand honesty of the people it serves.In this age of corporate scandal andpublic concern over accountability,we must be certain that, asWoodrow Wilson said, govern-ment is “all outside and no inside.”

At a practical level, this means thatour financial systems must keep

straightforward and completerecords, that we account fully forevery government action, and thatwe practice “government in thesunshine.” Self inspection is thefirst step to responsiblegovernment.

The demands of governmentaccountability do not stop there.We should manage and budget

IN THIS AGE OF

CORPORATE SCANDAL AND

PUBLIC CONCERN OVER

ACCOUNTABILITY, WE

MUST BE CERTAIN THAT, AS

WOODROW WILSON SAID,

GOVERNMENT IS “ALL

OUTSIDE AND NO INSIDE.”


public funds based on definedgoals and objectives. Our success—or failure—should be measuredagainst clearly stated standards ofperformance. We should track howwell our agencies and departmentsdo and tie performance to futurefunding decisions.

Annual incremental budgets thatnudge prior years’ allocationsahead by some amount based onflimsy criteria are tantamount tonot budgeting at all. Performanceshould guide all budget decisions,and managers should be heldaccountable for their use of publicfunds.

In the area of financial manage-ment of the state’s resources,CPR finds the state particularlydeficient. Our systems are oldand outmoded. The finances ofthe state do not meet nationalstandards for financial reporting.While agencies of our governmentdemand accountability fromcorporations in which the stateinvests, we cannot make the samecertain claim of accountability.

Our budget practices also shouldbe improved. The systems used tomanage the budget are, again, outof date. More importantly, though,our state’s budget is based on anold style of line-item budgetingthat virtually guarantees poorbudget decision making, since theGovernor and the Legislature donot have all of the informationthey need to make the best

judgments about how to spendthe state’s resources.

Budget crises tend to focus theharsh light of reality on how wellgovernment does its job. The harshreality in this area is that we needto do better, much better. This maybe one of the most important areasof improvement in this study sinceit goes to the heart of the public’strust in our stewardship ofgovernment and our use oftheir hard-earned tax dollars.

A Budget Based onPerformanceHow we budget money and whatwe get for the dollars we spendare perhaps the most importantissues in government. Ratherthan dole out money based onwhat agencies received lastyear, we should tie budgets toperformance. When resourcesare scarce, it is important that theGovernor and Legislature have thebest information available to makeinformed decisions about thebenefits and costs of stateprograms.

Our financial system cannotprovide this essential informationtoday. Budgeting is piecemeal,fiscal data are lacking, and thereare no performance measures togauge the performance of oneprogram among many.

In short, California today isextremely limited in its ability

HOW WE BUDGET MONEY

AND WHAT WE GET FOR

THE DOLLARS WE SPEND

ARE PERHAPS THE MOST

IMPORTANT ISSUES IN

GOVERNMENT. RATHER

THAN DOLE OUT MONEY

BASED ON WHAT

AGENCIES RECEIVED LAST

YEAR, WE SHOULD TIE

BUDGETS TO

PERFORMANCE.



to foresee and react to budgetchanges. All states have difficultydealing with unexpected shifts ineconomic trends, but the bestprepared states have fiscal systemsthat allow adjustments to be madequickly and effectively in a waythat doesn’t compromise vital stateservices.

The Current Budget Process.California’s budget processtraditionally examines anindividual program’s prior level offunding as a base amount withoutconsidering if that amount wasnecessary. The result is that someCalifornia program budgets maybe inflated unnecessarily. Theprocess begins with departmentspreparing baseline budgetsto maintain existing services.Departments also may prepare“budget change proposals” toincrease or decrease funding.

The Department of Finance (DOF)analyzes the budget change

proposals, focusing on the fiscalimpact of the proposals and theirconsistency with the policypriorities of the Governor. Forsome caseload-driven programs,such as financial assistance tothe poor and elderly, the processmay differ slightly, although theapproach is the same. Insteadof submitting budget changeproposals, these departmentssubmit a letter outlining proposedchanges to their caseloadassumptions. These letters typicallyinclude program and fiscal changesto the baseline budget.

Instead of appropriating fundingfor individual items such aspersonnel costs and equipment,the Legislature in many casesauthorizes a lump sumappropriation for a program, whichdoes not limit spending to specificitems, but instead permits programmanagers some decision-makingflexibility. These lump-sum


• Manage the budget for results. The state should convert to aperformance-based budget that puts a premium on setting clear goalsand measuring success or failure.

• Improve management information. The current budget system doesnot demand that managers set, monitor and report performancemetrics. Better information is needed.

• Replace outmoded fiscal and budgeting systems and build bettersystems. This requires an investment, but our separate financialsystems must be tied together to allow accurate, comprehensive andtimely statewide financial information and reporting.


appropriations, however, do notidentify goals and objectives, or tiethe appropriations to performancemeasures that would demonstratewhether the goals and objectivesare met.

While the current process hasworked during periods of revenuegrowth and budget surpluses, itdoes not identify programs thathave outlived their purpose. Evenwhen revenues are increasing, itis difficult to address emergingcritical needs or new priorities.As the California ConstitutionRevision Commission noted in1996, “for members of legislativebudget committees or citizensfrustrated with the operation ofstate government, making changesto the status quo is extremelydifficult.” Since 1996, that situationhas not changed.

Surplus to Shortfall. Whenrevenues decline and deficitsappear, however, the existingprocess collapses. When budgetshortfalls were first projected inMay 2001, the DOF abandonedthe traditional budget processto balance the budget. DOFconducted internal reviews toidentify ways to reduce programsand then asked departments tosubmit plans to achieve targetedbudget reductions. These reviewsand plans, however, also workedoff the baseline budget.

The state has been unable to reduceexpenditures sufficiently over the

long haul, and the Fiscal Year2003–2004 Budget Act relied onapproximately $20 billion inborrowing to bridge the shortfall.Because this budget relies heavilyon borrowing and one-timesolutions, the state faces operatingdeficits estimated at more than$14 billion annually over the nextfive years. The LegislativeAnalyst’s Office has concluded that“the persistent nature of the out-year operating shortfalls—even inthe face of an improvingeconomy—indicates that the Statewill not be able to ‘grow its wayout’ of its budget problems.” Thecurrent deficits are the result ofthree years of major imbalancesbetween revenues andexpenditures.

Performance-Based Budgeting.Facing similar problems,many private businesses andgovernments across the nationhave looked for an alternative totraditional incremental budgeting.That alternative is performance-based budgeting.

Performance-based budgetingadapts private-sector budgetprocesses to the public sector. Aperformance-based budget processidentifies what each department istrying to accomplish, how much itis planning to do with its resources,and how well it did with theresources it had last year. Moneycan then be budgeted based ondecisions about the desired servicelevel from each program, and

PERFORMANCE-BASED

BUDGETING ADAPTS

PRIVATE-SECTOR BUDGET

PROCESSES TO THE

PUBLIC SECTOR.



program managers are heldaccountable for carrying outthose decisions.

The advantage of performance-based budgeting is that funding isallocated based on what a programcan accomplish. It also allowsdecision-makers to identifyprograms that have outlivedtheir purpose. In addition,when budget shortfalls occur, itallows decision-makers to identifywhich reductions will have thesmallest negative impact.

A number of states havesuccessfully adopted theperformance-budgeting approach.In its review, CPR looked atworking examples in Florida,Texas and Washington. We alsoexamined the results a pilotprogram conducted in Californiaduring the 1990s.

CPR is not alone in seeing potentialvalue in a budget approach basedon measuring and funding forresults. The Little HooverCommission and numerous otherorganizations have recommendedimplementing a performance-basedbudgeting system in California.Specifically, the commission foundthat “the current process forallocating funds and settingprogram priorities is not aframework that encourages thebest policy decisions, especially intimes of economic contraction.” Asa result, the May Revision to theGovernor’s Budget included

proposed legislation to requirestate agencies and departments to:

• Develop strategic plans;

• Prepare annual action planswhich identify objectives,performance targets and thebudget resources required foreach of their programs; and

• Report program performance atthe end of each fiscal year.

We should convert our budgetprocess to a performance-basedapproach, allowing time fortransition and putting into placeworkable systems to make theprocess straightforward and usefulto managers and to state decision-makers.

Action: The state should move to aperformance-based budgeting system,based on statewide goals and objectives.

The Department of Finance shouldprovide instructions to agencies ondeveloping performance-basedbudget submissions. State agenciesand departments should ensuretheir funding requests conform toand support the statewide visionand goals prepared by theGovernor’s Office.

Each action plan should identifyobjectives, performance targetsand the budget resources required.The plans also should identify theservice level to be provided alongwith historical baseline

THE ADVANTAGE OF

PERFORMANCE-BASED

BUDGETING IS THAT

FUNDING IS ALLOCATED

BASED ON WHAT A

PROGRAM CAN

ACCOMPLISH. IT ALSO

ALLOWS DECISION-

MAKERS TO IDENTIFY

PROGRAMS THAT HAVE

OUTLIVED THEIR

PURPOSE.


performance data for simplecomparisons.

Essentially, departments wouldsubmit “bids” to fund each of theircore programs at a specific levelof service. Departments wouldno longer be required to reportincremental changes, nor employeeposition details, such as jobclassifications.

Action: The Department of Financeshould identify core programs andperformance targets in the Governor’sBudget proposal so the Legislature canreview and approve these performancetargets.

Measuring PerformanceA number of key elementsmust be in place for performance-based management to worksuccessfully within anorganization. One of theseelements is the development andimplementation of performancemeasures, which are practical,realistic and meaningful tomanagement, employees and thepublic.

Performance measures are toolsused to assess an organization’ssuccess in fulfilling its mission andmeeting its goals. Included withinthese measurements are variousindicators, all of which are essentialto measure performance accurately.These include:

• Input Indicators—the amountof resources used to provide aspecific program or service;

• Output Indicators—the numberof units produced, such as thenumber of citizens served;

• Outcome Indicators—thereports of the results;

• Efficiency Indicators (or ProcessIndicators)—the costeffectiveness or cost perunit; and

• Explanatory Information—theinformation that helps the userunderstand what influenced theresults positively andnegatively.

Developing these measures has animportant role in improving anorganization’s performance. Theycan help managers stay focusedon results. By objectively assessingpast and current performance,administrators are better equippedto plan for the future. Responsibleadministrators developperformance measures to ensurestate government is using taxdollars wisely and that stateemployees are held accountablefor their decisions.

Performance measures also are aneffective way to inform electedofficials, oversight agencies, thepublic and other stakeholders ofthe results of governmentprograms.

Valid performance measures can bedifficult to develop depending onthe nature of the work performedby an organization. At times, it can

PERFORMANCE

MEASURES ARE TOOLS

USED TO ASSESS AN

ORGANIZATION’S SUCCESS

IN FULFILLING ITS MISSION

AND MEETING ITS GOALS.



be difficult to develop performancemeasures that actually reflectwhat an organization does. Thisdifficulty can be due to lack oftraining, lack of data, fear ofreporting results or lack ofagreement on what should bemeasured and how it should beinterpreted.

