CA Large Project Failures Articles

Articles About CA State Government Project Failures Follow:
http://www.tripnet.org/state/Los_Angeles_PR_121709.pdf
For immediate release Contact: Carolyn Bonifas (703)-801-9212 (cell)

Thursday, December 17, 2009 Frank Moretti (202) 262-0714 (cell)
Report available at: www.tripnet.org
DEFICIENT ROADWAYS COST LOS ANGELES DRIVERS NEARLY $2,500

ANNUALLY, $40 BILLION STATEWIDE. WITHOUT A RELIABLE,
SIGNIFICANT BOOST IN FUNDING, TRANSPORTATION WOES WILL
WORSEN
EDS.: THE REPORT INLCUDES A LIST OF NEEDED PROJECTS THAT REMAIN UNFUNDED, INCLUDING PROJECTS TO
REPAIR ROADS AND BRIDGES, ADD CAPACITY TO CONGESTED ROADWAYS AND IMPROVE SAFETY
Los Angeles, California – Roads, bridges and transit systems that are deficient, congested or
lack desirable safety features cost the average Los Angeles motorist a total of $2,462 each
year, a total of $40 billion statewide, due to higher vehicle operating costs, traffic crashes and
congestion-related delays. An increased investment in transportation improvements at the
state and federal level could relieve traffic congestion, improve road, bridge and transit
conditions, boost safety and support long-term economic growth in California, according to a
new report released today by TRIP, a Washington, DC based national transportation
organization.
Despite the short-term boost provided by the federal stimulus program, California faces
an annual surface transportation funding shortfall of $10.9 billion. While the state will
have $1.5 billion available this year to make needed roadway improvements and
rehabilitate bridges and major roadways, this figure is far outstripped by the estimated
$5.5 billion in annual transportation funding needs. Current transit needs are $8.6 billion
annually, while transit funding is $1.7 billion a year.
“We are short upwards of $10 billion annually to meet our transportation needs,” said
Transportation California Executive Director Mark Watts. “This report shows that our
failure to close this transportation investment deficit is costing us nearly four times that
much.”
The TRIP report, “Future Mobility in California: The Condition, Use and Funding of
California’s Roads, Bridges and Transit System,” finds that Los Angeles roads are the
roughest in the nation, with 92 percent of major roads in the metro area in poor or mediocre
condition. Among the most deteriorated roads in the Los Angeles area are Highland Avenue
from Santa Monica Boulevard to Franklin Avenue in Los Angeles, and Route 5 from Beach
Boulevard to the Los Angeles County Line in Buena Park.
A total of one-third of Los Angeles area bridges and overpasses are structurally deficient or
functionally obsolete. Bridges in the Los Angeles area with the lowest sufficiency rating
include Santa Anita Avenue over Rio Hondo in El Monte, and The Old Road over the Santa
Clara River in Los Angeles County.
Los Angeles drivers also continue to endure the worst congestion in the nation, with 81
percent of major roadways experiencing significant rush hour delays, costing the average Los
Angeles motorist 70 hours per year stuck in traffic. And, traffic crashes claimed the lives of
874 people on Los Angeles roads in 2008. Where appropriate, highway improvements can
reduce traffic fatalities and crashes while improving traffic flow to help relieve congestion.
Public transit is an important component of the region’s transportation system, carrying 2.9
billion passenger miles of travel in 2007, an increase of 16 percent since 2002.
With an unemployment rate of 12.5 percent - the fourth highest in the nation - and with
the state’s population continuing to grow, California must improve its system of roads,
highways, bridges and public transit to foster economic growth, create jobs, avoid
business relocations, and ensure the safe, reliable mobility needed to improve the quality
of life for all Californians.
The federal surface transportation program, which expires tomorrow, remains a critical
source of funding for road and bridge repairs and transit improvements in California. With
the current program set to expire, Congress will need to authorize a new federal surface
transportation program or extend the current program to allow federal transportation dollars
to continue to flow to the state.
“It is critical that the state adequately fund its transportation system and that Congress
produces a timely and adequately funded federal surface transportation program. Thousands
of jobs and the state’s economy are riding on it,” said Will Wilkins, executive director of
TRIP.
California’s estimated $3.6 billion in stimulus funding is allowing the state to make some
needed rehabilitation and improvement to its road, bridge and public transit systems, but
this one-time funding boost will not enable the state to proceed with numerous projects
needed to modernize its surface transportation system. Even with the aid of stimulus
funding, California still faces a sizeable, on-going transportation funding shortfall.
Making needed repairs to the state’s transportation system can help boost California’s
economy. A 2007 analysis by the Federal Highway Administration found that every $1
billion invested in highway construction would support approximately 27,800 jobs,
including approximately 9,500 in the construction sector, approximately 4,300 jobs in
industries supporting the construction sector, and approximately 14,000 other jobs
induced in non-construction related sectors of the economy.
On-the-NET:
http://www.tripnet.org/
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http://www.cde.ca.gov/nr/ne/yr09/yr09rel165.asp
December 15, 2009Contact: Ioannis Kazanis

E-mail: communications@cde.ca.gov
Phone: 916-319-0818
State Schools Chief Jack O'Connell Calls for
New School Bond at School Facilities Hearing
SACRAMENTO — State Superintendent of Public Instruction Jack O'Connell testified today at a
hearing held by the Senate Select Committee on School Facilities. At the hearing he cited the
need for a new school bond to meet the needs of California students in the 21st century.
"We speak often about preparing our children for the future, but achieving this goal will only
increase in difficulty if our kids continue to learn in schools of the past," O'Connell said. "It is
essential that we transition our schools from the old industrial model to the age of information and
green technology, which frankly is where students today are already living."
O'Connell highlighted the need for additional school facilities funding by citing that California
currently needs $9.7 billion to modernize school facilities and $200 million for career technical
education facilities projects.
"There is an obvious need to improve school facilities throughout California, and we cannot afford
to wait to meet this need," O'Connell continued. "I fully appreciate that we are still embroiled in a
national economic downturn, but a school facilities bond would do much to further our long-term
goal of creating a competitive workforce in California, as well as achieving the short-term goal of
creating jobs and getting people back to work.
"Improving school facilities also goes hand in hand with increasing student achievement and
closing California's persistent achievement gaps. Quality school facilities are a key to creating an
environment in which all children can learn the skills necessary to become informed citizens and
compete in the 21st century global economy.
"We absolutely must seek to create and maintain clean, safe, and sustainable school facilities
that are centers of their communities and not overcrowded. We must also construct attractive
food service centers to encourage kids to eat healthy meals. These are all critical components in
our efforts to ensure that all children in our state have the same opportunities for high-quality
learning and a shot at future success."
####
Jack O'Connell — State Superintendent of Public Instruction

Communications Division, Room 5206, 916-319-0818, Fax 916-319-0100
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http://news.yahoo.com/s/nm/20091223/us_nm/us_states_pension_liabilities_1
U.S. local government pension costs exceeds

$530 billion: govern
Wed Dec 23, 5:43 pm ET
NEW YORK (Reuters) – U.S. state and local governments face more than $530 billion in
unfunded public pension liabilities and most do not have funds set aside to pay for them, a
government report showed on Wednesday.
As of June, state governments were on the hook for around $405 billion and 39 of the country's
largest local governments must come up with around $130 billion for their other post employment
benefits, the U.S. Government Accountability Office said.
The report said unfunded state liabilities ranged from as low as $71 million in Arizona to $62
billion in California.
Local government liabilities ranged from $15 million for a county in Arizona to over $59 billion
for New York City, the GAO said.
The economic meltdown hit all U.S. municipalities hard and many have had difficulty keeping up
with their pension, or OPEB, obligations.
"State and local governments faced increasing fiscal pressures in 2008, in part because of
recession-induced revenue shortfalls," the report said. But "unfunded OPEB liabilities on their
own are large enough to represent a fiscal pressure for state and local governments," the GAO
said.
It said that by 2050, the projected operating budget imbalance for state and local governments is
4.7 percent of gross domestic product. This is largely due to increases in health-related spending.
The congressional watchdog said that only around 35 percent of the 89 governments it reviewed
reported having set aside at least some assets to cover their liabilities.
This means that "most state and local governments included in our review are paying for their
OPEB liabilities for active and retired workers in a given year from their current revenues."
The most common actions that municipalities took to address the shortfall were changes to their
contributions to the benefits, such as reductions to the amount of health insurance premiums paid
for by the government.
Other actions included changes to the type of retiree health benefit plan and a tightening of the
eligibility requirements to qualify for retiree health benefits.
(Reporting by Tom Ryan; Editing by Dan Grebler)
-----------
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=517870
California's Proposition 71 Failure

Posted 01/12/2010 06:36 PM ET
Bioethics: Five years after a budget-busting $3 billion was allocated to embryonic stem cell
research, there have been no cures, no therapies and little progress. So supporters are
embracing research they once opposed.
California's Proposition 71 was intended to create a $3 billion West Coast counterpart to the
National Institutes of Health, empowered to go where the NIH could not — either because of
federal policy or funding restraints on biomedical research centered on human embryonic stem
cells.
Supporters of the California Stem Cell Research and Cures Initiative, passed in 2004, held out
hopes of imminent medical miracles that were being held up only by President Bush's policy of
not allowing federal funding of embryonic stem cell research (ESCR) beyond existing stem cell
lines and which involved the destruction of embryos created for that purpose.
Five years later, ESCR has failed to deliver and backers of Prop 71 are admitting failure. The
California Institute for Regenerative Medicine, the state agency created to, as some have put it,
restore science to its rightful place, is diverting funds from ESCR to research that has produced
actual therapies and treatments: adult stem cell research. It not only has treated real people with
real results; it also does not come with the moral baggage ESCR does.
To us, this is a classic bait-and-switch, an attempt to snatch success from the jaws of failure and
take credit for discoveries and advances achieved by research Prop. 71 supporters once
cavalierly dismissed. We have noted how over the years that when funding was needed, the
phrase "embryonic stem cells" was used. When actual progress was discussed, the word
"embryonic" was dropped because ESCR never got out of the lab.
Prop 71 had a 10-year mandate and by 2008, as miracle cures looked increasingly unlikely, a
director was hired for the agency with a track record of bringing discoveries from the lab to the
clinic. "If we went 10 years and had no clinical treatments, it would be a failure," says the
institute's director, Alan Trounson, a stem cell pioneer from Australia. "We need to demonstrate
that we are starting a whole new medical revolution."
The institute is attempting to do that by funding adult stem cell research. Nearly $230 million was
handed out this past October to 14 research teams. Notably, only four of those projects involve
embryonic stem cells.
Among the recipients, the Los Angeles Times reports, is a group from UCLA and Children's
Hospital in Los Angeles that hopes to cure patients with sickle cell disease by genetically
modifying their own blood-forming stem cells to produce healthy red blood cells. Researchers at
Cedars-Sinai Medical Center will use their grant to research injecting heart-attack patients with
concentrated amounts of their own cardiac stem cells that naturally repair heart tissue.
---------
http://californiastemcellreport.blogspot.com/2009/12/torres-receives-225000-salary-as-
cirm.html
THURSDAY, DECEMBER 10, 2009
Torres Receives $225,000 Salary as CIRM Vice Chair
Directors of the California stem cell agency this afternoon unanimously

