California’s state government computers don’t talk to each other very well, which makes the annual budget process a costly, inefficient mess. And it doesn’t do much for the state’s accounting, procurement and cash management operations. So, five years into the new millennium the state decided to replace its so-called “system” with a real system and created the Financial Information System for California (FI$Cal). As of January 2011, the project was four years behind schedule, $300 million over budget, shedding key personnel daily and the victim of a Governor Schwarzenegger hiring freeze. It had also lost its original funding source. FI$Cal is trying to build a central nervous system that is connected to all its extremeties. It is a multi-year information technology project that is intended to provide the state with an integrated finance platform and replace the antiquated systems currently in use by state agencies. The project incorporates resources from the Department of Finance, the State Controller's Office, the State Treasurer's Office and the Department of General Services. Once implemented, a new Enterprise Resource Planning system would create a uniform method of financial management and reporting. 

The state’s Department of Finance, the lead agency, initiated a feasibility study in 2005 for replacing the system it uses to interact with other deparments and agencies (which it does through eight budget units). The study concluded that the state’s mainframe computer systems, which were initially installed in the 1970s, did not meet most modern financial reporting requirements because they were developed to support different areas of the budget process – not to function as an integrated system.

As a result, most departments had a jury-rigged system of desktop computer spreadsheets, databases and accounting ledgers to supplement the aging computer systems. There was widespread redundancy, with a lack of integration among systems forcing data to be rekeyed into numerous applications. This increased the potential for errors and raised operating costs.

Under the California Constitution the governor is required to present a budget to the Legislature in January of each year and relies on the Finance Department to prepare it. The existing budget systems were inadequate and limited the department’s ability to efficiently meet its reporting deadlines. The feasibility study found that, “Spreadsheets, MS Word documents, handwritten notes, and other paper-based documents contain vast amounts of critical information used in budget analysis and administration (i.e., the ability to compare budget to actuals). However, these are not fully integrated and there is no single system that currently exists where budget data can be effectively collected and managed for budget development and administration.”

The “work-arounds” created more work, impacted the department’s productivity and compromised its accuracy. The department proposed to “replace outmoded fiscal and budgeting systems and build better systems.” The new system would have an estimated one-time cost of $137.9 million over seven years and be deployed from January 2010 through July 2011.

Shortly after completion of its feasibility study, the department contracted with a vendor to begin the first phase of development: listing and revision of the state’s chart of accounts. A chart of accounts (COA) is a listing of the various entities within an organization against which financial transactions are applied. Informatix, the vendor, delivered its final report in September 2006, recommending some revision and realignment of the accounts in preparation for the installation of a new computer system.

In December 2006, the department approved a Special Project Report, creating the Financial Information System for California (FI$Cal). The cost of the project was put at $1.3 billion and estimated to take five years to complete once begun in 2008.

FI$Cal is run by four agencies responsible for the state’s finances: the Department of Finance, the State Controller’s Office, the State Treasurer’s Office and the Department of General Services.  Collectively they became known as the “Partner Agencies” and entered into a Memorandum of Understanding (MOU) signed by the Controller, the  Treasurer, and the directors of the Departments of Finance and General Services. The MOU provided the framework for the project to move forward.

The plan was presented to the Legislature in 2007, which asked for and received additional planning documents, which became Special Project Report 2. With input from the Legislative Analyst’s Office, the Legislature approved the project in April 2008.

The next year, FI$Cal responded to concerns expressed by the Legislature and others, and engaged Grant Thornton, LLP, an expert in Enterprise Resource Planning systems, to prepare a plan for developing the large-scale project. The company delivered the final plan in August 2009 and the organization added new committees while it began to lay out guidelines for requests for proposals to allow vendors to bid on Stage 1 of the project, the fit-gap analysis. The fit-gap analysis planned to analyze the differences between existing off-the-shelf software that FI$Cal was looking at, and what the government’s actual needs were.

In 2012, the state Legislative Analyst’s Office (LAO) laid out a new timeline and cost estimate that projected expenditures of $616.8 million, with a little more than half that coming from the state General Fund. In 2012. The proposed schedule foresaw an $89 million outlay in 2012-13 and completion of the project in 2017-18. The LAO warned the Legislature that the time to make a final decision on whether to proceed was upon it though it recognized that financial pressures exacerbated by the economic downturn made it a tough call. But the LAO concluded, “We believe that the benefits of proceeding with FI$Cal development outweigh the costs of the project.”  