Despite these obstacles, the useof performance measures is a majorstep to program improvement.They help reduce the guesswork ingovernment programs and pavethe way to both improving servicesand controlling costs.

Action: The Department of Financeshould devise and distribute guidelinesand procedures to state agencies anddepartments on how to develop anduse viable performance measures.

Agencies can use these guidelinesto develop relevant performancemeasures. Information on thesemeasures should be gathered on aroutine basis—e.g., monthly—andreported on a quarterly andannual basis. Results should beincorporated into future agencybudget submissions.

Looking Ahead,Thinking AheadGovernment’s view of the future is,like those of other organizations,limited and imperfect. It is difficultto foresee and accurately predictchanges in national economicconditions. It is impossible to

foresee natural and manmadedisasters and other circumstancesthat may impose new andunexpected demands ongovernment. On the other hand, astechnology writer and editor HerbBrody has written: “Telling thefuture by looking at the pastassumes that conditions remainconstant. This is like driving a carby looking in the rearview mirror.”

California does some long-termplanning now, but it is limited. TheDepartment of Finance (DOF) andother state departments estimatethe long-term fiscal impact oflegislation when they analyzeindividual proposed bills. TheDOF also prepares a five-yearcapital outlay plan each year forthe Legislature. Little attention,however, is paid to the long-termimpact of budget decisions or thelong-term financial conditionof the state during the budgetdevelopment process. The DOFdevelops comprehensive, long-range projections for credit-ratingagencies after the budget is in finalform, but these projections oftenonly cover the coming budget yearand the year after. In addition, theLegislative Analyst’s Officepublishes a comprehensive five-year projection of revenues andexpenditures after the Legislatureadopts the final budget.

In its 1995 review of the state’sfiscal condition, the Little HooverCommission warned “while

GOVERNMENT’S VIEW

OF THE FUTURE IS,

LIKE THOSE OF OTHER

ORGANIZATIONS, LIMITED

AND IMPERFECT. IT IS

DIFFICULT TO FORESEE

AND ACCURATELY PREDICT

CHANGES IN NATIONAL

ECONOMIC CONDITIONS.

IT IS IMPOSSIBLE TO

FORESEE NATURAL

AND MAN-MADE

DISASTERS AND OTHER

CIRCUMSTANCES THAT

MAY IMPOSE NEW AND

UNEXPECTED DEMANDS

ON GOVERNMENT.


California’s budgets appear to be inbalance each year when they areadopted, the State has incurred alarge structural deficit.” In short,spending was exceeding revenueon an ongoing basis. A decadelater, much the same observationapplies. The structural problem,in remission in the late 1990s, hasrecurred. The current deficits werethe result of three years of majorimbalances between revenues andexpenditures.

Since 2001, the Governor hasproposed, and the Legislaturehas adopted, budgets that werebalanced in the year they wereadopted, but created growingoperational deficits in futureyears. As early as May 2001,the Legislative Analyst’s Officepredicted an ongoing structuraldeficit of $4 billion beginning inFiscal Year 2002–2003. Although the2001–2002 Budget Act proposed a$2.6 billion reserve, it did notsignificantly restrain the growth instate spending. By November 2001,the projected structural deficit hadskyrocketed to more than $12 billion(Exhibit 9).

The fiscal crisis grew worse. Toalleviate the situation, the FiscalYear 2002–2003 Budget Actincluded a year-end reserve butstill did not address the underlyingstructural deficit, because it reliedagain on short-term expenditurereductions. By 2004, the budgetshortfall more than doubled.

The California Balanced BudgetAct, Proposition 58, passed byvoters in March 2004, enactedsignificant changes to protect thestate from carrying large deficitsin the future. It requires the stateto enact a balanced budget. Itestablishes a Budget StabilizationAccount of up to $8 billion, or fivepercent of General Fund revenues,whichever is greater, to coverbudget shortfalls. It also provides aprocess to make mid-year budgetadjustments and prohibits futureborrowing to cover budget deficits.

These provisions should helpCalifornia avoid fiscal crises inthe future, but they alone cannotbridge budget shortfalls. Forexample, even the new BudgetStabilization Account would notbe sufficient to cover the currentdeficit. In addition, the restrictionon the use of debt to cover budgetdeficits requires better financialplanning on the part of theExecutive Branch and theLegislature, if undesirableprogram reductions and taxincreases are to be avoided.

Action: The Governor should directthe Department of Finance to prepare along-range financial plan for the stateof California.

The plan should project revenuesand expenditures for five years. Itshould also reflect the statewidestrategic vision and goals. Thecreation of a long-range plan

THE CALIFORNIA

BALANCED BUDGET ACT,

PROPOSITION 58, PASSED

BY VOTERS IN MARCH

2004, ENACTED SIGNI-

FICANT CHANGES TO

PROTECT THE STATE

FROM CARRYING LARGE

DEFICITS IN THE FUTURE.

IT REQUIRES THE STATE

TO ENACT A BALANCED

BUDGET.



EXHIBIT 9

A DECADE OF DEFICITS?General Fund Operating Deficit Projections(Amounts in Billions)

Source: Legislative Analyst’s Office.


would provide the Governor andthe Legislature the informationnecessary to assess and adjustwhen necessary the long-termfiscal impact of their decisions.

Keeping the BooksOne of the CPR’s primaryresponsibilities was an “audit”of the state’s financial systemsand reporting, budget processes,financial controls and stateoversight of its fiscal affairs. Thisprocess differed from the broaderwork of the Performance Review,as it used auditors knowledgeableabout the state’s fiscal system andwas done in accordance withGenerally Accepted GovernmentAuditing Standards. The findingsprovide some important insightsthat can be applied to the overallreview (see also the accompanyingarticle on the line-by-line audit).They include:

• The large number of financialsystems is not efficient oreffective.

• There is insufficient oversightor audit of the existing systems.

• Many of the existing systemsare obsolete due to deferredmaintenance.

• California state government isdependent on diminishing staffresources to maintain systemsand to use the complex networkof systems to ensure dataintegrity.

• The decentralization of thesystem has created a risk.

• The design of the systems limitstheir use and maintenance.

• State laws, regulations andpolicies have so manycomplicated requirements thatthe state cannot use standardcommercial software.

• Organizationally, it is unclearwho is accountable for financialmanagement—individualdepartments, the Departmentof Finance, the Controller orthe Treasurer.

• The state lacks a strategicdirection in financialmanagement and has no planto improve its overall system.

These are worrisome conclusions,and their importance should not beunderestimated. In 2002, SyracuseUniversity’s six-year GovernmentPerformance Project study ofstate and local governmentperformance reported thatfinancial management is aprimary indicator of overallgovernment performance.

California is not a recognizedleader in state financialmanagement. In 2001, GoverningMagazine conducted a nationwidesurvey, comparing financialmanagement practices among the50 states. The magazine awardedCalifornia a B- in financial

ONE OF THE CPR’S

PRIMARY RESPONSIBILITIES

WAS AN “AUDIT” OF

THE STATE’S FINANCIAL

SYSTEMS AND REPORTING,

BUDGET PROCESSES,

FINANCIAL CONTROLS AND

STATE OVERSIGHT OF ITS

FISCAL AFFAIRS.



“A line-by-line audit .. .”

One of the Governor’s directives to CPR was the conduct of a “line-by-line”audit of state government finances in addition to the other work of Review.The Audit Team CPR assembled was composed of skilled auditors fromacross government.

The Audit Team focused on work performed by existing state audit andcontrol organizations, supplemented by its own original analysis. More than60 state agencies currently employ more than 4,000 auditors for a range of purposes.Primary responsibility for the state’s overall fiscal review lies with the Department ofFinance and the Legislative Analyst’s Office (budget information), the StateController’s Office (financial accounting and reporting) and the Bureau of State Audits(auditing of the state’s consolidated financial statements).

In its work, the Audit Team looked at the work of the key financial organizationswithin state government. It examined financial reporting to see that revenues andexpenditures are accurately stated. It looked at whether funds are used for theirlegally authorized purposes. The Audit Team also examined the necessity of variousprograms, although that was part of the larger CPR effort. It surveyed 106 agencieson their financial practices, receiving detailed answers from about 75 percent of thosesurveyed. The findings and conclusions of the Audit Team’s review of state operationsare reported in detail in a separate volume of the CPR report. The main conclusionfrom the report:

“With all these components operating in unison, the state would be reasonablyassured that its operations met its objectives. However, we believe that in spite of thebest-intended efforts of the parts, the whole is not coordinated and the results are noteffective.”

SUMMARY OF KEY FINDINGS:

Financial Controls1. The state’s system of internal controls should be improved. Many state agencies

have neglected to comply with the applicable law requiring effective systems ofinternal controls, increasing the risk of waste, fraud and abuse.

2. Many smaller state agencies’ financial information is not adequately reviewed todetermine if it is reliable and fairly stated. Numerous smaller agencies do notreceive routine audits of their financial information.

3. Most state agencies do not have internal audit units and do not perform routineaccounting/administrative control audits.

Financial Systems1. The large number of existing financial systems within state government is not

efficient and effective.

2. The existing systems lack sufficient oversight or audit capabilities.

3. Many existing financial systems are obsolete because they have not beenproperly maintained.


4. The state is dependent on diminishing staff resources to maintain and operate itsfinancial systems and to ensure data integrity.

5. The decentralization of the state’s financial systems has created a risk due to thelack of complete, accurate centralized inventory of fiscal systems.

6. Organizationally, the state lacks a clear definition as to who is accountable forfinancial management and related systems.

7. The state lacks a strategic direction for financial management and relatedsystems, and currently has no plan to develop such a plan.

Strategic Planning/Performance-Based Budgeting1. There is no centralized tracking or monitoring of statewide strategic planning

efforts. A pilot, authorized in 1993, has been largely abandoned.

2. The majority of agencies perform some type of strategic planning, but thisplanning does not drive the budget process. Half of the agencies surveyeddevelop strategic plans. Most agencies prepare strategic plans but don’t forwardthem to the Department of Finance or to the Governor’s Office.

Performance Measurement1. Approximately 90 percent of agencies are currently using benchmarks and

performance measures.

2. Agency management teams regularly monitor performance results.

3. Insufficient resources and an inability to develop performance measures oftenderail efforts to establish or refine performance measures.

Performance-Based Budgeting1. Twenty-four percent of responding agencies have integrated performance

measurement into their budgeting processes.

2. Most agencies’ budgetary responsibilities are established and regularly monitored.

3. State agencies claim that a lack of resources precludes them from implementing aperformance-based budgeting process.

Audit Coverage Over Agencies’ Strategic Planning and Performance Measuring1. Nearly half of the reporting agencies indicated that their program performance or

measures were reviewed or audited.

2. The Bureau of State Audits identified improvements in strategic planning andperformance measurement.

3. Some state agencies’ internal auditors conduct performance reviews of operationsand programs, including assessment of performance measurement.