approved a $225,000 salary for one of its co-vice chairmen, Art Torres, declaring that his work
was “extraordinary” and has helped to improve relations in the nation's capital and elsewhere.
Torres (at right) joined CIRM in March on a half-time basis, with a $75,000 salary. Today's
action gives him a $150,000 boost for work on an 80 percent basis.
Michael Goldberg, a CIRM director and general partner with Mohr, Davidow Ventures, a
venture capital firm in Menlo Park, Ca., said Torres has picked up the work that previously was
done by a fulltime legislative relations staffer. CIRM Director Jeff Sheehy, a communications
manager at UC San Francisco, described Torres' work as “extraordinary” in telling the CIRM story
to lawmakers.
No one at the directors meeting at Stanford University spoke against the salary move.
However, John M. Simpson, stem cell project director of Consumer Watchdog of Santa
Monica, Ca., was monitoring the proceedings in Southern California via an Internet audiocast.
Responding to a query, he said,

"At a time when California is in a severe economic crisis, state workers' salaries are being cut and
they are facing mandatory furloughs, this raise is highly inappropriate. Art Torres knew the terms
of the job when he took it. He should have been happy simply not to face the cuts endured by
other state employees."
Torres has made a career as a public servant and politician. The former head of the
stateDemocratic Party (1995-2009) had a 24-year career in the state legislature. He was first
elected to the state Assembly in 1972, later served in the state Senate and became the first
Latino nominated as a Democrat for statewide office(insurance commissioner).
Torres' talents and experience are unique within CIRM. No other director possesses the web of
political connections and government experience that Torres brings to the state-financed stem
cell effort. He also has maintained his political roots, campaigning last weekend in Hayward for a
candidate for the Alameda county board of supervisors.
The candidate is Nadia Lockyer, wife of the state treasurer, Bill Lockyer, who is a friend and
former state legislative colleague of Torres. Lockyer also presides over the sale of state bonds,
which are virtually the only source of funding for the $3 billion stem cell agency.
The other vice chairman is Duane Roth, a San Diego businessman who has declined a
salary. Sphere: Related Content
POSTED BY CALIFORNIA STEM CELL REPORT AT 2:18 PM SHARETHIS
LABELS: CIRM SALARIES, LEGISLATIVE RELATIONS
http://articles.latimes.com/2009/jan/30/local/me-stemcell30
Politics enters state's stem cell research program

Just as Obama's election opens the door to progress, Democrats and Republicans square
off over a key appointment.
January 30, 2009|Eric Bailey
SACRAMENTO — On the cusp of a new era in stem cell science, Democratic heavyweights are
pushing to install the outgoing California Democratic Party chief in a leadership post at the state's $3-
billion research program.
Art Torres, who served two decades as a state lawmaker before assuming the party chairmanship a
dozen years ago, is being backed by House Speaker Nancy Pelosi, U.S. Sens. Dianne Feinstein and
Barbara Boxer of California and Sen. Ted Kennedy of Massachusetts, among others.
Torres' opponent for vice chairman on the governing board of the California Institute for
Regenerative Medicine is Republican biotech executive Duane Roth, supported by Gov.
Arnold Schwarzenegger. Roth, a member of the stem cell board for more than two years,
has spent three decades in the pharmaceutical and biotechnology industries.
The push for Torres comes as embryonic stem cell research hits some key milestones. With the ascent
of President Obama, a longtime ban on federal funding enshrined by the Bush administration is
expected to be reversed.
Last week, a Menlo Park, Calif., firm announced it had won federal regulatory approval to conduct the
first human trials of a medical treatment developed from embryonic stem cells to address spinal cord
injuries.
With that backdrop, the nomination of Torres for the key post at the agency has raised some eyebrows.
"I'm surprised," said Jesse Reynolds, a policy analyst at the Oakland-based Center for Genetics and
Society. "I'm not aware of any extensive involvement on his part with stem cell research. Then again,
he's obviously well-connected."
"With Torres, you get a new face," said John Simpson of Consumer Watchdog. "But there also is a bit
of irony over the politicization of an agency created to avoid Bush politics."
In a letter to the institute's board, Schwarzenegger said Roth would provide "a seamless transition"
because of his experience. But Torres boosters say he brings policy acumen along with the political
smarts needed to guide the agency -- created by a 2004 ballot measure that authorized $3 billion in
public money for stem cell research -- into a new age.
During his 20 years as a state lawmaker, Torres held chairmanships of the Assembly Health
Committee and the Senate Joint Committee on Science and Technology. Backers say he was
instrumental in securing early funding for AIDS research, and he sits on the boards of the AIDS
Healthcare Foundation and the Los Angeles-based organ transplant foundation OneLegacy.
------
http://www.marketwire.com/press-release/Todays-Calpers-Scandal-Only-Latest-Chapter-
Story-Corruption-Public-Fund-Industry-Magazine-1060257.htm
SOURCE: Institutional Investor
Oct 15, 2009 11:10 ET

Today's Calpers Scandal Only Latest Chapter in Story of Corruption in
the Public Fund Industry; Magazine Calls Lawmakers to Action to
Eliminate Pay-to-Play
In Institutional Investor magazine's 8,000-word October cover story, "Shadow Lands," Staff
Writer Imogen Rose-Smith and Contributing Writer Ed Leefeldt reveal the dark underbelly of
the $2.2 trillion U.S. public pension industry. It is a world of shadowy backroom deals where
the heady blend of political patronage and extreme wealth can -- and all too often does -- lead
to a corrupt system where everyone must pay to play. This sinister game enriches those who
play -- the hedge fund and private equity managers, consultants, placement agents, pension
officials and politicians -- at the cost of taxpayers and pension beneficiaries.
Read the full story online now at www.iimagazine.com
"We don't want our money to become a slush fund for politicians," says Paul Weber, president
of the Los Angeles Police Protective League and one of the tens of millions of public servants
and pension beneficiaries among the victims if the current system is not exposed and
corrected.
The pay-to-play troubles came to light earlier this year among allegations of corruption at the
$116.5 billion New York State Common Retirement Fund under former New York comptroller
Alan Hevesi by New York State Attorney General Andrew Cuomo. Much of the focus of
Cuomo's pay-to-play investigation has been on Henry (Hank) Morris, who acted as a
placement agent for managers seeking allocations from the New York Common fund in return
for what Cuomo alleges are illegal kickbacks.
"Restoring a sense of responsibility and integrity is an ongoing priority for me and my office,"
says current New York State Comptroller Thomas DiNapoli. "For public pension plans across
the country, this is a key need."
DiNapoli is just one of scores of people interviewed by Leefeldt and Rose-Smith during the six-
month-long investigation by Institutional Investor, which found that the troubles in New York
are, in fact, part of a much broader problem at public funds across the U.S.
Among the findings discovered by Institutional Investors:
-- While former New York State comptroller Hevesi sought investments from
other public funds for a private equity fund run by his friend and
political supporter Elliott Broidy, the New York Common fund made a $250
million commitment to Broidy's fund.
-- Through his wife, Broidy made thousands of dollars in political
contributions to officials with oversight for public funds, including
Hevesi and current New York City comptroller.
-- In a civil suit filed in New Mexico, the former CIO of the state's
$8.5 billion Educational Retirement Board accuses allies of Governor Bill
Richardson of making investment decisions for political reasons designed to
benefit the governor.
-- Under growing public scrutiny, four of Los Angeles mayor Antonio
Villaraigosa's appointees to the board of the $12.5 billion Los Angeles
Fire and Police Pensions fund, including Broidy and former California
Public Employees' Retirement System president Sean Harrigan, have resigned.
-- The efforts of former Ohio Attorney General Marc Dann helped land the
long time CFO of the $19 billion Ohio Bureau of Workers' Compensation in
jail for taking gifts and bribes from placement agents and money managers,
including use of a luxury Florida condominium and payments toward his son's
college tuition. But Dann's own ethical transgressions forced him out of
office before he could achieve greater reform.
-- Connecticut State Treasurer Denise Nappier is among those who worry
that the fallout from Cuomo's investigation will disproportionately hurt
small, often women- and minority-owned firms.
-- Carlyle Group paid $20 million to settle charges with Cuomo, who
alleged that the private equity firm had acted inappropriately in winning
business from New York Common fund, less than the $30.5 million in fees
that Carlyle had collected from New York Common between fiscal year 2004 to
2008.
Cuomo and the Securities and Exchange Commission have proposed reforms to address the
problems. The New York attorney general is encouraging managers to voluntarily sign his
"Public Pension Fund Code of Conduct," which commits them to not using placement agents
when seeking business from public funds and bars them from making campaign donations to
officials who have influence over public fund investment decisions. The SEC commissioners
could vote their similar set of measures into law as early as this month, following a 60-day
public comment period that expires today, October 6.
But as "Shadow Lands" shows, the current efforts at reform fall short and run the danger of
making the situation worse. Institutional Investor believes that a ban on placement agents
won't fix the problem. In fact, it will very likely make the business of running public pension
money even more difficult while further benefiting some of the very same managers that
thrived under the corrupt system that spawned pay-to-play.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/01/17/EDQS1BIQ5Q.DTL
A pension scandal
Monday, January 18, 2010
The public is getting a disheartening look at a once-mighty Sacramento