2005 Budget Information System Feasibility Study Report (Department of Finance) (pdf)

2010 FI$Cal Project Charter (FI$Cal website) (pdf)

2009 FI$Cal Project Review Roadmap (FI$Cal website) (pdf)

Project Timeline (FI$Cal website)

CGI Selected for Stage One Contract (CGI Group Inc.)

The 2012-13 Budget: Evaluating FI$Cal (Legislative Analyst’s Office)

FI$Cal’s primary mission is the development and implementation of an Enterprise Resource Planning system which would integrate budgeting, accounting, and procurement processes for the state, beginning with the four partner agencies: the Department of Finance, the State Controller’s Office , the State Treasurer’s Office and the Department of General Services. 

A steering committee sets the overall direction of the project, while a Project Director / Executive manages the day-to-day operations, assisted by administrative and legal staff.  Direct management of the hardware, software and other technology issues are the domain of the Vendor Management Office, which deals with its contractors and the Project Management Office and Technology Teams.

FI$Cal’s Customer Impact Committee represents the departments that are in line for system installation and advises the Steering Committee, which manages the overall project. The Change Management Office assists departments in making the transition to the new platform. As part of this process, the office conducts a series of forums to educate the departments about the project and how they will be affected by its installation.

The agency is in the middle of this process. It has completed the preliminary work in evaluating the needs of the state’s agencies and is soliciting bids from companies to develop, install and maintain the system. Three vendors have participated in the “bake-off” competition and are preparing proposals to be submitted to FI$Cal by June 17, 2011, in keeping with its revised timeline. Once the hardware and software requirements are determined and suppliers are selected, the project is to be installed in waves, that is, a series of agencies at a time.

Wave 1

Agricultural Labor Relations Board

Board of Equalization

California Arts Council (Summer School for the Arts)

California Postsecondary Education Commission

Department of Aging (Commission on Aging)

Department of Alcoholic Beverage Control (Alcoholic Beverage Control Appeals Board)

Department of Fair Employment and Housing

Department of Justice

Office of Environmental Health Hazard Assessment

San Francisco Bay Conservation and Development Commission

Organizational Chart (FI$Cal website) (pdf)

The original cost of the FI$Cal system ranged as high as $1.6 billion in 2006, but was reduced to $616.8 million after a decision was made to move to a more phased implementation. The scope of the project remained the same but four proposed changes halved the expected costs.

Project staff costs were reduced by $80 million when a shorter timeline was approved. The staff projection was reduced from 499 positions to 304. Program/department staff costs were also also reduced by $260 million, primary vendor costs were cut by $170 million and data center expenses were hacked $280 million.

In April 2012, a report by the Legislative Analyst’s Office (LAO) warned that financing for the project was still uncertain and that decisions would have to be made between using a pay-as-you-go system, a vendor financing approach or a bond financing path. The LAO also warned the Legislature that 2012-13 was scheduled to mark a ramping up of expenditures and recommended that $89 million be budgeted for the fiscal year. The project timeline showed expenditures of $84.6 million in 2013-14, $101.9 million in 2014-15, $130 million in 2015-16, $84.2 million in 2016-17 and $32.5 million in the final year. The state General Fund would be on the hook for more than half the budget. 

Although the LAO acknowledged that the economic downturn and large budget deficit made the project problematic, it recommended that the Legislature move ahead. “We believe that the benefits of proceeding with FI$Cal development outweigh the costs of the project,” its reports said.

2012-13 Projected Budget (FI$Cal Ebudget)

A Financing and Funding Framework (FI$Cal website) (pdf)

May 2012 Financial Report (pdf)

The 2012-13 Budget: Evaluating FI$Cal (Legislative Analyst’s Office) 

Conflict of Interest

In October 2009, State Auditor Elaine M. Howle spotlighted two areas of concern in FI$Cal’s operations. In a letter to Governor Arnold Schwarzenegger, the President Pro Tempore of the Senate and the Speaker of the Assembly, Howle noted that the Office of the State’s Chief Information Officer was planning to supervise the project, providing the required IPO, or independent project oversight. However, the state’s chief information officer was previously granted a seat on FI$Cal’s steering committee, linking the two departments.