4. The state should have centralized control of audits to ensure oversight, guidanceand monitoring.



management, finding that thestate’s financial systems failto provide to state officials, thebusiness community and taxpayerstimely, accurate and usefulfinancial reports, which gauge theaccurate cost of deliveringprograms.

California has struggled withfinancial reforms over the pastdecade, but too often, there hasbeen no follow through on suchefforts. Efforts at modernizing thestate’s financial managementsystem have occurred only at theindividual department level.

The Department of Finance stillrequires agencies to use its agingfiscal accounting system, known asthe California State Accounting andReporting System (CALSTARS). Astated goal of CALSTARS is toachieve uniformity between thestate’s budgeting and accountingprocesses. Departmental budgetmanagement systems, however, aretypically stand-alone and not tiedto the CALSTARS accountingsystem. In addition, departmentsoften modify CALSTARS to fit theirown needs or ignore it and devisetheir own financial informationsystem.

In 2001, the Senate AdvisoryCommission on Cost Control inState Government reviewed thestate’s attempts at performancemeasurement and observedthat California lacks a statewide,integrated management

information system: “There is nouniform management informationsystem available to help the Statedevelop, publish, or obtain datarequired to manage and monitorthe various operations for service,cost effectiveness, or outcomes.Lacking central leadership,agencies are proceedingindependently. There areorganizations that currently have,or are developing, managementinformation systems using outsidevendors. This requires investmentof huge amounts of money with nodata outputs on a statewide basis.”

The statewide audit by the CPR’sAudit Team found no grossirregularities in state accounting,but with these systems, it isdifficult to close the book on anyfinancial issue with confidence andfinality. Financial management is atthe center of integrity and publictrust in government. Changingfinancial management systems isnot a simple or inexpensive task,but it is a task that must beaddressed.

Action: The Governor should instructthe Department of Finance to develop afinancial management system capableof supporting a performance-basedmanagement system.

Action: The Governor should directthe Department of Finance to developa long-term financial managementstrategic plan with targeted goals andstrategies for accomplishing thosegoals.

FINANCIAL MANAGEMENT

IS AT THE CENTER OF

INTEGRITY AND PUBLIC

TRUST IN GOVERNMENT.

CHANGING FINANCIAL

MANAGEMENT SYSTEMS IS

NOT A SIMPLE OR

INEXPENSIVE TASK, BUT IT

IS A TASK THAT MUST BE

ADDRESSED.



Laurence J. Peters

“Bureaucracy defends the status quo long past the time when the quo has lost its status.”

CPR Diagnosis

• Purchasing by the state is uncoordinated and inefficient. We don’tbuy like a single organization, and we miss the savings fromleveraging our buying power.

• Purchasing is tied to paper processes. This is the most expensiveway to buy.

• The state has not invested in contract management. Millions are lostby not actively managing the contracts that we have.

• The state insulates itself from competition. Absent competitivepressures, state pays too much for services and doesn’t get the qualityit deserves.

• Bureaucratic inertia stops obvious solutions. State government is notprimed for innovation and continuous improvement.

Smart Management Decisions

One of the more commoncomparisons made when judginggovernment is its performancerelative to the performance ofprivate businesses. Some arguethat government should be “runmore like a business.” The counterargument is that government isn’t abusiness because profits are not acentral concern. Some go so far as

to say that the concept of customersdoesn’t make sense, because peopleprobably don’t consider themselvesto be “customers” of the taxcollector, the prison guard or theregulator.

The reason this debate continues isthat both sides of the argument arepartly right. Government does

ONE OF THE MORE

COMMON COMPARISONS

MADE WHEN JUDGING

GOVERNMENT IS ITS

PERFORMANCE RELATIVE

TO THE PERFORMANCE OF

PRIVATE BUSINESSES.

SOME ARGUE THAT

GOVERNMENT SHOULD

BE “RUN MORE LIKE A

BUSINESS.” THE COUNTER

ARGUMENT IS THAT

GOVERNMENT ISN’T A

BUSINESS BECAUSE

PROFITS ARE NOT A

CENTRAL CONCERN.


Most importantly, it can stopacting like hundreds of small,independent businesses andrecognize that it is a singlebusiness enterprise. By doing that,particularly in the procurementarea, the state can leverage itsbuying power to give the peopleof California a better value on thedollars they pour into the StateTreasury.

Buy SmartAn obvious place to begin theserecommendations is procurement.California state government spendsupwards of $7 billion annually ongoods and services, ranging fromwork by consultants to food forinmates in state prisons to thecomputers on workers’ desktopsto pencils and routine officesupplies (Exhibit 10). Californiastate government is large anddiversified business.

One problem is that singledepartments acting individuallytoo often make these purchases. Inthat circumstance, the state clearlydoesn’t get the best buy for itsdollars. The irony is that oftendozens, if not hundreds, ofagencies are buying pretty muchthe same goods and services.Nowhere is this fact more obviousthan in information technology.State agencies today have 17contracts with Microsoft for theirvarious products and services.We have 78 contracts with CiscoSystems and another 54 with IBM.

have a set of responsibilities andrequirements that make it differentfrom most American businesses. Inmost cases, it doesn’t earn a profit,and the services it providesfrequently benefit many citizensrather than a specific individual—services such as roads, publicschools, public safety andassistance to the needy.

Many of the daily processes ofgovernment, though, do closelyparallel business operations.Government hires employees,it manages a payroll, it buys andsometimes sells goods and services,it maintains a set of financialrecords, it deals with the publicon a daily basis and it offers“products” to its customers.

In managing these operations,government can and shouldoperate like a business. It shouldmake smart business decisions andmanage its operations like whatit is—one of the largest singlebusinesses in California, withmore than 315,000 employees, a$22.7 billion payroll and servicesthat touch the lives of most ofCalifornia’s 36 million people.

In its review, CPR found a numberof areas where the state can operatein a more business-like fashion.It can incorporate manyof the techniques that the mostsuccessful businesses use to cutcosts and improve services. It canmake common-sense decisions.

GOVERNMENT HIRES

EMPLOYEES, IT MANAGES

A PAYROLL, IT BUYS

AND SOMETIMES SELLS

GOODS AND SERVICES,

IT MAINTAINS A SET OF

FINANCIAL RECORDS, IT

DEALS WITH THE PUBLIC

ON A DAILY BASIS AND IT

OFFERS “PRODUCTS” TO

ITS CUSTOMERS.



Those are the major suppliers, andthere are dozens of others.

The problem here doesn’t lie withour suppliers. They are respondingto what the state asks of them. Theproblem is with a procurementsystem that turns a blind eye tothe inefficiency and redundancythat dozens of contracts with thesame vendor for generally thesame services imply.

Strategic Sourcing. The statehas begun to move in the rightdirection, but much more effort isnecessary in this area. Since theCPR began, it has worked with theDepartment of General Services onan approach to purchasing called

“strategic sourcing.” Strategicsourcing is a rigorous, systematicprocess by which an organizationanalyzes its spending anddetermines the best way to buygoods and services to get the bestvalue at the lowest price. It is a firststep toward leveraging the state’senormous purchasing power.

This approach has been usedsuccessfully in the private sector,with reports of cost savings of10–30 percent. It also has worked tospeed up the procurement cycle,meaning fewer delays and a betterrelationship between purchaserand supplier.


• Manage government like a single business enterprise. In areaslike purchasing, departments and agencies act independently. Weshould leverage the size of the state's business presence.

• Use technology to improve service at a lower cost. Developingtechnologies can give government better tools for serving peopleand improving its operations.

• Better manage contracts and tie purchasing to supplierperformance. We spend billions of dollars on goods and serviceseach year. We need to get the most from every dollar spent.

• Use managed competition to drive down prices and improveservice quality. Our standard for delivering services should be toaccomplish the task in the best way possible at the lowest cost tothe taxpayers.

• Apply common sense to common problems. Just becausewe’ve always done something doesn’t mean it's the right way—or the best.


CPR believes this approach has thepotential to save the state millionsof dollars annually.

Action: The Governor should directthe Department of General Servicesto expand its use of strategic sourcingthroughout state government.

Master Service Agreements.Strategic sourcing would be amajor step forward, but our effortsto squeeze more out of everytaxpayer dollar shouldn’t stopthere. We should also take a hardlook at major suppliers and howwe have done business in the past.Specifically, the state should try toconsolidate its thousands of smallcontracts into more encompassing

statewide master contracts. This isa particularly important move inthe information technology area,and state law allows therenegotiation of contracts.

It will be worth the effort. Indiscussions with CPR staff, CiscoSystems, as one example, estimatedthat a combination of contractconsolidation and multi-yearcontracts could result in as much asa 15 percent reduction in contractcosts to the state. Microsoftestimated reductions of five toseven percent through contractconsolidation. The savings fromjust a handful of initial majorvendors could amount to morethan $2 million in savings annually.

EXHIBIT 10

TOTAL STATE SPENDING ON GOODS AND SERVICESFISCAL YEAR 2000–2001(Amount in Billions)


$421 Million6%

$4.7 Billion 66%

$2.1 Billion28%

Goods Information Technology Non- IT Services



Action: The state should negotiatesingle master service contracts withmajor vendors wherever possible.

This strategy should start withinformation technology vendors,due to the state’s large number ofcontracts. This strategy offers sig-nificant potential for savings, andboth parties benefit from reducedbilling and administrative costs.

Better Management ofPharmaceutical CostsThe state also can be smarter abouthow it buys prescription drugs.The state is an enormous buyer ofa range of pharmaceuticals for itsemployees through its healthbenefits program for universityfaculty and staff, for peoplereceiving public assistance, andfor those in adult and youthcorrection facilities.

Spending for pharmaceuticals bythe Department of General Services(DGS), which buys drugs for fivemajor departments, including theDepartment of Corrections and theCalifornia State University System,totaled about $153.6 million inFiscal Year 2002–2003. However,that cost is swamped by theamount the state pays under theMedi-Cal and related HealthServices programs, which totaled$3.8 billion in Fiscal Year 2002–2003(Exhibit 11).

The price of medicines is rising atan alarming rate. Drug costs

through the DGS program rosefrom $41.6 million in Fiscal Year1996–1997 to $153.6 million fiveyears later. Most of the costincrease is attributable to the rise inmental health prescription costs forinmates in the corrections system.The average cost of medication was$197 per inmate annually in FiscalYear 1996–1997, but that cost hadrisen to $770 per inmate a short fiveyears later.

The state’s large volume of drugpurchasing should translateto a strong market positionand lower costs, but that is notthe case. Several of the stateagencies purchasing drugs doso independently, thus dividingthe state’s buying power andundermining attempts at cost-effectiveness. Medi-Cal buys90 percent of the drugs procuredby the state, but at this point, otheragencies don’t have access to thispurchasing pool, and informationon rebates for Medi-Cal areconfidential and are not sharedwith other agencies.

In addition, the California PublicEmployees Retirement System(CalPERS), the California StateTeachers Retirement System(CalSTRS), the California VeteransHomes and the University ofCalifornia System have thelegislative authority to buy drugsindependently of the Departmentof General Services.