success story. California's public-employee pension fund - the nation's biggest
and most progressive - has lost billions in investment money, fired a raft of
consultants and told local governments to expect higher bills for retirement
coverage.
As if that weren’t bad enough, CalPERS has another humbling mistake to

announce. After poring over its books, it found that financial middlemen had
collected $125 million in fees to broker deals between hungry investors and
the giant fund.
Much of this money went to former board members and pension fund
executives who left their positions with the California Public Employees'
Retirement System and then went to work for deal-hunting investment firms.
Among the leading names in some 5,000 pages of documents released last
week: former state Treasurer Matt Fong, who served on the CalPERS board,
former CalPERS President William Crist, and onetime board member Alfred
Villalobos. Villalobos collected at least $58.9 million in "placement agent"
fees.
The practice, while not illegal, invites trouble. Employees and board members,
who can smell the money from these deals, may be tempted to favor firms in
hopes of future work. The possibilities for conflict of interest and ethics
violations are plain.
To its minor credit, CalPERS has tried an after-the-fact housecleaning. It

hired an outside firm, which compiled the data on middlemen payments. It
has promised to limit the practice and won't oppose a bill in the Legislature
that would require the agents to register as lobbyists.
These steps may curb a sorry chapter for a once-stellar state agency.
This article appeared on page A - 11 of the San Francisco Chronicle
Read more: http://www.sfgate.com/cgi-

bin/article.cgi?f=/c/a/2010/01/17/EDQS1BIQ5Q.DTL#ixzz0cyvl6tuC
latimes.com/business/la-fi-calpers15-2010jan15,0,6928334.story
http://www.latimes.com/business/la-fi-calpers15-2010jan15,0,6928334.story
latimes.com
Middlemen got $125 million-plus from investors for

arranging CalPERS deals
Private firms made the payments to placement agents who had
helped them seek business with the California Public Employees'
Retirement System, records released today by the giant pension fund
show. Two former CalPERS board members, Alfred J.R. Villalobos
and William D. Crist, were among those paid.
By Marc Lifsher, David Zahniser and Stuart Pfeifer
1:09 PM PST, January 14, 2010
Private investment funds paid more than $125 million in fees to scores of
middlemen who helped them win business with California's giant public
pension fund, a practice that has been the focus of a lengthy investigation,
according to documents released this morning.
FOR THE RECORD:

An earlier version of this online article said the California Public Employees'
Retirement System asked for information about the use of placement agents
after a corruption scandal in New York last year and after the disclosure that
placement agent Arthur J.R. Villalobos had received big fees for pitching
clients, including Apollo Management of New York and CIM Group of Los
Angeles, to the pension fund. In fact, CalPERS acted after the New York
scandals. The Villalobos disclosures, including his role with Apollo and CIM,
came later, after CalPERS requested information about placement agents.
The California Public Employees' Retirement System has invested in private

funds represented by the middlemen, or placement agents, for more than a
decade, but today CalPERS released thousands of pages of documents that
offered the first significant details about the widespread practice.
Among those who were paid to seek business deals with the public pension
system were two former CalPERS board members, Alfred J.R. Villalobos and
William D. Crist, the records show.
Villalobos' company, ARVCO, received $58.9 million in fees, by far the most
paid to any of the middlemen, the records show. Counting fees paid for helping
the funds get business with the state teachers' pension fund, Villalobos has
received more than $70 million in fees.
London-based investment firm Governance for Owners paid former board

member Crist about $844,000, the records show. The firm currently invests
about $200 million of CalPERS money. Crist, a retired economics professor at
Cal State Stanislaus in Turlock, served on the board from 1987 to 2003 and
presided as president for 11 of those years.
CalPERS declined to comment on Crist's relationship with the London firm,

where he is a partner and current chairman of the board. But both the fund's
chief executive and Crist stressed that the former CalPERS board president
does not easily fit what they say is the definition of a placement agent.
CalPERS relationship with the fund started in late 2006, more than two years
after Crist left the board. California law prohibits former government officials
from lobbying their previous employer for one year after leaving state service.
"I never did think of myself" as a placement agent, Crist said. "I hate the
appearance of that. I don't think I was particularly central to the CalPERS
investing."
But the fund's most recent agreement with Crist and previous agreements state
that "you may introduce to us prospective investors based in California and
elsewhere in the USA," a role generally played by placement agents that help
investment fund managers get business with public pension funds.
CalPERS, the nation's largest public pension system, manages retirement

benefits for more than 1.6 million public employees, retirees and their families.
Concern about payments to placement agents erupted last year after a bribery
and corruption scandal in New York.
In response, CalPERS asked the funds in which it invests to disclose their

payments to placement agents. The fee disclosures released this morning
arrived between May and this month, CalPERS said in a news release. The fees
made public today cover private investment fund dealings with CalPERS over
the last decade.
Anne Stausboll, CalPERS chief executive officer, said the pension fund has
retained a law firm to investigate the role that placement agents have in getting
CalPERS business.
"Gathering information is not enough. We remain firmly committed to pursuing

a full and fair examination that the special review will provide, and to backing
legislation that would remove contingent fee arrangements and require
placement agents to comply with the same rules as lobbyists," Stausboll said.
Under California law, former CalPERS board members and staff are allowed to
lobby their former employer one year after leaving the pension agency, but
some critics say the practice raises ethical concerns and has the potential for
abuse.
"The fact that people are being lobbied by people who have relations with
current board members, even though they are former board members, is totally
inappropriate," said Dave Elder, a former state assemblyman from Long Beach
who monitors CalPERS for public employee unions.
Lobbying by former board members could put undue pressure on investment

staff to invest with funds that might not be the best choice, Elder said.
Another highly paid placement firm was Wetherly Capital, which received
nearly $6 million for pitching investments to CalPERS, the records show.
Wetherly was one of several firms that came under scrutiny last year from New
York Atty. Gen. Andrew Cuomo, who already secured several guilty pleas in a
kickback scandal in that state's retirement system.
Wetherly represented several investment funds, including Ares, CityView,

Yucaipa and Levine Leichtman, the records show.
Of the $5.9 million received by his firm, $4 million came from Shamrock
Holdings, according to CalPERS records. Dan Weinstein, Wetherly's managing
partner, said Shamrock's payment was larger because it was an established firm
that secured a large commitment from CalPERS -- $200 million.
"Most of our clients hired us because they were smaller firms, or spinning out
from a larger firm to launch a first-time fund," Weinstein said. "In most cases,
those firms did not have the resources to employ an in-house marketing team,
so they outsourced those responsibilities to us."
Last May, the CalPERS board decided to start collecting information from
about 600 private investment partners about the identity of the placement
agents they employed, the investments they helped promote and the fees they
received.
Those financial relationships also are being probed independently by the U.S.
Securities and Exchange Commission and the attorneys general of California
and New York state.
The Villalobos disclosures and the new CalPERS documents are expected to
heighten calls to tightly regulate placement agent activities in California and,
possibly, eliminate them altogether. In December, the CalPERS board proposed
legislation that would make placement agents register as government lobbyists.
The proposal would also prohibit them from being paid by commissions instead
of flat fees, and those payments would have to be made public.
The board has also instituted a new policy forbidding its members from dealing
directly with the outside sales pitchmen.
marc.lifsher@latimes.com
david.zahniser@latimes.com
stuart.pfeifer@latimes.com
Copyright © 2010, The Los Angeles Times
http://www.utexas.edu/lbj/pubs/pdf/e-government.pdf
41
Commissioner Mike Inman, interview by Renaetta Nance and Lewis Leff, Commonwealth Office of
stopped planning and implementing e-government initiatives. On May 31, 2001, the
California Department of Technology Services (DOIT) contracted with Oracle to provide
costly software for all state employee computers. However, the $95 million Oracle contract
was awarded as a no-bid contract without conducting a departmental needs
assessment, and problems ensued. As a result, the governor suspended the state CIO on May
2, 2002, the California Legislature eliminated the DOIT on June 30, 2002, and the State of
California canceled the Oracle contract.
The following news report relays the gravity of the offense and the demise of the DOIT:
The Oracle computer software scandal claimed another casualty Friday when
the Department of Information Technology bowed out of state government,
closing its doors for the last time...The demise of the technology oversight
body represents a rare - if not unique - case of the sun actually setting on a
state department... ‘This is unprecedented, definitely,’ said Assemblyman
Dean Florez, D-Shafter….43
As a result of the Oracle situation and the California Legislature’s termination
http://www.caltax.org/member/digest/jun2002/6.2002.AccountabilityFiles.01.htm
State Government ($456 million)

“ORACLE AUDIT” RIPS STATE CONTRACTING PRACTICES. A
scathing report released April 16 by the Bureau of State Audits said three state
departments erred in the execution of an enterprise licensing agreement (ELA)
with Oracle Corporation worth almost $95 million. The report, verifying many
of the facts reported last year in the San Jose Mercury News, suggests that the
attorney general may want to investigate.
The report concludes that the contract was executed despite evidence
suggesting the need for the Oracle database license was limited, and that cost-
saving projections presented by Logicon, Inc., a Virginia-based consulting firm
that helped the state negotiate the deal, were not validated. Rather than saving
$111 million, as Logicon purported, the state could spend from $6 million to
$41 million more than if there was no contract. “Furthermore, it appears
Logicon stands to make more than $28 million from the ELA, a fact the state
may not have been apprised of,” the report said, raising a conflict-of-interest
issue.
The report is critical of the departments of General Services (which used an