The report said: “as a voting member of the steering committee, the state CIO has the ability to influence decisions related to the FI$Cal project.” An independent consultant advised the auditor’s office that “one of the IPO’s responsibilities is to raise issues related to decisions made by the steering committee.” But with the CIO supervising the project, the report went on to say, “we are concerned as to whether the OCIO staff providing the oversight could remain independent and free to communicate issues to all stakeholders that may be critical of decisions made by the steering committee, when the CIO is a participant in those steering committee decision.”

The OCIO, in discussions with the auditor’s office, argued that an independent contractor with IPO responsibility would report to the FI$Cal project directly and was therefore not truly independent, as it was dependent on FI$Cal to maintain the business relationship and continuation of the contract. OCIO also argued that it “does not believe the CIO’s position on the steering committee compromises its ability to perform IPO services in an independent manner.”

The office also questioned whether contracting out the oversight was a violation of the state’s civil service code, which states that agencies may only seek outside help when civil service employees are unable to perform the task.  The auditor did not agree, and pointed to OCIO’s hiring “of an independent IV&V [independent verification and validation] contractor; we see no reason why the OCIO or some other entity could not hire an IPO contractor to assure that project oversight is unbiased and independent.” 

Eventually, everyone took the auditor’s advice and hired someone to do independent project oversight.

Auditor Raises FI$Cal Funding, Conflict-of-Interest Questions (by Jon Ortiz, Sacramento Bee)

The Price Isn’t Right

The original 2005 FI$Cal price tag was $1.3 billion spread out over eight years. That was revised upward within two years to $1.6 billion over 12 years. The project planned to update its estimates but by January 2011 had not, prompting the state Auditor in her report to the Legislature to conclude that “the total cost of the project and the long-term funding solutions are uncertain.”

State Computer Finance Project Faces Hurdles, Audit Update Says (by John Ortiz, Sacramento Bee)

Staffing Issues Slow Project

Governor Schwarzenegger, responding to the nation’s economic downturn and California’s own budgetary problems, ordered a hiring freeze throughout state government in December 2008. The on-again, off-again freeze (re-animated in 2011 by Governor Jerry Brown) contributed mightily to a hiring crisis for FI$Cal. In its April 2011 monthly report, FI$Cal noted that 31 “critical” positions were unfilled of the 165 budgeted positions. “The Project is also experiencing significant turnover that is further complicated by the hiring restrictions,” the report said. FI$Cal lost its project director, a deputy director and the project executive at the end of 2010.

The state Auditor’s December 2010 report to the Legislature put it in even more dire terms. “The project reported that its annual staff turnover rate is currently approaching 30 percent and, as of  December 15, 2010, 75 full-time positions of a total 165 full-time budgeted positions (45 percent) were vacant.”

2011 Update Report (State Auditor Elaine M. Howle)

Defections From $1.6-billion Computer System Upgrading Project Pose More  Headaches for Brown (by Patrick McGreevy, Los Angeles Times)

A Financing and Funding Framework for FI$Cal (FI$Cal website) (pdf)

Long-Term Financing

When the project was first conceived, FI$Cal was authorized to sell bonds to finance its long-term needs. However, the law prohibits the use of bonds to fund a budget deficit and it was determined that the state’s financial crisis precluded FI$Cal from relying on them as a financial source for a lengthy period of time.  FI$Cal  advised the state Auditor’s office that it was exploring the possibility of loans from vendors and grants or loans from the federal government to continue its operations, and produced a White Paper detailing the several possibilities. The project received $15.8 million from General Fund in 2010-11 and was scheduled for a 33% bump for 2011-12. And it currently taps special funds for a large chunk of its operating budget. The administration has suggested that in lieu of bond money, the project should tap into special funds earlier than expected. The Legislative Analyst pointed out that the state would be obligated to pay off any outstanding loans or obligations out of the General Fund if the project were halted. 