THE PRICE OF MEDICINES

IS RISING AT AN ALARMING

RATE. DRUG COSTS

THROUGH THE DGS

PROGRAM ROSE FROM

$41.6 MILLION IN 1996–1997

TO $153.6 MILLION

FIVE YEARS LATER.


One way that many public andprivate organizations have workedto manage costs is by establishingdrug formularies that closelycontrol the cost and range of drugs,while looking for the best values.This approach also provides a largeamount of information that canbe used in making purchasingdecisions and in negotiating withpharmaceutical suppliers.

Taking another step, public andprivate organizations have hiredpharmacy benefits managers(PBMs) to provide this type ofpharmacy management. Theapproach, which makes use ofexperts in this area, is not unknownto the state. Both CalPERS andCalSTRS have used PBMs to helpcontain and manage drug costs.

The County Medical ServicesProgram (CMSP), which operatesin 34 small and rural counties,established a PBM in January 2003.The program serves 40,000 indigentadults and children who do nototherwise qualify for Medi-Cal orhave health insurance. In the firstyear of its PBM contract, drugspending for CMSP was cut by 34percent, and the program saved$20 million against payments to themanager of $700,000.

Buying pharmaceuticals is acomplex process. All of California’sprograms have special needs andare trying to do a good job, but it’stime to ask if we couldn’t do abetter job through bettermanagement. Rising pharmaceutical

EXHIBIT 11

STATE PHARMACEUTICAL COSTS BY PROGRAM(Amounts in Millions)

Department DollarDepartment Administering Volume

Medi-Cal/Health Services Health Services $3,800.0

Corrections General Services 101.7

Mental Health General Services 35.4

Youth Authority General Services 1.7

Developmental Services General Services 13.2

California State University General Services 1.6System

Source: Department of Health Services and Department of General Services.



costs are one of the most significantnational health issues of thisgeneration, and the statisticsmake it plain that by stickingto independent action on adepartment-by-department basis,the state is failing to manage costseffectively.

Action: The Governor should directthe Department of General Servicesto immediately enter into a contractwith a Pharmacy Benefits Manager toadminister the state’s drug purchasingprogram.

Action: The Department of GeneralServices should seek to extend thestate’s market power by enteringinto cooperative agreements withlocal governments.

Action: All state non-Medi-Calpharmacy programs should bemoved into a buying unit thatcan best leverage the state’s largeexpenditures in this area.

The centralization of pharma-ceutical purchasing is importantto the goal of managing the state’shealth care responsibilities. Drugcosts will continue to rise, andimmediate action is the best way tostretch taxpayer dollars in the shortterm. If the changes can be putinto effect quickly, the state couldsave $15.8 million in the first yearof operation, with savings rising tomore than $20 million a year oncethe program is fully in effect.

e-ProcurementA more far-reaching step in theprocurement area is to usetechnology to purchase moreefficiently—a process knownas electronic procurement or“e-procurement.”

Buying goods and services in moststates is a manual process, withpaper forms, phone bids, faxes andpaper catalogs. In the digital age,any manual process is ripe forexamination. The state issues abouta quarter million purchase orders ayear. The processing costs—in stafftime and other resources—averageat least $114 a purchase order,according to national surveys. Thatmeans that before the state actuallyreceives a shipment of paper ora carton of toner, it spends$28 million just to process thepaperwork. There is a better waythat can both save money and cutthat basic processing cost by morethan 60 percent—to $31.50.

Electronic procurement willgive decision makers preciseinformation about spending,which the state doesn’t have now,including how and where the stateis spending money. That sort ofinformation is a key to cuttingcosts, leveraging buying power andmeasuring supplier performance.

It could also help the state expandthe pool of suppliers, benefitingcompanies seeking to do businesswith the state and providing

RISING PHARMACEUTICAL

COSTS IS ONE OF THE

MOST SIGNIFICANT

NATIONAL HEALTH ISSUES

OF THIS GENERATION, AND

THE STATISTICS MAKE IT

PLAIN THAT BY STICKING

TO INDEPENDENT ACTION

ON A DEPARTMENT-BY-

DEPARTMENT BASIS,

THE STATE IS FAILING

TO MANAGE COSTS

EFFECTIVELY.


Selling tothe State

CPR asked for public input and received thousands of e-mails on all sortsof topics. One particularly frustrating area came from those who sell to the state andhighlighted issues CPR procurement recommendations are designed to address. Asample of the comments:

“I work for a vendor who contracts for services with the State of California. Under ourcontract there are multiple vendors who have different prices for the exact sameservices. While I believe that having a choice is the right thing to a degree, I also thinkthat price should be a larger consideration than personal preference. It does not seemright that a State of California employee should be able to choose to use a vendorwhen the price might be up to $15.00 per day more than another vendor offering thesame service.”

“We contracted with the Department to perform some cabling work. We completedthat work and invoiced the Department on 7-10-2003. We still have not been paid, andit is now been nearly 8 months.”

“I am extremely concerned both as a citizen of the State of California and a smallbusiness owner, that State contracts are still going to large expensive consulting firmswhen the State is still so deeply in debt. What gives with this? I also lost two otherprojects to large, more expensive companies with the [agency], but at least they werehonest about who they hired. I suppose this is a formal protest of sorts, but no doubttoo late to change what has already happened. I just hope the State agencies willmore closely consider the value of small businesses in saving money on consultantcontracts.”

“I find it odd that if the contractor moves 1 mile and changes their address, I cannot fillout a simple change of address form. I must complete a new ‘vendor data form’ (fineby me) and then do a contract amendment (STD 65 and STD 15 forms, 7 copies andfull routing). What a waste of time. I just bought a home and my change of addresstook 30 seconds! Sorry I came from private industry.”

* * *

* * *

* * *



agencies with a wider range ofoptions. Right now, lists ofsuppliers are not maintainedcentrally, and vendors must fileseparately with each agency towhich they want to sell.

Electronic procurement is anotherarea where the private sector hasled the way. Xerox Corporationreduced the number of peopleneeded to handle procurementby 20 percent when it went toe-procurement. The states that havepioneered this approach have alsofound savings. North Carolinareported savings of 26–50 percentwhen it implemented ane-procurement system.

Those who have begun using thesesystems report not only savings butalso improvements in the informa-tion available for decision-making,efficiencies in the purchasingprocesses, better accountability,improved financial managementand the ability to gain greater accessto regional and small businesses.

One issue with any automationeffort, of course, is the upfront cost.Governments are often reluctant toinvest now in technology for thepromise of future savings. In thiscase, the states that are using thesesystems already—including NorthCarolina, Maryland and Virginia—charge vendors fees to access thesystem, which pays for the systemitself, with no start-up costs. Itmight also be possible to finance a

new system using performance-based contracts so that the stateand the private sector e-procurementpartner share in the risks—andrewards—from the e-procurementsavings.

Action: The Governor should directthe Department of General Servicesto develop and implement ane-procurement system statewide.

A Common Payment PortalThe state should develop a singleelectronic payment portal forpeople who want to pay their taxes,pay fees or purchase goods fromthe government online. Today,more than half of the state’s36 million citizens and most of itsbusinesses have access to theInternet. People are increasinglyfamiliar with and accustomed tothe use of electronic payments(e-payments) to conduct businessat their convenience at anytime ofthe day or night—except, that is,with the state of California.

A few agencies have pioneeredonline payments, including theBoard of Equalization, theDepartment of Consumer Affairsand the Department of MotorVehicles. The problem with thisapproach is two-fold. Right now,each agency is developing its ownpayment portal, meaning that eachis incurring development andoperating costs. More to the point,though, while a few agencies can

ELECTRONIC

PROCUREMENT WILL

GIVE DECISION MAKERS

PRECISE INFORMATION

ABOUT SPENDING, WHICH

THE STATE DOESN’T HAVE

NOW, INCLUDING HOW AND

WHERE THE STATE IS

SPENDING MONEY.


be found on the Internet, the vastmajority cannot.

Even in the area of credit cardpayments, the various agenciesthat accept credit card paymentshave contracted with various third-party providers and have disparateprocessing methods and widelyranging fees.

Electronic payments are fast,convenient and much cheaper ona per transaction basis. Securityfor the payments has greatlyimproved, and the approach iswidely used by business, by otherstates and by some Californiadepartments. It’s just commonsense for the state to promote acommon pay portal as part of theefforts to increase the state'sInternet presence.

Action: The Chief Information Officershould establish a statewide strategyto implement electronic fee collectionand reduce manual paper paymentsby 25 percent as soon as possible. Thestate should also move quickly todevelop a common electronic paymentportal.

Improve ContractManagementAnother area where California stategovernment could operate moreeffectively is contract management.

In March 2003, the LegislativeAudit Office overview and theDepartment of Finance (DOF)

assessment of 117 state informationtechnology contracts of more than$10 million uncovered numerousinstances where departments werenot properly managing technologyprojects. DOF found that of 90 of117 projects—three out of four—had at least a 10 percent change inschedule, cost or scope, which mayhave adversely affected thecompletion of the projects. A2001 Bureau of State Audits reportfound that state agencies anddepartments had not consideredrisks early in the procurementprocess. Problems that mighthave been corrected earlylingered, requiring costly andtime-consuming fixes late inthe projects.

Many businesses and other unitsof government have faced similarproblems managing large-scalecontracts. There are ways toaddress the problem, but thestate has failed to implement anaggressive policy to ensure that itsprojects are on schedule, on budgetand effective. Currently, the statedoes not place an emphasis oncontract management. Depart-ments don’t provide training in thiscritical area of state business, andthere is limited formal monitoring.

The few procurement officials hiredby the state who possess contractmanagement skills received theirformal training elsewhere. It is ademanding field. Managers mustunderstand issues ranging from the

ELECTRONIC PAYMENTS

ARE FAST, CONVENIENT

AND MUCH CHEAPER ON A

PER TRANSACTION BASIS.



technical aspects of the project tocontractor compensation andinsurance plans. They must be ableto negotiate disputes and monitorcontractors’ financial conditionso that it doesn’t jeopardize theproject. The list goes on and on.If the state is going to functionas a business, with $7 billionin purchases a year, it mustbe aggressive in writing andmanaging contracts that workfor the state and for its privatesector partners.

In addition, each state agencyshould conduct annual contractadministration and managementperformance evaluations for theirpurchasing and procurementemployees. The agencies and theirrepresentatives should be heldaccountable for improving andmaintaining an effective systemof contract management.

CPR believes that this simple shiftin management emphasis willresult in real savings to the state.One estimate, performed on asimilar set of recommendations inTexas, estimated a .05 percent costsavings. Such an improvement inCalifornia's contracting could savethe state $38 million a year.

Action: The Department of GeneralServices should institute a contractmanagement policy for the state anddevelop common guidelines andtraining for all state-employed contractmanagers.

Performance-BasedContractingThe state also should useperformance-based contractingwhenever appropriate. Traditionalgovernment contracts emphasizeinputs—how much work thecontractor will do, what sorts ofmaterial they will use and so on.Performance-based contracts, incontrast, clearly spell out only thedesired results expected from thecontractor. They also spell out howquality will be ensured and theremedies in cases where thecontractor fails to meetperformance expectations.