inexperienced negotiating team and limited involvement of legal counsel),
Information Technology (which was formed to prevent re-runs of scandalous
computer upgrade programs), and Finance, which signed off on the deal. “…
Many contract terms and conditions necessary to protect the state are vague or
missing altogether,” the report said, also raising the possibility that the ELA
could be unenforceable as a valid state contract because it should have been
subject to competitive bidding requirements.
State Auditor Elaine Howle told the Mercury News that this audit was one of
the three or four gravest reviews she has seen in her 18 years with the Bureau
of State Audits. “The magnitude of the dollars and the mistakes make this
extremely serious,” she said.
The San Francisco Chronicle reported that the audit, requested by the
Legislature, questions why the state would want to purchase software and
support services for 270,000 state employees when a survey showed little
interest in the products and the state has only about 230,000 employees, and
tens of thousands of them don’t even use computers.
State Senator Debra Bowen called on the attorney general to investigate and for
the Department of Information Technology (DOIT) to be disbanded. DOIT was
“set up to try to steer the state clear of contracting disasters,” she said, “but
instead it’s got its hand on the stirring spoon of one of the biggest cauldrons of
all.” Closing down DOIT is an idea seconded by Assembly Member Elaine
Alquist (her husband, former Senator Alfred Alquist, carried legislation
creating the department). She told The Chronicle: “The department is not doing
a good job, is costing the taxpayers millions of dollars, does not have a useful
function, and needs to be eliminated.”
According to newspaper reports, the state agencies involved declined comment

beyond formal responses contained in the audit in which they said the state got
a good deal from Oracle. Elias Cortez, the state’s chief information officer and
leader of DOIT, said DOIT concurs with the audit’s findings and
recommendations, which “will be very helpful in improving the management of
current and future software volume purchases.”
Meanwhile, at a Joint Legislative Audit Committee hearing on April 18, leaders

of the three agencies involved said they assumed the data had been verified by
another’s agency. It also was reported that Senator Richard Polanco pitched the
Oracle deal to administration officials, and that his son was employed by the
software manufacturer. Also, a spokesperson for Attorney General Bill Lockyer
said on April 18 that the Justice Department will try to determine whether there
was any criminal wrongdoing in the contract negotiations.
As the Legislature continued hearings into the Oracle issue, the governor
responded by accepting the resignation of Barry Keene, the director of the
Department of General Services. Mr. Cortez was suspended without pay.
Another administration official, Arun Baheti, director of e-government,
resigned after it was reported that he served as a conduit for a $25,000 Oracle
contribution to the governor’s campaign.
Oracle officials say the contract is still a good deal for the state and have
provided an analysis by a former state auditor, Kurt Sjoberg, that is at odds
with the findings of his successor.
DOIT ISN’T DOING IT. The California Department of Information

Technology (DOIT) appears to be doomed as the overseer of the state’s
multibillion-dollar technology systems, reported the San Jose Mercury
News (April 23). Assembly Member Manny Diaz of San Jose had been a
defender of DOIT and even introduced a bill to keep it alive. However, Mr.
Diaz decided to drop the bill and join others who have criticized DOIT for its
role in a software contract worth more than $95 million to Oracle without
verifying the need. The $11 million department has 69 state jobs, and they will
disappear in two months unless the Legislature, by two-thirds vote, keeps it
going. “Before the Oracle audit, I was willing to support a partial extension of
DOIT,” Mr. Diaz said. “However, its blatant lack of oversight in the Oracle
contract proved to me that DOIT cannot do its primary responsibility of
protecting taxpayers’ money.”
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Oracle scandal shuts the doors at agency
The Sacramento Bee - Saturday, June 29, 2002
Author: Emily Bazar ; Bee Capitol Bureau
The Oracle computer software scandal claimed another casualty Friday when
the Department of Information Technology bowed out of state government,
closing its doors for the last time.
The demise of the technology oversight body represents a rare - if not unique -
case of the sun actually setting on a state department.
"This is unprecedented, definitely," said Assemblyman Dean Florez, D-Shafter,

who was chairman of a committee that heard 110 hours of testimony from the
parties involved in the state's $95 million no-bid software contract with Oracle
Corp. "The attention and the Oracle debacle are 99 percent of the reason the
department is sunsetting."
As a result of the closure, at least 66 employees were forced into a last-minute

job search. Gov. Gray Davis' administration is scrambling to devise a temporary
replacement for the department, which was charged with overseeing information
technology projects in state government.
The committee hearings that chronicled DOIT's missteps were prompted by a

critical state audit that found the Oracle contract could cost the state as much as
$41 million more than it otherwise would have spent.
After the audit was released and the hearings began, four high-level officials in
the administration were fired - including DOIT's director, Elias Cortez.
But the fallout also sideswiped the 6-year-old department, which was up for
reauthorization from the Legislature.
Instead of letting DOIT, as it came to be known, hold its place in state

government, legislators allowed the department to "sunset," or cease to exist, at
the end of the fiscal year.
The department isn't the first state entity to sunset, but it is perhaps the largest.
Some committees and boards exist only for a specified time and routinely sunset
when their duties are fulfilled.
But no one can remember another example of a state department or agency - the
behemoths of bureaucracy - sunsetting.
"We can't think of any," said Lynelle Jolley of the state Department of Personnel
Administration. "There have been some reorganizations through the years where
departments are morphed into something different. But that wasn't the result of
another department sunsetting."
The department was created in 1996 when the Legislature passed SB 1, a bill
that transformed the Office of Information Technology - then under the
Department of Finance - into a stand-alone entity.
Under the bill, one of DOIT's responsibilities was to ensure that state technology
projects would "reduce the cost of government, enhance service to customers,
(and) lower the cost and risk to taxpayers when implementing information
technology."
Its creation was in response to a string of state government technology disasters

that continue to cost taxpayers millions.
Perhaps the best-known computer debacle involved the Department of Motor

Vehicles , which spent more than $50 million upgrading its computer system in
the late 1980s and early '90s.
When the project was done, the computer system didn't work and had to be
scrapped.
A committee investigating the DMV contract "found problems with procurement,

sole sourcing, implementation and review," according to a staff analysis of SB 1.
Those elements resurfaced as ingredients of the Oracle scandal.
Because many legislators felt that DOIT didn't prevent the Oracle fiasco - and
indeed facilitated it - they said it shouldn't continue to exist in its current form.
"If there were ever an example of a state department that ought to evaporate, this
would be it," said state Sen. Charles Poochigian, R-Fresno. "The public and the
Legislature have lost confidence in this organization to do the job that it was
tasked to do, and I see no hope for it."
But DOIT still has its defenders, including state Sen. Richard Polanco, D-Los
Angeles.
Polanco's name surfaced during the Oracle hearings when state Finance Director
Tim Gage testified that the senator asked him to have his staff listen to a pitch for
the deal. Polanco's son, Richard Polanco Jr., works for Oracle.
Polanco believes DOIT, which he says has saved the state "tens of millions of
dollars" since the department was created, has become a political casualty.
"I have been a supporter of making changes and making (DOIT) more
accountable," Polanco said. "Sunsetting something ... is for some members and
individuals a way of saying, 'Let's just get rid of it and say we got rid of it,' only to
come back with something else."
Indeed, DOIT's interim leader, J. Clark Kelso, is working with the administration
and legislators to create an interim entity that will perform information technology
oversight functions.
Kelso, a McGeorge School of Law professor who was appointed by Davis to lead
the department temporarily, is expected to make recommendations to the
governor on Monday.
Though he wouldn't divulge details, he said it's important that the interim
oversight body be independent, open up its contracting process to public
scrutiny, and have clearly assigned roles and responsibilities.
While he has been formulating his recommendations, Kelso has also been
presiding over a process that's relatively unfamiliar to state government: the
dismantling of a state department.
For weeks, DOIT staff members have been packing up their offices on the eighth
and 21st floors of the Renaissance Tower at 801 K St.
The remaining staff of about a dozen people, who will continue to provide
technology oversight services until a permanent solution is found, will work out of
DOIT's office at 10th and K streets. The Legislature has tentatively put $3.6
million in the Department of Finance's budget for information technology
oversight and security issues.
For the majority of DOIT employees who won't continue with the interim body,
watching the department dissolve, and trying to find a job, has been stressful.
It wasn't until June 6 that employees were allowed to search for other positions
with the state. They were given priority and were exempt from the state hiring
freeze. As of Wednesday, 48 employees found new positions.
"This has been one of the best jobs I've ever had," said Julie Gallego, 26, an
executive assistant who stood next to her empty desk and packed boxes on
Wednesday. On Monday, she starts her new, better-paying job as a legislative
coordinator for the California State Teachers' Retirement System. "The people
(at DOIT) are great. The work is interesting. It's bittersweet that this is having to
end."
***
The Bee's Emily Bazar can be reached at (916) 326-5540 or

ebazar@sacbee.com.
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Page: A1
Record Number: SAC_0388921936
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Oracle scandal shuts the doors at agency
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Oracle may be tip of iceberg - Critics say the state's tech-buying
system is open to insider abuse.
The Sacramento Bee - Sunday, May 12, 2002
Author: John Hill ; Bee Capitol Bureau
In the early 1990s, California changed the way it bought information technology
in an attempt to become more nimble and efficient.
Sen. Richard Polanco, D-Los Angeles, wrote a bill in 1993 that created a
California "multiple award schedule" - basically, a list of pre-screened vendors
that state agencies could go to without a time-consuming and unwieldy
competitive bid.
CMAS, as it's known, has taken off. And today, it is at the heart of a system that
many say has fallen prey to abuse by insiders using their government contacts to
tap into the lucrative state market without competitive bidding.
That system is coming under unprecedented scrutiny as the Legislature and

others investigate the state's $95 million software deal with Oracle Corp., a no-
bid "enterprise licensing agreement" that used some of the same strategies as a
CMAS deal and could cost the state $41 million more than it would have paid
without the contract.
The Oracle deal was the first of its kind, but each year the state makes
thousands of information technology buys totaling $1 billion or more, many of
them using CMAS or other nontraditional methods.
"We get snookered on this IT (information technology) stuff full time," said Sen.
Steve Peace, D-El Cajon.
One of the insiders appears to be Polanco, the author of the 1993 law. Finance
Director Tim Gage testified before a legislative committee that Polanco called
him to ask that his staff listen to a pitch by Logicon Inc., the company that
proposed the Oracle deal to the state and stands to make $28 million for its role.
Polanco's son, Richard Polanco Jr., works for Oracle and attended at least one
state advisory committee meeting about enterprise licensing agreements in the
weeks leading up to the deal last spring.
In another no-bid contract in 2000, the brother of Sen. Polanco's information

technology consultant held key positions in two companies involved in the
overhaul of the state's Web portal. Much of that project was done through
CMAS.
Polanco could not be reached for comment, and he has not responded to earlier
requests to answer questions about the state's growing technology scandal.
In 1993, when Polanco's bill won unanimous support in both houses, the state
was facing different technology challenges.
It had just been through several painful computer debacles, including

the Department of Motor Vehicles ' purchase of a computer system that never
worked right. Gov. Pete Wilson appointed a blue-ribbon panel to suggest
changes to the cumbersome state methods.
"For you to get a printer would take six months," said Russ Guarna, acting
acquisitions manager for the Department of General Services, which negotiates
and oversees much state contracting.
It was also a time of increased privatization of government services. One of the

ideas behind CMAS was to make it easier for businesses to provide goods and
services to the state.
"This was a compromise on privatization," Peace said. "This was a way to give
(departments) more flexibility."
Another was to leverage the state's purchasing power to get good deals, the
same strategic approach that later guided the state's ill-fated Oracle contract.
Oracle was a variation on the strategy, a sole-source licensing agreement

instead of a CMAS contract. The architects of the deal argued that because the
state was already using Oracle products, the company itself was the only source
for the large-scale buy of software it needed.
Contracting traditionally had been handled by centralized departments such as