A Financing and Funding Framework for the Financial Information System for California (FI$Cal) (pdf)

The Ghost of Oracle

It’s called the Ghost of Oracle, and it haunts Sacramento a decade after the spectre of technological incompetence enveloped state government. In 2001, the Department of Information Technology awarded a no-bid, six-year, $95 million contract that would have locked state agencies into buying software from one company, Oracle. It was scrapped after the state Auditor concluded the contract was over-priced and ill-conceived. Questions were also raised about Oracle campaign contributions to Governor Gray Davis and payments by Oracle to the General Services director. It became a full-blown media scandal followed by legislative hearings and embarrassing resignations. Within a year, the state Information Technology department was shut down although as of 2009 Oracle was still supplying state government with $20 million worth of software.

So it wasn’t surprising that the Legislature expressed great trepidation at embarking upon the $1.3 billion FI$Cal enterprise project in 2005 and that problems in 2011 generated discussion of fixing it up or shutting it down.

Shut it Down

Critics of FI$Cal say it’s too costly and the state is incapable of managing a project this large. They site numerous technological missteps in the past, governmental dysfunction in the here and now and a huge state budget deficit.

TechLeader.TV, the internet and public access cable show which focuses on government technology issues, responded to a plea from Governor Jerry Brown for a list of “Top 10 Actions” California could take to cut government waste and increase efficiency. The website/TV show founder John Thomas Flynn proposed, among other things, shutting down the FI$Cal project. Flynn was California’s Chief Information Officer from 1995 to 1999. Although he styles himself a great proponent of a new robust financial system for the state, Flynn said FI$Cal is not that program.

“The nearly $2 billion FI$Cal Project as it now stands is an over-planned, over-scheduled, over-budgeted monstrosity of a computer project which by the FI$Cal team’s own estimates will take another decade to fully implement. I can attest that this project schedule alone is an absolute formula for failure, and I dare anyone outside the FI$Cal team to contradict me.” Flynn proposed a hiatus of three years, at which time a cloud-based, internet system could be deployed. He sees no downside to canceling the project, except “within the vendor community.”

The independent Office of the Legislative Analyst, in a 2009-10 budget analysis, didn’t recommend the project be shut down, but did propose that it be merged with the 21^st Century Project, another troubled technology mega-venture aimed at payroll operations. It also called for a project hiatus while the state gets its act together. In a May 2010 report the Legislative Analyst expanded on the notion of halting or delaying the project. 

“The immediate and greatest advantage of this option is short-term savings, about $42 million in the budget year and significantly more over the next few years when development would otherwise be under way. … The RFP [proposal request] for a prime vendor is complete. In theory, the RFP could be shelved, updated, and revisited when the state is better prepared to pay for the cost of system development.”

Cal Watchdog questioned in May 2011 whether the undertaking is doomed. Citing the state Auditor’s caustic 2010 report, it contended that FI$Cal “exemplifies everything that’s wrong with the State of California’s financial well-being.” Cal Watchdog was also offended by the project’s “obscenely cutesy acronym.”

Fix It

In 2008 the Little Hoover Commission, an independent state agency that studies various issues for the Legislature, was critical of the project but suggested a less drastic plan of action. The main problem, the commission report said, is having four agencies share responsibility for running the project. It recommended consolidating various technology and project-planning agencies under the Chief Information Officer (CIO), beefing up his authority and putting him in charge of FI$Cal. The first two recommendations have already been put in place. The CIO was renamed the California Technology Agency, and given Cabinet status and the portfolio of tech-related agencies scattered throughout the executive branch. But the third recommendation goes unheeded.

“Ambitious enterprise projects like Fi$Cal, which will align the state’s accounting, financial and procurement systems, must become part of the state CIO’s portfolio. This consolidation of resources and authority under the state CIO would give the Legislature a single point of accountability that does not exist currently.  It also would improve communication.”

Although the Legislative Analyst’s May 2010 report tiptoed around the possibility of mothballing the project, it had its own suggestions for averting that scenario, many of which were taken. But after weighing the financial pressures against the need for a new system it concluded, “Although it remains a close call, we believe the risks of halting FI$Cal development outweigh the risks of continuing.”

A New Legacy System: Using Technology to Drive Performance (Little Hoover Commission) (pdf)

Merging FI$Cal with 21st Century (Office of the Legislative Analyst)

May 2010 Report on FI$Cal (Office of the Legislative Analyst) (pdf)

Is FI$Cal Doomed? (Cal Watchdog)

$5 Billion IT Related Budget Cuts/Efficiencies (TechLeader.TV)

Michael M. Reyna, 2010-2012