A wide range of services bought bythe state would lend themselves tothis approach. Performance-basedcontracts have been used in theprivate sector for informationtechnology projects, janitorialservices, construction projects andhealth purchasing among others.

California state government is inan odd position when it comes tothis contracting methodology. Thestate has been slow to embracethe general use of this concept,although two of its agencies—theDepartment of Transportation(Caltrans) and the Franchise TaxBoard (FTB)—have been pioneersin using the approach successfully.These two examples demonstratethe positive benefits for the stateand also show two variations onthe methodology.

PERFORMANCE-BASED

CONTRACTS CLEARLY

SPELL OUT ONLY THE

DESIRED RESULTS

EXPECTED FROM THE

CONTRACTOR. THEY ALSO

SPELL OUT HOW QUALITY

WILL BE ENSURED AND

THE REMEDIES IN

CASES WHERE THE

CONTRACTOR FAILS TO

MEET PERFORMANCE

EXPECTATIONS.


After California’s Northridgeearthquake, Caltrans offered acontractor substantialperformance incentives andpenalties for rebuilding ahighway overpass—a $200,000per day bonus for completingthe project ahead of scheduleand a $200,000 a day penalty foreach day it was behind. With thisschedule incentive, this projectwas completed ahead ofschedule, benefiting the state’scitizens and the contractor.

The Franchise Tax Board useda variation of this approach inwhich the contractor sharedin the revenue benefits of theproject. FTB’s AccountsReceivable Collections Systemrequired the contractor to frontdevelopment costs for a shareof any revenue gains once thesystem was in operation. Thesystem’s benefits were originallyforecast at $35 million a year in1998, but the system has con-tinuously exceeded expectations.Again, it has served as a modelfor similar projects in otherstates.

Other approaches to this typeof contracting ties contractorpayments to savings achievedrather than revenue; however,the basic idea is the same. Thecontractor shares the risk withthe state and benefits fromsuccessful completion of itswork (Exhibit 12).

Action: The Department of GeneralServices should actively promoteperformance-based contracting toreduce the cost of goods and services.

Savings can be significant. It canalso help the state finance projects,like the Franchise Tax Boardproject, for which dollars might nototherwise be available throughregular appropriations. Researchindicates conservatively that sevento 15 percent of the total amount ofstate spending could benefit fromthis contracting approach.Estimates based on 11 percent ofstate contracts moving to aperformance-based contractingsuggests savings of about$67–167 million a year. As thescope of state contracting using thisapproach expands, savings couldquickly top a quarter of a billiondollars annually.

Introduce CompetitiveAlternativesGovernment performs some tasksextremely well. For other tasks,usually unrelated to its corefunctions, the private sector mayoffer a better solution. Oftengovernment agencies may resistprivate sector involvement,hanging on to activities that costmore money and are done lessefficiently. For example, a depart-ment with a large amount ofmailings may handle its ownoutgoing mail operations, ratherthan taking advantage of vendors

GOVERNMENT PERFORMS

SOME TASKS EXTREMELY

WELL. FOR OTHER TASKS,

USUALLY UNRELATED TO

ITS CORE FUNCTIONS, THE

PRIVATE SECTOR MAY

OFFER A BETTER

SOLUTION.



Type of Incentive/ DescriptionRemedy

Cost-Based Relates the contractor’s profit or fee to resultsachieved compared with identified cost-basedtargets.

Award Fee Allows contractors to earn a portion (if not all)of an award fee pool established at thebeginning of an evaluation period.

Share-In-Savings The contractor pays for developing a finishedproduct and is compensated from the savingsit generates.

Share-In-Revenue Generates additional revenue enhancements;compensation is based on a revenue sharingformula.

Balanced Scorecard Used when performance is less tangible,i.e., contracting linked to the quality of leadpersonnelor communication and resolution ofissues.

Past Performance Information on past performance by the contractor isused as part of the decision process to exercisecontract options or to make contract awards.

Non-Performance Specified procedures or remedies for reductionRemedies in payment when services are not performed

or do not meet contract requirements.

who can more effectively andcheaply handle it. A departmentwhich uses a strategic approach willopen this sort of non-core functionto competition to drive down costs.

The federal government has usedthis approach extensively. TheFederal Activities InventoryReform Act of 1998 (FAIR) wasdesigned to reduce federal

EXHIBIT 12

INCENTIVE-BASED CONTRACTING OPTIONS FOR CALIFORNIA



agencies’ operating costs andincrease their efficiency throughthe use of public-privatecompetition. It encourages agenciesto evaluate their core functions anddetermine which can be subjectedto competition with the privatesector. It requires an annualinventory of “commercial”activities.

Similarly state and localgovernments nationally haveused this approach to cut costsand make the most of limited staffresources. Virginia, for example,adopted the GovernmentCompetition Act in 1995, creating aprocess that is estimated to havesaved the state $40 million a year.Similarly, in 1993, Texas createda Council on CompetitiveGovernment to look at alternativeservices methods, includingmanaged competition, outsourcing,reengineering and public-privatepartnerships. Through 2002, thestate had saved an estimated$84 million.

Action: The state should create aCompetitive Government PolicyCouncil to examine and promotecompetition opportunities for non-core state functions.

This council should developstrategies to remove barriers toalternative service deliverymethods, such as managedcompetition, where it makessense for the state.

Common Sense DecisionsGovernment should stop blindlyfollowing practices, because “that’sthe way it’s always been done.”CPR’s research turned up scores ofexamples of where our state hasnot used the sort of common sensewe would expect from the averagecitizen confronted with the samedecisions.

School Construction Approvals.The most striking example of thisproblem is the tortured method thestate uses for approving schoolconstruction. State law requireslocal school districts to seekapproval from at least four stateagencies every time they constructa new facility, and depending onthe site, as many as 40 other stateprograms may become involved.The Department of Educationreviews site and educationalrequirements. The Department ofToxic Substances reviews potentialenvironmental hazards. The Officeof Public School Constructionreviews funding eligibility andallocation, and the Office ofthe State Architect reviewsconstruction plans for compliancewith local building codes.

All of these activities are worthysafeguards when the lives ofchildren are involved, but the statemust ask itself if all of this reviewin Sacramento is really necessaryfor school buildings all over thestate, particularly when the realresponsibility for local education

GOVERNMENT SHOULD

STOP BLINDLY FOLLOWING

PRACTICES, BECAUSE

“THAT’S THE WAY IT’S

ALWAYS BEEN DONE.”



decisions should rest with localschool administrators and locallyelected school boards.

At the very least, we should usecommon sense and simplify thisoverly bureaucratic review process.The point of school buildingprograms is to provide safe, newfacilities for the state’s schoolchildren, not to create unnecessarylayers of state review.

Action: The school site approvalprocess should be consolidated into asingle department to provide a one-stop approval process.

By making these changes, the sameapprovals can occur at a lower cost,faster and at greater convenience toschool districts.

Maintain the HighwayInfrastructure. Another commonsense decision CPR identified isrelated to highway constructionand maintenance. Clearly, this isan important issue to Californians.The California Department ofTransportation (Caltrans) isresponsible for maintaining50,000 lane miles of roads,12,000 bridges, 250,000 acres ofroadside areas, 88 roadside restsand many other facilities.

These totals reflect a massivecapital investment by thestate’s taxpayers, and yet, themaintenance of this infrastructureis largely ignored while the state

continues to add more lane miles.While the state’s transportationdemands clearly require buildingthe state highway system, thestate should do a better job ofmaintaining the infrastructurethat is already in place.

Caltrans’ own studies indicate thata dollar spent today on preventivemaintenance—joint and cracksealing, surface seals and so on—translates into a $20 saving forreconstruction due to failure in thefuture. It’s only common sense tomaintain existing roadways to avoidthe need for costly replacement.

The CPR report outlines strategiesthat can help save money in theState Highway Account so itcan be channeled into preventivemaintenance. Outsourcing roadsiderest area maintenance also couldsave the state up to $10 millionannually, while improvements inthe way prime contractors insurestate projects could save anadditional $10 million a year.

Action: The state should commit moreState Highway Account resources topreventive maintenance.

Relinquish Local RoadMaintenance. The state shouldalso relinquish some of its existingroad infrastructure to local govern-ments. Of the 50,000 miles ofroadway the state maintains, upto 6,000 miles are roads that gothrough local city limits. As newstate highways have been

CALTRANS’ OWN

STUDIES INDICATE

THAT A DOLLAR SPENT

TODAY ON PREVENTIVE

MAINTENANCE—JOINT AND

CRACK SEALING, SURFACE

SEALS AND SO ON—

TRANSLATES INTO

A $20 SAVING FOR

RECONSTRUCTION DUE TO

FAILURE IN THE FUTURE.


constructed, these arteries havebeen bypassed, and they havebecome, basically, local streets.However, the state continues tomaintain them, increasing statecosts that could better be used foractual state highway constructionand maintenance.

This practice makes no sense whenstate highway dollars are alreadystretched to the breaking point, andin fact, some local governmentshave tried to have roadwaysrelinquished to them.

As long ago as 1995, Caltransperformed a study on the existingstate highway system, identifying3,262 miles of roads that were moreappropriately maintained by localgovernments. The report resultedin no changes in ownership, andtoday, the number of miles of suchroads has actually increased.

Action: The state should examinethe routes identified by Caltrans forpossible relinquishment to localgovernments.

Approximate savings to StateHighway Account funds from thischange could total $100 million ayear. These dollars are best used tomaintain and expand the currentstate highway system. Divertingdollars to local road maintenancesimply doesn't make sense, regard-less of the origins of the roads.

Better Debt Collection. The statedoes business with a large number

of vendors, often paying millions ofdollars for their goods and services.At the same time, a small butsignificant percentage ofthose vendors may owe the statemoney, often as a result of a taxdelinquency or other liabilities.State law allows the debt to beoffset against the amount the stateowes to the vendor in the form ofan offset.

Often the debt is owed to oneagency, and another agency maycontract with a vendor withoutknowing of payment problems inanother agency. Until recently,there was no way for agencies tocross check their vendors for debtsto the state. However, the recentlyimplemented State Contract andProcurement Registration Systemcan provide this information.Unfortunately, there is norequirement that departmentsuse the system, and most do not.

Action: State agencies should usethe State Contract and ProcurementSystem to determine if the vendor owesthe state money that can be offsetagainst the state’s payment.

The state could increase its successin collecting debts owed to the stateagencies if agencies used thesystem on a routine basis.

Statewide E-mail System.California state government is alarge, far flung enterprise thatliterally covers the state. To beeffective, its internal communica-

CALIFORNIA STATE

GOVERNMENT IS A LARGE,

FAR FLUNG ENTERPRISE

THAT LITERALLY COVERS

THE STATE. TO BE

EFFECTIVE, ITS INTERNAL

COMMUNICATIONS MUST

BE FAST AND EFFICIENT,

PARTICULARLY WITH

THE WIDESPREAD USE

OF ELECTRONIC MAIL

FOR LOW-COST,

INSTANTANEOUS

COMMUNICATIONS.



tions must be fast and efficient,particularly with the widespreaduse of electronic mail for low-cost,instantaneous communications. Atpresent, our system is hopelesslybehind the times.