General Services. But under CMAS and related methods such as master
agreements, dozens of departments and agencies could do it on their own. The
contracts just had to be less than $500,000, and the departments had to check
with at least three CMAS vendors - although they weren't required to take the
cheapest.
It gave departments autonomy. But critics say it also opened the doors to
technology sales staff to curry favor with a multitude of chief information officers
and procurement officers.
"Salespeople will tell you it's good old-fashioned salesmanship," said an

independent consultant who has worked for state government and technology
providers since the 1980s. He asked to remain anonymous to avoid
repercussions in his state business.
In fact, he said, it's a "good old boy" network in which hundreds of people on
retainer, independent contractors and technology company employees fan out
through state offices to cultivate their contacts.
"Unfortunately, over the years people have learned how to manipulate CMAS,"
he said. "Anything under the half-million-dollar ceiling never goes through any
control points. They can play favorites pretty darn easy."
Guarna, the acquisitions manager, says General Services keeps a sharp eye on
CMAS contracts and finds that the overwhelming majority are done
professionally. Under a new procedure, it gets advance notice of the department
and agency procurement plans and also samples their contracts after the fact.
And CMAS vendors are vetted before they get on the list.
Even so, there are thousands of contracts to keep track of. Guarna said it's
unknown what percentage of the $1 billion to $2 billion in annual technology
purchases are done through CMAS and other nontraditional methods.
"There's potential for abuse in any procurement," Guarna said.
"They simply don't have enough staff to police the volume of crap that goes on,"
the independent consultant said.
One case that has come to the attention of the Joint Legislative Audit Committee
investigating the Oracle deal involves a technology consultant named David
Lema.
Lema was the head of the state's Stephen P. Teale Data Center for eight years in
the 1980s. Soon after Gray Davis' election in 1998, he joined the governor's
transition team to come up with a strategy for dealing with the Year
2000 computer date change.
Lema's company later got two contracts totaling more than $939,000 to help in
the state's Y2K effort. One CMAS contract was with the Teale Data Center for
$450,000, just under the $500,000 limit.
The other was a $489,480 master service agreement contract with the
Department of Information Technology (DOIT). Master service agreements are
akin to CMAS, except that companies are usually selected to be on the list by
competitive bid. Lema's company was paid about $855,000 under the contracts.
Lema said in an interview last week that the head of DOIT, Elias Cortez, invited
him to expand his work with the Teale contract, and that he doesn't know about
the intricacies of contracting policy. Cortez was recently suspended for his role in
the Oracle contract.
In the case of the other no-bid contract to overhaul the state's Web portal, the
state bought $772,000 of software from BroadVision Inc. The purchases, done
through CMAS, included $400,000 for a nine-month lease, with the balance paid
afterward when the state decided it liked the software.
The deal was done through a company called The State Store Inc. One of its
directors was Will Molina, whose brother Frank Molina served at the time as
Polanco's technology consultant. Will Molina also worked at BroadVision, and is
listed on the company's statement of work for the portal project as "sales
representative." Before that project, Will Molina worked as a subcontractor with
Lema on the state's Y2K effort.
Peace has singled out Lema as an example of an insider who knows how to work
within the bounds of the law.
"I haven't seen anything that says skulduggery," he said. "It's knowing how to
manipulate the system."
Peace and others believe that the state gets into trouble most often in its use of
technology consultants.
The state lacks the expertise to assess its own technology needs and so must
often rely on outside help.
But they said the state, at the least, should assign a worker to each consultant to
make sure the state's interests are coming first.
"Consultants inherently have different interests," Peace said. "They end up

benefiting when they screw up because they get another contract. ... We ought to
be driving more of these decisions with state employees."
A bill by state Sen. Debra Bowen, D-Marina Del Rey, would close a loophole in
state law by preventing a technology company that acts as a consultant to later
bid on a project it recommended.
But even that law might be undermined by loopholes. The state often recruits
unpaid advisers from the private sector to recommend technology strategy -
which does not seem to be covered by the proposed law.
And many insiders say that people in technology sales tend to move quickly
among companies and create new ones, as well as acting as independent
consultants, making it difficult to track conflicts of interest.
"A lot of these guys are involved in many companies," Peace said. "Why were
these companies formed? How long do they last? Who funds them?"
Also, the state has a genuine need for expert advice, and many technology
experts might be loathe to give it if it precluded them from state business.
"How do you get the input from private industry, because they have something to
share with government?" said Anna Brannen, who reviews information
technology for the state's nonpartisan Legislative Analyst's Office.
The state can use consultants and maintain its independence, she said.
"One of the things you've always got to have in here is judgment on the state's
part," she said. "Just because a consultant gives you something doesn't mean
you have to go with it."
Peace also stresses the need for legislative oversight, which he says has been
sorely lacking. He cites an example from a couple of years ago. As chairman of
the Senate Budget Committee, he had wording added to the budget requiring
that the administration explain exactly how some information technology money
was spent. He said he got back a very general, bare-bones report.
"The truth is that we don't know what's happening in these environments," he

said. "We are literally learning something every day."
***
The Bee's John Hill can be reached at (916) 326-5543 or hill@sacbee.com.

Caption: Sen. Steve Peace, D-El Cajon. Richard Polanco He wrote the bill
establishing the contracting system. His son has been linked to the Oracle deal.
Section: MAIN NEWS
Page: A1
Oracle may be tip of iceberg - Critics say the state's tech-buying system is open
to insider abuse.
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http://www.latimes.com/news/local/la-me-state-computers22-
2009nov22,0,4065730.story
After spending billions, state remains

hampered by outmoded, unreliable computer
systems
An embarrassing legacy of cost overruns, botched upgrades and failed networking
projects has left California to rely on decades-old technology and jury-rigged
software systems.
By Patrick McGreevy
November 22, 2009
Reporting from Sacramento - California may be known as the cradle of computer innovation,
but several state agencies can't get their computers to perform essential functions despite
hundreds of millions of dollars in cost overruns for repair and upgrade work.
FOR THE RECORD:

Computer woes: An article in Sunday's Section A about flaws in the state's computer systems
misstated the last name of former state chief information officer John Thomas Flynn as
Quinn. —
Although taxpayer money has been flowing to corporate consultants and software overhauls,
some computer systems are on the verge of collapse, and some replacement projects are
years behind schedule or have been scrapped because they didn't work.
The antiquated systems have even been cited by top finance officials as a contributing factor
in the difficulty the state has managing its money. A lack of shared databases results in a
sluggish information flow that can hamper financial decision-making. Budget officials may
have trouble obtaining accurate, up-to-date numbers, and the information lag can hinder
purchasing and investment decisions.
"It's embarrassing," said Tracy Westen, chief executive of the Center for Governmental
Studies in Los Angeles. "If California can't get it right, who can?"
Among the computer flops:
* The wheezing, 1970s-vintage computer system that prints paychecks for the entire state
workforce is held together by software patches and jury-rigged connections and is in danger
of failing, according to officials in the state controller's office. A $130-million overhaul called
the 21st Century Project was supposed to have been activated two years ago, but instead state
officials have been locked in a lawsuit with the contractor and say it will now cost 39% more.
The Legislature's chief budget analyst said the project was a mess. One option: pull the plug
and start over -- leaving taxpayers with a $70-million bill and nothing accomplished.
* Similar setbacks have plagued a colossal project intended to enable state budget and
accounting databases to interact. The existing, obsolete system forces workers to spend hours
manually processing data and doesn't allow agencies to coordinate their purchasing and
contracting, according to H.D. Palmer, a spokesman for the state Finance Department. If a
contractor does shoddy work for one agency, there is no automatic warning system to advise
other departments against hiring the company.
Called The Financial Information System for California, or FI$Cal, the system is $300
million over budget and three years behind schedule, according to the Legislative Analyst's
Office.
* State officials predicted that a centralized computer system for California's courts would
cost $260 million and be done this year. But they weren't even close. The expanded project
won't be done until at least 2013, according to court officials, and its cost has ballooned to
$1.3 billion.
The problems are part of a long history of technology fumbles by Sacramento, which has
spent billions of dollars on projects that have fallen short in performance or cost much more
than promised.
In 1994, then-Gov. Pete Wilson pulled the plug on a DMV computer project after the state
spent $50 million on a system that never worked.
In 2001, the state awarded a $95-million computer contract for software to link information
and services across government agencies to Oracle Corp., without competitive bidding. The
state auditor later concluded that Oracle's service was overpriced and involved a system for
which there was little demand from state agencies.
In 2008, a computer system began operating to allow better tracking and collection of child
support payments, but it had taken so long to be completed that California had to pay $987.8
million in penalties to the federal government. And after spending $1.5 billion on the project,
California still has one of the worst collection rates in the nation: 53.1%, according to the
federal government.
The child support database is part of a plan to spend $6.8 billion overhauling state computer
systems. But an Assembly panel is launching an investigation into the entire effort,
Assemblyman Hector De La Torre (D-South Gate) told The Times.
De La Torre, who is heading the probe, attributes California's computer woes to "a lack of
sophistication . . . and in some cases consultants taking advantage of that lack of
sophistication."
State bureaucrats repeatedly award work to contractors who promise smooth fixes for low
prices but later determine a project to be more complicated and expensive, he said. The 21st
Century Project contractor won the work with a bid of $69 million, but doing the project
right will probably cost $500 million, according to former state chief information officer
John Thomas Quinn.
Red tape and contractors who don't deliver are both elements of the legal dispute over the
21st Century Project, which is intended to replace payroll and personnel management
systems installed in the 1970s and '80s.
The payroll system is so old that state employees cannot get electronic statements of their
payroll history, and state officials warn that the entire network could collapse, which would
be a bookkeeping and legal catastrophe. In addition, the systems use the COBOL software
language, developed in the 1950s, in which a dwindling number of state-employed
programmers are fluent.
The state chose a contractor, BearingPoint, that it now alleges -- after paying the firm $25.8
million -- botched the job.
"From the inception of the project, BearingPoint misrepresented the complexity and level of
effort necessary" to complete the project, state officials said in a letter notifying the firm that
it was being fired.
BearingPoint said in an appeal to the Department of General Services that there was plenty
of incompetence and foot-dragging on the project -- and it was all on the part of the state.
State officials "actively frustrated BearingPoint's performance," the firm wrote. It charged
that State Controller John Chiang's office failed to meet its obligation to co-manage the
project and took too long to make key decisions. And the company filed a lawsuit seeking $20
million from taxpayers for wrongful discharge and breach of contract.
The state Legislative Analyst's Office suggested in February that officials could scrap the
work and start from scratch, noting in a report to lawmakers that the project "has expended
about $70 million with few tangible deliverables to show for this."
But lawmakers decided to try to salvage the work. A new contractor is to be selected early
next year. But one state analyst estimated that the improvements envisioned in the 21st
Century Project may not be online until 2013.
patrick.mcgreevy @latimes.com
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State courts can't hide behind robes - COMPUTER SNAFU REVEALS

