The California Department of Technology (CDT) submitted two BCPs Jan. 14, and both focus on the department’s program changes laid out in Newsom’s $286.4 billion proposed state budget, which he released Jan. 10. It’s larger than last year’s budget due to a projected $45.7 billion surplus and would give CDT $508.4 million. Among the takeaways:
- CDT has requested $44.1 million from the general fund, much of it over three budget cycles, to “fund internal operating costs currently funded through the Technology Services Revolving Fund (TSRF),” per the state budget. Specifically, $41.1 million would go to the TSRF from FY 2022-2023 through FY 2024-2025 “to support critical statewide services, mandatory/oversight services, and CDT internal indirect and administrative costs,” according to the BCP. CDT is also seeking a “three-year augmentation” of $3 million for “statewide strategic initiatives positions.”
“This proposal, which includes transitioning 204.6 positions to the general fund, will allow CDT to significantly reduce its rates and thus be more competitive with private cloud providers to stem the flow of customers migrating off the state’s IT infrastructure to cut costs,” the department said in the BCP, indicating funding will revert to the TSRF in FY 2025-2026. A CDT spokesperson said the department will refrain from comment until the budget is final, as it has previously done. The governor’s proposed budget undergoes considerable reworking and a formal May revision ahead of the constitutional June 15 deadline for approval by the Legislature. - CDT offers “centralized IT services to state and local entities,” recovering costs by charging specified rates for its services – and depositing the money in the TSRF, which funds almost all CDT operations. But it’s less effective in recovering the costs of statewide services – where the “funding of innovation and research benefiting the state is difficult to cost recover with a chargeback model” and “emerging services are costly” and may not even have a specific customer. Indirect costs and overhead related to “internal operational CDT support services and internal business applications” have to be integrated into the department’s service rates and recouped via customer service charges – and the “additional expenses make it difficult for CDT to provide services at rates that are competitive.”
- The department is also seeking $10.5 million from the general fund for three years beginning in FY 2022-2023 through FY 2024-2025 to supplement a “loss of revenue due to customers moving operations to cloud-based services.” The TSRF is how CDT conducts “operations, billing and recouping the cost of expenditures,” but actual purchases happen only when customers need services. But when customer departments leave the platform, CDT must continue to pay “for the systems designed and installed specifically for that customer (systems to specifications, software licenses, hardware maintenance, financed payments, etc.),” it said in the BCP. Additionally, the California Department of Child Support Services (DCSS) and the California Department of Motor Vehicles, “two of CDT’s largest customers, are moving from various CDT service offerings ... .”
- CDT’s “current TSRF chargeback funding model works reasonably well to distribute costs to customers that use CDT services,” but the department expects several of its largest customers to transition some major apps from its managed services environment to the cloud in the next few years, while most of the department’s cost structure remains fixed and impedes reducing the cost of operations. “Consequently, in the next few years CDT will experience significant revenue reductions from its larger customer departments without a way to correspondingly reduce its expense structure,” the department said. In terms of specific impacts, DCSS’ Child Support Enforcement System, now hosted in CDT’s managed services environment, will migrate to Microsoft’s Azure Government Cloud; the application now generates about $15.7 million annually. It’s unclear which DMV business apps may leave CDT managed services, but the department “has already started migrating out of CDT’s CGEN (California Government Enterprise Network) services.” DMV’s appointment system is also in the works on a move to the cloud with “certain identity management components also hosted at CDT.” Here the known impact is about $5 million per year.