As the California PerformanceReview was getting started, theGovernor wanted to send an e-mailto all state employees inviting theirparticipation and ideas. This simpletask, repeated millions of times aday in businesses and public sectoragencies across the nation today,proved to be impossible forCalifornia state government.Instead, this message—and anyother message like it—was sent toagency and department heads tobe forwarded to their employees.Even with the best intentions, thepossibility of problems andmisinformation is enormous.

This is a simple problem, but asignificant one. One study by theDepartment of Finance in 2003,found the cost of providing e-mailto department employees rangedfrom $144 to $216 a year. The totalcost of providing the currentfragmented e-mail system wasestimated at $21.6 million a year.

Moreover, the widespreadoccurrence of computer virusesraises real security issues, becauseit is uncertain to what degreeagencies actually maintain currentsecurity safeguards. As oneexample, the Love Bug Virus in2000 disabled the e-mail system in

the Franchise Tax Board for fourdays, causing a loss in productivityon top of the costs to identify andeliminate the problem.

Given these problems, growingnumber of states are shifting toconsolidated messaging systems.Over time, this approach can lowercosts, improve service and providetighter security. Ohio, for example,lowered its annual cost ofmessaging from $11 million to$2.1 million.

This approach should beimplemented in California.Consolidated hardware andsoftware licensing shouldproduce savings across the state.The consolidation would alsoreduce state costs for buyingand maintaining hardware andproviding staff to performmaintenance and related activities.

This approach is a clear exampleof a common sense approach. Itwill provide state workers with abetter and more secure messagingsystem, and it will greatly reducestate costs. Compared to thecurrent estimates of about$21 million annually, the stateshould recognize significantsavings as a majority of e-mailaccounts are shifted to the newsystem.

Action: The state should consolidatedepartmental e-mail services.

AS THE CALIFORNIA

PERFORMANCE REVIEW

WAS GETTING STARTED,

THE GOVERNOR WANTED

TO SEND AN E-MAIL TO

ALL STATE EMPLOYEES

INVITING THEIR

PARTICIPATION AND

IDEAS. THIS SIMPLE

TASK, REPEATED

MILLIONS OF TIMES A

DAY IN BUSINESSES

AND PUBLIC SECTOR

AGENCIES ACROSS THE

NATION TODAY, PROVED

TO BE IMPOSSIBLE FOR

CALIFORNIA STATE

GOVERNMENT.


Reformingthe Failed

CorrectionsSystem

California’s multi-billion dollar corrections system has long been the source

of criticism and media scrutiny. Among the problems mentioned: out of

control costs, a high recidivism rate, abuse of inmates and juvenile wards by

correctional staff, a disciplinary system that fails to punish wrongdoers, and the failure

to deliver mandated health care to inmates and juvenile wards in an economical

manner.

Because of this, Governor Schwarzenegger established a Corrections Independent

Review Panel under the leadership of former Governor George Deukmejian. The

panel had a simple mandate: To conduct an independent review of the corrections

system and report its findings to the public at the same time that it delivered its report

to Governor Schwarzenegger.

The panel consisted of more than 40 members, including an outside executive

director, outside consultants, and representatives from the Department of Corrections,

the California Youth Authority, the Office of the Inspector General, the Board of Prison

Terms, the California Highway Patrol and the Labor and Workforce Development

Agency.

The panel was divided into eight teams: Organization, Ethics and Culture, Discipline,

Use of Force, Personnel and Training, Risk Management, Population Control and

Institution Closures. In addition, the Panel examined the current labor contract

between the state and the California Correctional Peace Officers Association and

the technology challenges facing the correctional system.

The California correctional system is comprised of more than 54,000 employees, with

a total budget of about $4 billion, representing 5.6 percent of the state budget. The

system includes more than 300,000 inmates and parolees and 8,400 wards and

juvenile parolees.

The panel’s overarching conclusion:

“At one time, the California correctional system was looked upon as a national leader.

Innovative and daring, California pioneered the way for standards which were adopted

by other jurisdictions as a model of efficiency. What then, has happened to this jewel

of the corrections system?”



“How did we fall from the pinnacle of success? The answers are complex, yet simple.

There has been too much political interference, too much union control and too little

management courage, accountability and transparency.”

The panel found that much needs to be done to reform the California correctional

system if its credibility is to be restored in the eyes of the public. Noting that all of the

changes it recommends cannot be accomplished at once, the panel reports that “its

recommendations should be accepted as a blueprint for future budgets and policy

decisions.”

The panel outlines a number of recommendations that should be accomplished as

soon as possible. They include:

1. Reorganizing the Youth and Adult Authority Agency.

2. Changing the culture and reinforcing strong ethical behavior.

3. Ensuring that the best candidates are being recruited and that all employees are

properly trained.

4. Establishing discipline and use of force policies which are fair and equitable to the

employee, the department and the public.

5. Changing the way we manage inmates/wards so that they are better prepared to

reenter society as a productive member.

“It should also be recognized,” the panel’s report concludes, “that cultural change can

be painfully slow, but we must begin now. Above all, the panel’s work was conducted

with one major goal in mind...the increased safety of the citizens of California.”



“Most governments are far behind business in using the tools of the digital age. Businessesgoing digital are stuck with many paper forms because governments are not yet online.”

Bill Gates

Tools for the Digital Age

CPR Diagnosis

• Service delivery systems are outdated and inconvenient. Thepredominant symbols for service delivery by state government arelong lines at multiple windows and over-the-counter, paper-basedtransactions.

• Internal systems are antiquated and fragmented. There are noenterprise-wide systems for budgeting, accounting, human resourcesor procurement, and the fragmented systems that we have areoutdated. Effective statewide management is impossible in thiscontext.

• Statewide planning and implementation for technology isineffective. There is no strategic plan for statewide informationtechnology, and no statewide implementation of technology projects.

High-performing organizations,whether public or private, areflexible, responsive and relentlesslycustomer-oriented. They thrive ina world that is fast-paced, globaland technology-based. Successful21st century organizations matchthat fast tempo, broad scope and

technological sophistication,and do so at a significantly reducedcost, using technology to improveproductivity and create newservices and service deliverysystems.

HIGH-PERFORMING

ORGANIZATIONS,

WHETHER PUBLIC OR

PRIVATE, ARE FLEXIBLE,

RESPONSIVE AND

RELENTLESSLY

CUSTOMER-ORIENTED.

THEY THRIVE IN

A WORLD THAT IS FAST-

PACED, GLOBAL AND

TECHNOLOGY-BASED.


• Use technology to improve service delivery. Our citizens live in themost technologically advanced state in the U.S. Better technology forinstantaneous service won’t be a frill in the future; it will be animperative.

• Rewire our internal operations. Bringing about fundamental changein our internal operations is essential if we want better programs,improved service and lower costs.

• Rethink how technology is managed for the future. Our currentsystem doesn't work effectively. It must change.

Ironically, while California is thecradle of technology and hostssome of the world’s leadingtechnology innovators such asIntel, Cisco Systems, HewlettPackard, Adobe and others, itsgovernment is stuck in 20th centurytechnology and business practices.

While successful 21st centuryorganizations depend onenterprise-wide informationsystems to streamline operationsand reduce costs, California’sinformation technology systemsare “stove-piped.” That is,our systems are controlled byindividual agencies whichindependently struggle to maintaintheir own information and controltheir own systems. Collaborationacross agencies is rare.

Here is an example of a frustratedcitizen just trying to get his vehicletags renewed in spite of state

computer systems that don’t workwith each other:

“Last year, I didn’t get my tags fromthe DMV because they said they didnot receive my smog certificate.Looking up my car on the DMVwebsite, I could see the smog reportthere. However, I called the DMV, andthey said it was not in their computer.It was in the Bureau of AutomotiveRepair’s computer, and I needed to geta copy from the shop that did the testand send it to them. The problem withthis was that the shop had gone out ofbusiness.”

“I tried to get this straightened outwith the DMV by phone. They let meprint out what was on their websiteand mail it to them. Even though Icould see the report from my computeron the DMV website, the DMVpersonnel did not have access ontheir computers to their own website.”




California government must dobetter. It has to modernize. We canno longer tolerate a governmentthat is slow, insular and locked inthe bureaucracy of mid-20thcentury processes. Californiansdemand a government that isoriented towards action andresponsiveness and that isaffordable, accessible andaccountable. To make thistransformation, we need to makefar-reaching and fundamentalreforms in our use of technology.

GovernanceThe leadership of California’stechnology transformation shouldbe flexible and responsive, and itmust have a statewide focus.Technology is a powerful enginefor change, but only if properlyharnessed and channeled.

Today, however, our technologygovernance reveals years ofincremental budgeting, poorlycoordinated program managementand a lack of statewide leadership.The consequence is the piecemealaccumulation of applications andincompatible systems that do notinteract and dissipate our financialand technical capacity. We don’teven know how many applicationsthe state actually owns.

We must change. We must startthinking strategically, decidingwhat technologies should beused and how to apply them toreinvigorate the state. We needa statewide strategic plan for

information technology. To createthat plan and the conditions for itssuccessful implementation, thestate must reestablish an office ofthe state Chief Information Officer(CIO) which is empowered by theLegislature to provide statewidetechnology leadership and toset for the Executive Branchinformation technology policies,standards and plans.

Action: The Governor shouldpermanently appoint and empowera state Chief Information Officer toprovide planning and direction for thestate’s technology investments. TheChief Information Officer should haveauthority for statewide technologyleadership, policy, standards, strategicplanning, coordination andinformation security.

State Technology Investment.Gaining control and oversight ofthe state’s technology spendingmust be a matter of high priorityfor California. We need the“traction” provided by adequatefunding for the most importantinitiatives. Our limited financialand technical resources must beprioritized for the greatest returnon investment.

We should aggregate the state’sbuying power and make sureit is used wisely for the righttechnology for our times.Unfortunately, our incrementalbudgeting process obscurestechnology spending within manyprogram budgets, making it almost

TODAY, HOWEVER,

OUR TECHNOLOGY

GOVERNANCE REVEALS

YEARS OF INCREMENTAL

BUDGETING, POORLY

COORDINATED PROGRAM

MANAGEMENT AND A

LACK OF STATEWIDE

LEADERSHIP. THE

CONSEQUENCE IS

THE PIECEMEAL

ACCUMULATION OF

APPLICATIONS AND

INCOMPATIBLE SYSTEMS

THAT DO NOT INTERACT

AND DISSIPATE OUR

FINANCIAL AND TECHNICAL

CAPACITY. WE DON’T EVEN

KNOW HOW MANY

APPLICATIONS THE STATE

ACTUALLY OWNS.


impossible to find out how muchwe are spending, what technolo-gies we are purchasing, whetherthey will work together, or whetherthe state is getting the best value.