AGAIN WHY OUTSIDE AUDIT IS ESSENTIAL
Sacramento Bee, The (CA) - Saturday, October 31, 2009
It's hardly surprising that the state courts are having trouble developing a
massive new computer system. California continues to build an information
superhighway that is strewn with potholes.
In recent years, a computer system designed to track child support payments ran
up tens of millions of dollars in cost overruns. So did an effort by the Department
of Motor Vehicles to update its computerized operations.
Yet even when measured against those and other blunders, the snafu of the
California courts stands out. Its eye-popping price tag, closing in on $2 billion and
climbing, comes in the midst of a massive state budget crisis. The court's
administration of this project has been shockingly inept.
As The Bee's Robert Lewis detailed in a report Sunday, the court failed in the
most basic task -- making a business case for the project. The administrative arm
of the court apparently never put in writing what it was seeking to solve nor how
the computer system being developed would solve the problem. Even now the
cost estimates for the system and its reach -- which courts will be included and
which won't -- remains murky.
Before more money is wasted, legislators and state court administrators must
ask: Does the court system have the kind of specialized skills crucial to oversee
a very large and complicated information technology project? In recent months,
the courts finally went to the state information office for help, but they waited
much too long.
The court's computer problems come just as the state court administrators are
extending their authority over local courts. The power shift has produced
predictable tensions. California Supreme Court Chief Justice Ronald George,
who heads the state courts, has become the target of increasingly pointed
criticism from a growing cadre of angry and vocal local judges.
Business as usual will not do. The courts can no longer tolerate wasteful
spending, poorly managed technology initiatives and bloated bureaucracies.
To quell all the speculation, Justice George should invite independent outside
scrutiny. The Bureau of State Audits should be brought in to do a top-to-bottom
review of the state court bureaucracy and a representative sample of county
court systems as well. The state's chief technology officer should take over
management of the court's computer efforts.
Memo: EDITORIALS / Views of the editorial board
Section: EDITORIALS
Page: A10
Index Terms: EDITORIAL
State courts can't hide behind robes - COMPUTER SNAFU REVEALS AGAIN
WHY OUTSIDE AUDIT IS ESSENTIAL
-----------
http://cpr.ca.gov/Review_Panel/Information_Technology.html
The ghosts of projects failed haunt the state technology departments. Every technology
administrator is familiar with the failed Department of Motor Vehicles computer project, the Oracle
licensing contract debacle, and other technology- related failures and scandals. These technology
graves create suspicions toward all major technology projects proposed for state government.
The California Department of Corrections suffers from a failed Correctional Management
Information System. [23] Begun in 1994 with great hopes for propelling the department into an
automated inmate information era, the project focus froze all existing older systems it was to
replace, until it sputtered to a litigated halt in 1998. In its wake it left even more outdated and
under-maintained old systems, a paranoia as to undertaking anything whose beginning and end
could not be absolutely guaranteed, and a Legislature skeptical of funding any new
projects. [24] The ability to manage a technology project of the magnitude appropriate for the new
Department of Correctional Services or a consolidated correctional entity should give rise to
cautious deliberation; not only as to the need, but as to selecting the correct resources to initiate
and undertake the endeavor. Government technology resources generally can be fully tasked in
the maintenance of the existing architecture, service calls, and coordinating the various
connectivity of networks.
http://www.it-cortex.com/Examples_f.htm
In 1987, the California Department of Motor Vehicles (DMV) launched a major

project to revitalize their drivers license and registration application process. By
1993, after $45 million dollars had already been spent, the project was cancelled.
http://books.google.com/books?id=WG7DfOTtjTAC&pg=PT376&lpg=PT376&dq="dep
artment+of+motor+vehicles"+"computer+system"+1993+cancelled&source=bl&ots=3aH
stIX3hj&sig=BOoe5I96FEkZE1OnbK3Qsjl3j28&hl=en&ei=pGM-S9_5MobwsgPpx-
HNBA&sa=X&oi=book_result&ct=result&resnum=1&ved=0CAgQ6AEwAA#v=onepag
e&q=&f=false
gunston.gmu.edu/.../TuitorialWhyInformationTechnologyProjectsFail.doc
http://www.lacountyfraud.com/
http://www.sacbee.com/capitolandcalifornia/story/1597238.html
Delayed system updates a drag on state

jobless claims
ShareThis
Buzz up!
By Andrew McIntosh
amcintosh@sacbee.com
Published: Wednesday, Feb. 4, 2009 - 12:00 am | Page 1A
One in an occasional series examininggovernment spending as California copes
with recession.
Seven years after the federal government gave California $66.1 million to modernize
its unemployment insurance call centers and claims processing systems, state
workers are still manually processing claims that the jobless now submit online.
Neither of two projects that were to be completed with the federal money in four or
five years are done as workers grapple with a computer system that is 30 years old.
The delays have hampered the state Employment Development Department's ability
to quickly process thousands of applications for unemployment insurance and issue
checks to the jobless in the worst recession in 28 years.
They have also forced swamped department employees to work costly overtime at
night and on weekends to keep up with the surge inunemployment claims, which
now total as many as 75,000 a week, EDD officials say.
In 2002, the department received $936.9 million from the federal government. Most
of the money was for unemployment insurance benefits.
The sum also included $66.1 million for the EDD's unemployment insurance
modernization project. It was made up of two parts: the Call Center Upgrade Project
and the Continued Claims Redesign Project.
Seven years later, neither project is complete.
The call center upgrade is currently in the design phase; a deal was signed with
Verizon in June 2008. Its first part will be implemented in the fall, EDD
spokeswoman Loree Levy said.
The contract for the claims redesign project is currently out to bid, with vendors
expected to submit proposals this month. A contract will be awarded this fall, Levy
said.
Federal officials confirm they gave California money but say they haven't tracked the
progress of the projects – not even once – since then.
"We don't follow the status or progress of such distributions because they don't
involve grant money," said Jennifer Kaplan, a U.S. Labor Department spokeswoman.
Asked if the Labor Department is happy that it paid $66 million for improved public
services that are still not in place, Kaplan said: "It's just not something I can
comment on."
Dale Jablonsky, EDD deputy director and chief information officer, cited several
factors – including changes in the state's bureaucratic structure – to explain the
years of delays.
He said EDD was put under the umbrella of the state Labor and Workforce
Development Agency; it had been under Health and Human Services.
EDD also did not have the project management skills in house to handle the
modernization efforts and had to rely on officials at the state data center, Jablonsky
said.
"Those kind of fluid events contributed to early delays," he said. "Then, Oracle."
The Oracle scandal was a procurement controversy in which millions of dollars of

taxpayers' money was spent on a no-bid software deal. Auditors found that the
contract, later canceled, would have charged the state for software it didn't need.
To prevent more "blemishes like Oracle," Jablonsky said, the state's requirements for
major information technology projects were tightened considerably.
Now, state officials must conduct feasibility studies and get them approved before
contract documents are drafted and issued – and that takes time, slowing down how
fast officials can upgrade systems.
"They're designed so that procurements are done fairly, thoroughly, and with
oversight. That creates rigor, but it also a creates a longer timeline," Jablonsky
added.
The state's long project timelines for computer projects are drawing fire.
Information Week, a magazine that covers institutional information technology

issues in government and the private sector, lambasted California's handling of such
projects late last month.
"To call the state's current IT situation a monumental disaster would be to insult the
words 'monumental disaster,' " Information Week wrote.
It listed nine California IT projects under development that will take up to 10 or 11
years and cost $3.6 billion, calling them "reality-distorting black holes."
That's no consolation to workers at EDD, where only $9.9 million of the $66.1
million it received has been spent on the badly needed projects.
EDD employees take unemployment insurance claims jobless people file online and
must input some information into a separate state database because the two
computer systems aren't integrated.
"Our 30-year-old computer system does not allow for information on an online
application to be directly entered into a database and cross-matched against other
databases to verify (a claimant's past) wages and identity information," Levy said.
"Staff has to take the application submitted online and manually process it in the
database."
Despite its challenges, Levy said EDD is sending benefit checks to unemployment
insurance applicants within three weeks "in the vast majority of cases."
The Bee has previously reported that many unemployed people seeking benefits have
encountered long delays in filing claims by telephone because the phone lines are
overwhelmed.
Call The Bee's Andrew McIntosh, (916) 321-1215.
---
thinks_on_feet wrote on 02/04/2009 05:41:37 PM:
I work at EDD and was on the UIMOD project at the beginning. The UI Branch didn't
want to change their claim filing process, the IT Branch wanted a piece of the Reed
Act money, and the resulting FSRs (there were several) were mostly deeply flawed,
individually, and got lumped together at the insistence of John Wordlaw at DOF.
EDD executives should have rejected Wordlaw's plan, but "teamwork" wins out over
"wisdom" when promotional opportunities are on the line. The delays have had
nothing to do with lack of project management expertise, change in agency, or more
rigorous oversight caused by the Oracle scandal. That's a load of BS. The delays are
the result of managerial malfeasance: 25% ITB, 25% UIB, 25% EDD Directorate and
25% DOF. The person to blame is every manager and staff person who didn't raise
his or her hand to call "bullsh*t" on this project, despite knowing they would be
passed over for promotion or otherwise punished for doing so.
http://www.khou.com/news/national/78279262.html
Stimulus grant for Calif jobless system