The imposition of the annual statebudget development schedule onproject approvals leads to rusheddecisions and incomplete planning,whipsawing any effort to constructa long-term strategy. Something asstrategically important as our tech-nology investments must not besubjected to the fluctuations andnarrow approval windows createdby the annual state budget cycle.

Action: The Governor should establisha State Technology Investment Fund.

Technology Commission.A 21st century government mustnot make technology investmentdecisions in a piecemeal orshortsighted manner. But today,most of these decisions are madedepartment-by-department andproject-by-project. That is no wayto do business.

Breaking free requires a statewidefocus and united executivesponsorship so that priorities arealigned and balanced with overallstatewide priorities. This broad,unified focus and sponsorship isbest attained by establishing aTechnology Commission chairedby the state CIO and includingrepresentatives from each cabinetsecretary. The TechnologyCommission would have power

to approve funding from the StateTechnology Investment Fund forinformation technology programsand projects.

Action: The Governor should establisha Technology Policy Council chaired bythe state CIO and with membershipfrom the Governor’s Cabinet toestablish state technology prioritiesand approve the funding for programsand projects.

Service in theBlink of an EyeCalifornia has been slow toimplement technology to improvegovernment services. We havefailed to embrace the shift tocustomer service, providingcitizens and businesses what theywant, how they want it, when theywant it and where they want it.

We must focus on coordinated,statewide solutions and not justagency-specific activities. And, thesolutions must be centered oncustomer needs, not governmentneeds. They should be uniformlyresponsive regardless of whetherour customers choose to obtain ourservices through walk-in, phone,e-mail, FAX or U.S. Mail. Suchmulti-channel solutions canprovide services that are easy-to-use, accurate, on time andcost-effective.

For example, the Departmentof Motor Vehicles (DMV) isdemonstrating leadership by

WE SHOULD AGGREGATE

THE STATE’S BUYING

POWER AND MAKE SURE IT

IS USED WISELY FOR THE

RIGHT TECHNOLOGY FOR

OUR TIMES.



improving service in areas suchas reducing long lines at fieldoffices. The department’s useof technology has improvedprocesses, reduced operationalcosts and promoted better service.In Fiscal Year 2004–2005, the DMVplans to re-invent and expand itsonline services.

A good plan by one department isnot enough. Instead, a statewideplan and a center of focus for theplan are needed. That focus is thestate portal—MyCalifornia(www.ca.gov)—through whichcitizens and businesses should beable easily to travel to find theservices or information they wantor need. The state began to developits existing portal three years ago,but that development stalled. Wehave now fallen behind in the useof Internet technologies to serve thepublic, and we need to recapturethat lost ground. We should use theDMV’s decision to expand itsonline services to kick-start otherstatewide initiatives such as onlinelicensing, permitting, registrationand reporting.

Action: The state’s Chief InformationOfficer should direct the implemen-tation of statewide technologysolutions including a redesign ofthe state portal—MyCalifornia(www.ca.gov)—to provide a statewideplatform for all government services.

Modernize ManagementSystemsOur dependency ontechnology within stategovernment is significant andinextricably linked to thedelivery of all governmentservices. Yet our internaltechnology operations are incrisis. They are dispersedacross hundreds of agencieswith no strategic direction oralignment with overarchingstatewide goals. Newinitiatives have been muted bythe budget crisis, restricted bylack of coordination across thegovernment and held back byarchaic, bureaucratic processes.There has been no overallcoordination of our use oftechnology. The results are thatour internal operations arepoorly organized, duplicativeand inefficient.

We should deliver better andmore efficient services throughhigh quality informationtechnology applications thatintegrate state processes andshare information. Collaborativeuse of technologies, however,is extremely rare withinCalifornia government. Forexample, we rely on hundredsof separately managed e-mailsystems for internal

WE SHOULD DELIVER

BETTER AND MORE

EFFICIENT SERVICES

THROUGH HIGH

QUALITY INFORMATION

TECHNOLOGY

APPLICATIONS THAT

INTEGRATE STATE

PROCESSES AND

SHARE INFORMATION.


communications, and a multitudeof disparate systems for managingour accounting, human resources,and procurement and assetmanagement. This disjointedenvironment undermines theoperational integrity of stategovernment and delivery ofservices to the people.

To bring order to this chaos, thestate should first establish anintegrated intranet where we canlay the essential foundation forcollaboration and efficient, securedata sharing among agencies.Identifying and implementing a setof common, uniform applicationsthat automate business processesacross all Executive Branchorganizations is the next logical

step. Priority should be given tocentrally managed applicationssuch as e-mail, security and anti-virus tools and directory services.These “utilities” can be providedcost effectively on a large scale.Next, we should develop andcentrally host “shared services”applications that will provide thebackbone for business managementstatewide, such as budgeting andaccounting, managing humanresources, asset management andprocurement management.

Action: The Chief Information Officershould establish an integrated stategovernment intranet, and direct thedevelopment of common systems as“shared services.”

WE RELY ON HUNDREDS

OF SEPARATELY MANAGED

E-MAIL SYSTEMS FOR

INTERNAL COMMUNICA-

TIONS, AND A MULTITUDE

OF DISPARATE SYSTEMS

FOR MANAGING OUR

ACCOUNTING, HUMAN

RESOURCES, AND

PROCUREMENT AND

ASSET MANAGEMENT.



One of the first problems GovernorSchwarzenegger noted whenhe took office was California’scumbersome bureaucracy.Today, businesses are flatteningtheir organizations and using

“Government programs once launched never disappear. Actually, a government bureau is thenearest thing to eternal life we'll ever see on this earth.”

Ronald Reagan

Executive Branch Organization:Start Making Sense

CPR Diagnosis

• The state’s complex and incoherent organizational structureundermines accountability. With more than 300 boards andcommissions, 11 agencies and 79 departments there are overlapping,duplicative and conflicting assignments.

• Government is a maze. Only insiders and special interest groups cannavigate the current structure.

• Common administrative services are fragmented and duplicated.Agencies and departments have redundant administrative supportfunctions which wastes hundreds of millions of dollars annually.

• Bureaucracy works against itself instead of for the citizens.Bureaucratic paperwork and internal conflicts come first. Quality ofservice delivery is not job one.

information technology to improveproductivity. In contrast, Californiastate government is an archipelagoof isolated island departments withoverlapping and duplicativefunctions.

TODAY, BUSINESSES

ARE FLATTENING THEIR

ORGANIZATIONS AND

USING INFORMATION

TECHNOLOGY TO IMPROVE

PRODUCTIVITY. IN

CONTRAST, CALIFORNIA

STATE GOVERNMENT IS

AN ARCHIPELAGO OF

ISOLATED ISLAND

DEPARTMENTS WITH

OVERLAPPING AND

DUPLICATIVE FUNCTIONS.


frustrating to people both insideand outside government.

The Legislature also has assignedhundreds of individual programsto the Executive Branch. Many ofthese assignments may have madesense at the time or in the singlecontext in which they developed,but taken together, they drain theefficiency of the government aswell as the taxpayers’ pocketbooks.

These additions and compromiseshave resulted in a government thatonly makes sense to the specialinterests—the experts on gettingthings done within the maze of thebureaucracy. Departments andprograms have been designed for

The state’s organizational structuresimply does not mirror thedynamics of the state's innovativeand visionary legacy. Instead ofserving the people, it is weighteddown by the bloat of its ownprocesses and procedures. It isbureaucracy at its worst—costly,inefficient and unaccountable tothe people.

Over the years, numerous agencies,departments, divisions, bureausand commissions have beenestablished in the ExecutiveBranch. As organizationalentities and programs have beenadded, the state’s organization hasbecome bloated, confusing and

• Align state programs by function. Effective government alignsfunction and organization. Only in this way can managersdetermine if the assigned functions are carried out efficiently andhold agencies accountable for their performance.

• Consolidate administrative services. Common internal services—such as human resources, purchasing and accounting—should beconsolidated to achieve economies of scale and to reduceduplication.

• Focus on services. By centralizing administrative services, the newdivisions will be able to shift their focus from managing paperworkto delivering services.

• Focus on quality. The alignment of government programs into thenew functional departments is a merger of program and servicedelivery structures, not a takeover of one part of government byanother. This will ensure that the best people, the best ideas and thebest practices are identified and used.




the convenience of governmentand the bureaucracy, not for theconvenience of the people.

Departments and programs mustbe reoriented with the people ofCalifornia in mind.

Today, our state government isnot structured in the best way to dothe job entrusted to it by thepeople. A simple review of itscurrent organization shows abewildering array of agenciesand departments—an inefficientpatchwork that promotesredundant missions and wastesprecious taxpayer dollars (Exhibit13). California’s Executive Branchis currently composed of:

• More than 300 boards andcommissions with more than2,500 appointees;

• 11 agencies; and

• 79 departments.

There are many boards and com-missions that are not accountable tothe people and serve no pressingpublic need. California’s complexorganizational web has such alarge reporting structure that it isdifficult to focus on strategicallyimportant information andinitiatives or to assess programperformance and productivity.

The problems created by thecurrent organizational structurecan be found in every corner of the

government, but three examplesillustrate the need for change.In this regard, it is useful to lookat health and human services,education and business licensing—areas that collectively touch themajority of Californians in oneway or another.

California’s Health and HumanService Agency is a maze ofoverlapping and confusingprograms. Often people do notknow where to turn for help, orthey must negotiate a complexbureaucracy that wastes time andmoney and diminishes the dignityof those in need of assistance. Oftenthey find dedicated state workerswho want to help, but arehandcuffed by the unyieldingsystem in which they work.

Businesses involved in health orcommunity care are forced tocontact different entities to becomelicensed. There are, for example,two different departments withresponsibility for nutrition. Healthcare data are collected by multipledepartments within the agency andstored in 60 different computer-ized systems, making a realunderstanding of the success orfailure of programs impossible.Within this fractured system, itis difficult for even the best-intentioned people to coordinateprograms and activities.

Currently, separate eligibilitydeterminations are made for

DEPARTMENTS AND

PROGRAMS HAVE BEEN

DESIGNED FOR THE

CONVENIENCE OF

GOVERNMENT AND THE

BUREAUCRACY, NOT

FOR THE CONVENIENCE

OF THE PEOPLE.


EXHIBIT 13

CALIFORNIA STATE GOVERNMENT - CURRENT ORGANIZATIONAL STRUCTURE

Source: Department of General Services.



food stamps, the Medi-Cal andthe CalWORKs programs. Theseprograms touch a huge numberof Californians. In fact, theytouch a huge number of thesame Californians. Reorganizingand coordinating this area ofgovernment is imperative, sothat those in need are helped, notharmed by a system designed tooffer assistance.

Much the same story exists ineducation. Here, the organizationalproblems are two-fold. First, thestate has no central oversight overthe public school and highereducation systems. The secondproblem is that the state, as inmany states, must forge a clearerconnection between educationand workforce preparation. In the21st century, the link between asuccessful economy and lifetimelearning is inescapable. Thestate has made attempts, but theorganization of its education andworkforce programs does notprovide what California needs ifit is to be a global leader in thecoming decades.