questioned
Posted on December 1, 2009 at 7:46 PM
******
SACRAMENTO, Calif. (AP) — California has received $60 million from the federal stimulus
package to upgrade its 23-year-old unemployment benefits system even though previous
federal funding to improve the same system has not been fully spent.
The state handles about 13 percent of the nation's unemployment claims but processes
benefits on a computer system built during the 1980s based on 1970s technology. The state
should have completed an upgrade last year using federal unemployment money it received
seven years ago, with the new system already in operation.
The original cash infusion was roughly the same amount as the stimulus money California
received this year to upgrade its benefits system.
According to the most recent report from the state's information technology office, the project
that was intended to improve the state's so-called Single Client Database will not be
completed until 2014, six years behind schedule.
Despite the lag, the U.S. Department of Labor has found no fault in how California used the
previous allocation because the program was designed to give states flexibility. They could
use the money as they saw fit.
The federal government has no plans to sanction or fine California for not completing the
original technology upgrade. The Labor Department said it was more concerned that new
stimulus funding is used in a way that will allow more workers to qualify for unemployment
assistance.
"We want states to use unemployment modernization funding to provide unemployment
compensation to a broader group of workers," Jane Oates, the Labor Department's assistant
secretary for employment and training, said in a statement.
California received $66 million in 2002 to upgrade its computer system for processing
unemployment claims. The money was authorized by Congress under the Reed Act, which
allowed the Labor Department to distribute $8 billion in surplus money from the Federal
Unemployment Tax Account.
The intent was to bolster state unemployment trust funds and help pay state administrative
costs.
California used its share of Reed Act funding on two projects. One upgrade would have
better matched staffing levels with call volumes on the government's unemployment help
line. The other was to improve a payment system so claimants can certify their eligibility over
the phone or Internet.
As of last January, less than $12 million — or 18 percent of the total received in 2002 — had
been spent, according to a legislative staff report. The rest remains unspent.
The failure to fully implement the upgrades projected from the 2002 funding has real-world
effects on those who have lost their jobs. It is especially noticeable as California's
unemployment rate has soared above 12 percent, a modern-day record.
For example, jobless Californians can file their initial application online but have to complete
follow-up forms by hand, which takes the state longer to process.
Even once approved, the state does not have the capacity to make direct deposits into
people's checking accounts. The state hopes to tackle that project using the latest infusion of
stimulus money.
"Everything is done through mail, and I hate that," said 20-year-old Janessa Rivera, of
Sacramento, who was making her second attempt this year to apply for benefits at an
unemployment office in the state capital. "Only the application is online. Everything else you
have to wait for a call. You have to wait for it in the mail."
In 2003, a year after the Reed Act money was distributed, the Government Accountability
Office said 17 percent of the $8 billion had been spent. It has not conducted an audit since.
This year, the Obama administration's $787 billion stimulus package allocated another $60
million for California to modernize its unemployment system.
State officials plan to use $20 million to overhaul the state's unemployment database, which
runs on computers that display a black screen and fit just 30 lines of text. That conversion is
expected to take 1½ years.
The rest could be used for future projects. Just as with the Reed Act, the state faces no
deadline for spending the stimulus grant.
Dale Jablonski, deputy director of information technology at the California Employment
Development Department, acknowledged the system's upgrade is long overdue but
defended the work done so far. He noted that California has not experienced a major
computer breakdown even as the number of unemployment claims has spiked.
The state Employment Development Department received 280,000 initial unemployment
claims last month, up more than 50 percent from the same month two years ago.
State officials, including Sen. Denise Ducheney, D-San Diego, blamed unrelated
bureaucratic delays for stalling the original project.
"It's like rebuilding an airplane while it's in the air," said Jablonski, who helped write the code
for California's unemployment benefits system in the 1980s. "It's not easy under normal
volumes. It's even harder under high volumes."
http://techleader.tv/?p=259
State Cancels Controller’s $70 Million Payroll Computer System
The State of California’s Department of General Services on behalf of the State
Controller’s Office formally cancelled BearingPoint’s $70 million contract to implement
the state’s new payroll system lateTuesday of this week according to a report in the
Sacramento Bee today by Dan Glover.
Controller Chiang’s payroll system capabilities were recently in the news as he had
become somewhat of a folk hero among state unions, the state legislative majority, and
other Democratic office holders for refusing to issue minimum wage paychecks to state
employees during the last year’s budget imbroglio just a few months ago. (And yes, if
you think we have been in a budget imbroglio for years and years you are correct.) Even
the SacBee’s bad-boy editorial cartoonist Rex Babin anointed Mr. Chiang, portraying
him as the callow public servant blocking the Terminator’s tank, recalling the brave
Chinese dissident’s actions leading up to the Tiananmen Square Massacre two decades
ago.
Unfortunately, Chiang had to confess that he wasn’t doing this solely out of altruism for
his fellow state employees; somewhat embarrassingly he had to admit that the issue was
moot anyway because his computer system was so old and cumbersome it couldn’t be
reprogrammed to cut 200,000 minimum wage checks for at least six months.
However, Mr. Chiang said at the time that he was developing a new payroll system, the
so called 21st Century Project, which when complete, could very simply and very quickly
make the changes to employee pay rates, or so his office claimed. So Problem solved. But
wait a minute. Chiang had to admit that his new system, already two years in
implementation phase, won’t be operational until late 2009, or probably 2010, and that’s
just first phase rollout, statewide implementation is still years away.
And now this week he cancels the project. Well, he can’t say he wasn’t warned, and his
predecessor, too, Steve Westly. I have reported and even testified in the state legislature
that this project has been doomed from the start. There was a failed process, a failed
procurement, a failed vendor and now a failed project. Keep watching this site, as Drudge
says, this story is developing…
State controller: It will take 6 months to change

computer system to issue minimum-wage checks to
state workers
By Kevin Yamamura
Sacramento Bee
Article Launched: 08/04/2008 01:47:02 PM PDT
State Controller John Chiang said today an antiquated state computer system makes
it impossible to adjust the state payroll quickly to issue minimum-wage checks to
state workers. He said it would take at least six months to make the change.
The Democratic controller has vowed to defy Gov. Arnold Schwarzenegger's executive
order directing the state to pay workers the federal minimum wage of $6.55 per hour
until a budget agreement is reached. He has previously asserted that the Republican
governor's order is based on an untested 2003 state Supreme Court legal opinion and
that he will continue issuing full paychecks to state employees.
But in a meeting with The Bee Capitol Bureau today, Chiang said that even if
Schwarzenegger's legal reasoning were sound, the state could not logistically retool
its outdated payroll system in a matter of weeks, as the governor has asked. If the
change were eventually made, Chiang also said it would take an additional nine to 10
months to issue checks to employees for their full back pay.
"Pragmatically, we just can't get the system to work in a timely manner for us to
implement payment of minimum wage," Chiang said.
He warned that changing payroll so quickly could also lead to errors that leave the
state vulnerable to lawsuits from workers and triple penalties known as "treble
damages."
Schwarzenegger said last week his executive order is necessary to preserve cash,
ensure the state can pay its bills in September and avoid heavy borrowing costs.
Chiang again challenged that view, asserting that the state will have enough cash to
pay its bills and that the order will do nothing to prevent the state from incurring any
more heavy borrowing costs than it would otherwise.
Sources: http://www.mercurynews.com/ci_10094872?source=most_viewed
cid=1233CD1AFAE652C8&p_docnum=7&p_queryname=7
California too tough to run, analysts say

Sacramento Bee, The (CA) - Monday, September 15, 2008
Author: Steve Wiegand swiegand@sacbee.com
The state controller says California's payroll computer program is so antiquated
it would take six months to reconfigure it to change workers' pay.
State personnel officials acknowledge the 70-year-old 10-step hiring system

means it can take three years for a qualified applicant to land a state job.
No one even knows how much gasoline is burned up each year by the state's
vehicle fleet.
This is apparently one tough state to run.
Even setting aside the frequent, fractious and protracted political squabbles
among elected officials -- such as the current fight over the budget -- state
government is riddled with systemic problems.
They range from a personnel system that rewards seniority over competency to
piecemeal programs that make it almost impossible to measure how well or badly
the programs are doing.
"The overriding problem is that there is no real incentive or focus in state

government on the real fundamental question that should be asked of virtually
everything the state does, and that is, 'How can we do this better?' " said Jim
Mayer, executive director of California Forward, a nonpartisan public policy group
that pushes reforms in state government and politics.
"There is not a system in place that says, 'OK, how are you going to do a better
job with what you've got?' "
Part of the problem is sheer size. California state government is a massive

labyrinth of more than 200,000 employees in more than 4,000 separate job
classifications, spread through more than 150 agencies and departments -- and
that doesn't include the state's university and college systems.
Group gives state a low grade
It's a government so large and disparate in its functions that it's difficult for
anyone inside the system to take an outside -- or objective -- view of things.
But at least one outside group does. For the past decade, a Washington, D.C.-
based think tank called the Pew Center for the States has joined forces with a
periodical called Governing Magazine to analyze all 50 states in key performance
areas and issue report cards on how they measure up.
In this year's assessment, California lagged behind all but nine other states in
overall grades, and below more than half the states in all but one category.
Among the 10 most populous states, only Illinois did as poorly as California.
"The state has a history of taking stopgap fiscal actions," the report notes.
"California lacks an overall statewide strategic plan (on infrastructure) ... poor
technology hampers the ability of the state to produce and track performance
information ... the state faces significant challenges in recruiting and hiring
sufficient high-quality staff for agencies."
The Pew Center's assessment may be intuitive for a lot of Californians.
A survey last month by the Public Policy Institute of California found that 65
percent of those polled think they can trust state government no more than some
of the time "to do the right thing."
Sixty percent are convinced state government wastes a lot of tax money.
California government has justified the lack of faith with a long and costly string
of program and technology failures.
In the early 1990s, there was the $50 million failure of a database system at
the Department of Motor Vehicles .
In 2001, there was the $95 million debacle involving Oracle Corp., in which the
state bought millions of dollars in software it didn't need.
In a technology-based mess that formally ended in June, it took 20 years -- and