Today, more than 20 state entitiesare responsible for education andworkforce preparation policy.Coordination to provide effectivepolicy development for educationis impossible. The system tragicallywastes money which should bespent in the classroom.

Education policy-making is amaze. California has a State Board

of Education, a Superintendent ofPublic Instruction and a Secretaryof Education. The state’s collegeand university systems are largelyautonomous. They lack overallcoordination. The state’scommunity colleges have a centralrole in the training that manyCalifornians receive to succeed inthe 21st century economy. Many ofthe courses offered at communitycolleges, however, are not based onany current analysis of labor forceneeds. The community collegesystem does not project futureemployment trends to ensureCalifornia has an adequatelytrained workforce capable ofmeeting industry’s needs in thefuture.

A final example of the state’sorganizational problems isbusiness and professional licensing.The state’s list of business andprofessional licenses takes up15 single-spaced pages, listinghundreds of required licenses,permits and certifications. Statutesand regulations run into thousandsof pages. Under these circum-stances, people seeking to obtaina license, or consumers trying tolodge a complaint about a problem,do not know where to turn.

Dozens of boards and commissionsare responsible for regulatingparticular professions. Manyare small and virtually all haveoverlapping and duplicativeadministrative processes, because

THE STATE, AS IN MANY

STATES, MUST FORGE A

CLEARER CONNECTION

BETWEEN EDUCATION

AND WORKFORCE

PREPARATION. IN THE

21ST CENTURY, THE LINK

BETWEEN A SUCCESSFUL

ECONOMY AND LIFETIME

LEARNING IS INESCAPABLE.


many aspects of the licensingprocess are common to allprograms. Moreover, with smallagencies focused only on onebusiness or profession, there isalways the risk that the board willbe “captured” by the industry itshould be regulating, accepting laxstandards instead of protectingconsumers.

California can do better. The statecan eliminate the overlap amongprograms. It can consolidateadministrative functions and savemoney. It can make better use ofstate employees’ time and energy.It can make the government moreunderstandable to its citizens andbetter designed to meet their needs.

None of this will be accomplished,though, through stopgap measuresand half-hearted attempts atcoordination. We have to do whatthe Governor suggested in his Stateof the State address—we have toblow up the boxes. We have toreorganize the government fromtop to bottom.

Action: The organization ofCalifornia state government should beoverhauled to make it more efficientand streamlined to unleash theproductivity of its workforce.

The goal of this restructuring isto realign functions into clearerorganizational clusters and toeliminate as much overlap andduplication as possible. The

proposed new organizationalframework is shown in Exhibit14. It realigns the many existingagencies and departments into11 integrated departments andeliminates more than 100 boardsand commissions so that stateprograms better serve the peopleof California.

This organizational frameworkrestructures government to meetthe demands of modern Californiaby aligning functions as closely aspossible according to the majorpurposes of state government.It will promote accountabilityand improve productivity byfacilitating results-basedmanagement.

The plan organizes programsinto logical departments tied byfunction and client population.It eliminates situations in whichmore than one cabinet officer isresponsible for similar orduplicative programs. By clarify-ing responsibilities and lines ofauthority, government can moreeffectively serve the intendedbeneficiaries of the state’s serviceswithout creating frustrating mazesfor our citizens to negotiate.

Reorganizing California stategovernment also willsave taxpayer’s dollars. We havea government today that wastesmoney through overlap,duplication and systemicinefficiency. In today’s global

DOZENS OF BOARDS

AND COMMISSIONS

ARE RESPONSIBLE FOR

REGULATING PARTICULAR

PROFESSIONS. MANY ARE

SMALL AND VIRTUALLY

ALL HAVE OVERLAPPING

AND DUPLICATIVE

ADMINISTRATIVE

PROCESSES, BECAUSE

MANY ASPECTS OF THE

LICENSING PROCESS

ARE COMMON TO ALL

PROGRAMS.



EXHIBIT 14

STATE OF CALIFORNIAPROPOSED ORGANIZATION


economy, a new governmentstructure will allow for the eval-uation of all service deliverymethods to ensure cost-

effectiveness. With a more efficientstructure and organization fordelivering services, the overallcost of government will bereduced significantly.

GOVERNORARNOLD

SCHWARZENEGGERSTATE

CONTROLLER

GOVERNOR’SOFFICE OF MANAGEMENT & BUDGET

CALIFORNIA SERVICE CORPS

CALIFORNIA STATE GOVERNMENTTHE EXECUTIVE BRANCH

STATETREASURER

STATE BOARD OFEQUALIZATION

ATTORNEYGENERAL

DEPARTMENT OFJUSTICE

PUBLIC UTILITIESCOMMISSION

EXECUTIVE OFFICEOF

THE GOVERNOR

CALIFORNIA TAXCOMMISSIONPersonal Income Tax

Bank & Corporation TaxUnemployment TaxVehicle License Fee

Disability Tax

SUPERINTENDENT OFPUBLIC

INSTRUCTION

DEPARTMENT OFEDUCATION

INSURANCECOMMISSIONER

UNIVERSITY OFCALIFORNIA BOARD

OF REGENTS

SECRETARY OFSTATE

LIEUTENANTGOVERNOR

FAIR POLITICALPRACTICES

COMMISSION

TRUSTEESOF STATE

UNIVERSITIES

Performance ReviewFiscal AffairsBusiness ServicesTechnology ServicesState MandatesCommission

Human ResourcesRegulatory Affairs &AdjudicationPublic Employee HealthBenefitsPERS/STRS

California Service ProgramsCalifornia Volunteer Programs

California Arts ProgramOffice of Philanthropy

MILITARYDEPARTMENT

California National Guard

VETERANSAFFAIRS

DEPARTMENT

Loan Programs

Veterans BenefitsAdvocacy

Veterans Homes

Veterans EducationalProgram

PUBLIC SAFETY & HOMELAND

SECURITYDEPARTMENT

California HighwayPatrol

Law Enforcement

Victim Services

Fire & EmergencyManagement

NATURALRESOURCESDEPARTMENT

Parks, History, Culture

Forestry & LandManagement

Wildlife Management

Conservancies

CA CoastalCommission

Bay Conservation &DevelopmentCommission

LABOR &ECONOMIC

DEVELOPMENTDEPARTMENT

EconomicDevelopment

WorkforceDevelopment

Workforce Protection

Benefits

Employment Relations

PERB

ALRB

INFRASTRUCTUREDEPARTMENT

InfrastructureAuthority

Transportation

Energy

Telecommunications

Housing, Building &Construction

Water

Planning,Programming &

Evaluation

Research

HEALTH & HUMANSERVICES

DEPARTMENT

Health Purchasing

Public Health

Quality Assurance

Behavioral Health

Disabled Services

Social Services

Children & FamiliesCommission

FOOD &AGRICULTUREDEPARTMENT

Plant Health

Animal Health

Pest Eradication

Food Safety

Marketing

Fairs

ENVIRONMENTALPROTECTIONDEPARTMENT

Air Quality

Water Quality

Pesticide Regulation

Site Cleanup &Emergency Response

Pollution Prevention,Recycling & Waste

Management

EDUCATION &WORKFORCEPREPARATIONDEPARTMENT

State Board ofEducation

Teacher & ProgramAccountability

Workforce Preparation

California Education& Workforce Council

Higher EducationPolicy & Programs

State Library

CORRECTIONALSERVICES

DEPARTMENT

Civilian Commission

Risk Management

Health Care

Personnel & Training

Youth Operations

Adult Operations

Internal Affairs

Labor Relations

Inspector General

COMMERCE &CONSUMER

PROTECTIONDEPARTMENT

Financial Services

Commercial Licenses

Motor Vehicles

Real Estate Services

Weights & Measures

Gaming/Lottery



In the end, the people of Californiawant government to build roads,provide public schools, andapprehend and imprison criminals.They want a government thatprovides for society’s mostvulnerable members—children,the elderly, the disabled and theimpoverished. By the same token,they do not want a government thatis wasteful, inefficient or a drag onthe state economy.

We believe this report provides aprescription for meaningful reformand a framework that will enableus to create a government that is amodel for others to follow in thenew century. It won’t be easy. Thefuture won’t be won in a day. But itis worth the effort.

The California PerformanceReview’s Prescription for Changeis the strong medicine needed torestore California’s health, vitality,

“Let us remember the greater good of California. I remain a great believer in the future of thisstate. I did not seek this job to cut...but to build. I did not seek this job to preside over the declineof a dream...but to renew it.”


Renew the Dream

and prosperity. It is the boldintervention required becauseso many fundamental aspects ofwhat makes California great anddynamic have been allowed todeteriorate and fail.

But even more, CPR’s Prescriptionfor Change is an action plan for thefuture. Californians are not timidor hesitant when their fundamentalhopes and dreams are at stake.They took decisive action in the20th century when Hiram Johnsonwas Governor and mobilized theirenergy, seizing the machinery ofgovernment to make it moreresponsive, fairer and accountable.The Prescription for Changediscussed in this report and theother reports of the CaliforniaPerformance Review is our answerto the people of California’sdemand for reform and change.

IN THE END, THE PEOPLE

OF CALIFORNIA WANT

GOVERNMENT TO

BUILD ROADS, PROVIDE

PUBLIC SCHOOLS, AND

APPREHEND AND

IMPRISON CRIMINALS.

THEY WANT A

GOVERNMENT THAT

PROVIDES FOR SOCIETY’S

MOST VULNERABLE

MEMBERS—CHILDREN,

THE ELDERLY, THE

DISABLED AND THE

IMPOVERISHED. BY THE

SAME TOKEN, THEY DO

NOT WANT A

GOVERNMENT THAT IS

WASTEFUL, INEFFICIENT

OR A DRAG ON THE STATE

ECONOMY.


The Prescription for Change, likethe California Performance Review,is a promise of renewal and hope.It is dramatic and farsighted likethe new Governor who called forit. Far-reaching structural changesmust be made to Californiagovernment. The way governmentserves the people must beoverhauled. But, none of this willhappen without the insistenceand dedication of the people ofCalifornia to reform.

For over a century and a half, thepeople of California have embracedthe dynamic role they play in the

life of this nation, and indeed, theworld. California’s dreams are thenation’s dreams; they are dreamsthat become amazing realities. ThePrescription for Change is preciselythat kind of dream because itexpresses the best and promises thebest to the people of this state.

When the Prescription for Changeis put in place, the people will havethe first 21st century government inAmerica.

This is a dream worth pursuing.

FOR OVER A CENTURY AND

A HALF, THE PEOPLE OF

CALIFORNIA HAVE

EMBRACED THEIR

DYNAMISM AND THE GREAT

ROLE THEY PLAY IN THE

LIFE OF THE NATION, AND

INDEED, THE WORLD.

CALIFORNIA DREAMS THE

NATION’S DREAMS, BUILDS

DREAMS THAT BECOME

AMAZING REALITIES.

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