$1 billion in various penalties -- for the state to comply with a federal mandate for
a computer system that could accurately track child support payments.
Even seemingly simple tasks become engorged by the government's size and
complexity.
Since state vehicles are scattered around 100 different departments, no one
keeps track of how much the state is spending on fuel each year -- although
officials manage to do so in Texas, the nation's next-largest state.
At the Department of Justice, about half of the 5,500 workers use one word
processing program, and the other half use another.
It will cost $970,000 and take months to get them all on the same page.
"You have to do a lot of planning so that you make sure you cover every base,"
said Kathleen Newman, manager of the effort, known as the Legal Word
Migration Project.
All of this would seem a bit embarrassing to the state that gave the world Silicon
Valley.
But eight years into the 21st century, there are indications California is finally
putting the technological building blocks in place to provide services to a growing
population with growing needs for them.
A change at the IT helm

The clearest indication of that may be Gov. Arnold Schwarzenegger's hiring last
December of a 59-year-old Michigan woman named Teri Takai to be the state's
chief information officer.
The Cabinet-level post has responsibility for overseeing the state's information
technology.
Takai, a former executive at Ford Motor Co. and former chief information officer
for the state of Michigan, has a national reputation as a can-do manager. She'll
need to be in a state that has 130 information officers and an entrenched
bureaucracy that doesn't always welcome change.
"The problem in the past has always been this tendency to polarize," Takai said
in a recent interview. "It was either, 'Oh, we have to have our own (system),' or
'Oh, we don't want to be part of a central approach because we have our own
business needs.' Actually, the truth is in the middle."
Takai took pains to praise her predecessor, J. Clark Kelso, for laying the
groundwork for developing a government culture that welcomes new technology
as a tool rather than an obstacle.
"My objective," she said, "is that when somebody wakes up in the morning (at a
state agency) and says, 'I have to go do this project,' one of the first things that
they think about is, 'How can the technology help me do it?' as opposed to what
happens now sometimes, which is, 'Oh, God, I hope this doesn't involve
technology.' "
In fact, the state is already making strides in the information technology area.
Last month, the Brookings Institution for Governance Studies ranked California
fourth among the states for its Web site. In 2005, it was 47th.
More work still to do
Other areas of state government, meanwhile, are trying to catch up:
* The state controller's office is overseeing the 21st Century Project, which is
designed to modernize the state's 30-year-old payroll system and make it easier
to collect information on and from state workers. It's supposed to be done in early
2010.
* The controller's office, the treasurer's office and the departments of Finance
and General Services are collaborating on the $1.6 billion, 12-year Financial
Information System for California, or FI$Cal. Its goal is a technological system
that will keep better track of where, how and why taxpayer dollars are spent.
* State personnel officials are attempting an overhaul of the state's creaking

employment program. The Human Resources Modernization Project is supposed
to be finished in 2014.
How much of this actually gets done, however, may hinge heavily on how much
interest in it is shown by arguably the most dysfunctional group of state workers:
the Legislature.
"There is no 'management toward results' in much of state government," said

California Forward director Mayer. "Instead, it's 'management toward the status
quo' ... and a lot of that emanates from a risk-averse Legislature."
Mayer said legislators' traditional response to technology has been primarily to

react when mistakes are made rather than champion progress.
"You're going to have bad projects, this is the nature of technology," he said.
"The real question is how we create a system where we are picking the right
projects that improve a public result, or reduce cost, and then create a system
that encourages managers to use them.
"And that cannot happen in the bureaucracy alone. It's going to take thoughtful
political leadership, and until now, that's not what we've done."
Call Steve Wiegand, Bee Capitol Bureau, (916) 321-1076.

Caption: Nam Nguyen / nnguyen@sacbee.com California Report Card Here's
how California stacked up in the Government Performance Project conducted by
the Pew Center for the States and Governing Magazine: Money / D+ (How well
states dealt with their finances) Rank: 48 states were rated D or better People /
C- (How well states manage their work force) Rank: 38 states were rated C or
better Infrastructure / B- (How well states manage their roads and buildings)
Rank: 17 states were rated B or better Information / C+ (How well states use
technology to inform the public) Rank: 28 states were rated B or better Overall /
C Rank: 41 states were rated C+ or better Nine other most populous states
(States are listed in order of population) State / Money / People / Infrastructure /
Information / Overall Texas / B / B / B / B / B+ N.Y. / C+ / B- / B- / C+ / B- Fla. / B-
/ C- / A- / B- / B- Illinois / C- / C- / C / C+ / C Pa. / B / C+ / B- / B / B- Ohio / B / C+
/ B- / B- / B- Mich. / C+ / B+ / A- / A / B+ Ga. / B+ / A- / B / B+ / B+ N.C. / B- / B /
B- / B- / B- National average / B- / C+ / B- / B- / B- Source: State Management
Report Card for 2008, compiled by the Pew Center for the States and Governing
Magazine
Memo: POLICY / Systems in turmoil
Section: MAIN NEWS
Page: A1
State's tops in car theft, but it shuns U.S. database - Activist wants
the California DMV to join a program that keeps tabs on cars' IDs.
Sacramento Bee, The (CA) - Monday, July 16, 2007
Author: Tony Bizjak ; Bee Staff Writer
Rosemary Shahan, prim in a pink sweater and matching pink blazer, sits at the
dining room table of her neat Davis condominium, documents spread end to end.
Here's one that gets her going: Latest statistics from the California Highway
Patrol that show some 250,000 vehicles were stolen in the state last year.
California is the undisputed national leader in car theft and fraud.
A letter to California officials from the FBI and U.S. Department of Justice grabs
Shahan's interest. It says California is one of 20 states that do not participate in
the national vehicle information-sharing program designed to reduce theft and
fraud. The feds ask what they can do to get California's Department of Motor
Vehicles to sign up.
That upsets Shahan.
A familiar face at the state Capitol, Shahan is a soft-spoken but passionate

former English teacher who now heads Consumers for Auto Reliability and
Safety, which she runs out of her Davis condo.
If California would just join the computerized national system that tracks vehicle
titles, the state could put the squeeze on a teeming underworld of chop shops,
car cloning and title washing, she argues.
It would mean fewer thefts, and fewer unsafe cars sold to unsuspecting buyers.
"We desperately need to do this," Shahan said. "It's way, way overdue."
California Highway Patrol officials agree.
"California is the big dog," CHP auto theft Sgt. Troy Rivers said. "Once we get on
board, that is going to add impetus to other states to get involved."
Not so fast, California DMV officials say.
The National Motor Vehicle Title Information System is "a good concept and has
merit," DMV spokesman Mike Marando said. "We acknowledge the benefits of
NMVTIS as a tool for identifying stolen vehicles and protecting consumers."
But the DMV recently launched a major effort to modernize its

own computer systems for driver's licenses and vehicle registrations, Marando
said. Not until that's done, possibly in 2010, can the DMV seriously consider
joining the national information system.
Not good enough, Shahan said. She wants the DMV to join sooner.
Her effort may be quixotic -- given the state's cash-strapped situation and other
priorities -- but Shahan has a decent track record.
She was the San Diego housewife who helped launch California's
groundbreaking "lemon law." In 1982, she wielded a dogged, one-woman
sidewalk picket at a dealership that sold her a defective car.
Consumer advocate Ralph Nader once called her tenacious as a bull and as
humane as Mother Teresa.
Over the years, she has been part of the push to get air bags into American cars
and was an early instigator for California's Car Buyer's Bill of Rights.
Advocacy, she says, "is in my bones, I guess."
Her parents were seriously injured by a drunken driver when she was a child.
"I still remember that night," Shahan said. "It changed everything."
Shahan is not alone in her new campaign.
The FBI and the Department of Justice recently began what they describe as a
"renewed" effort to get more states signed onto the decade-old system. They are
looking to consumer advocates like Shahan for some help.
Shahan is among a handful who received briefings at FBI headquarters in

Washington, D.C., this month.
The information-sharing system, authorized by Congress in 1992 and updated in

1996, ideally would hold up-to-date information on the status of every titled car in
the country.
Information would be submitted by state DMVs, insurance companies and others.

Anyone checking the database could immediately know, for instance, if a vehicle
was "totaled" by an insurance company or was reported damaged in a given
state.
The system could help law enforcement more easily track stolen vehicles and
could warn agencies if two cars have the same vehicle identification number, an
indication that one car's identity was illegally "cloned."
The system, however, is far from effective and has languished until recently.
National officials say they want to turn that around. Their interest in improving the
system stems from heightened concern about the potential for stolen vehicles to
be used in terrorist acts and from possibly dangerous Hurricane Katrina-
damaged vehicles being sold to unaware consumers.
Some 30 states participate at various levels, according to the Department of

Justice, including the Western states of Oregon, Nevada and Arizona.
California, by virtue of its size, would give the struggling system a huge boost,
proponents say.
California has the most registered vehicles in the country. Federal crime data
listed 257,000 vehicles stolen here in 2005. Texas was a distant second at
93,000.
Per capita, California ranked sixth in the nation in vehicle theft in 2005. Nevada
was first among the states, though topped by the District of Columbia.
Jason King, spokesman for the American Association of Motor Vehicle

Administrators -- mainly state DMVs -- said states with ports, like California, tend
to have higher theft rates.
Cars can be stolen and quickly shipped out of the country, he said.
Locally, vehicle theft Sgt. Bill Montague of the Sacramento Police Department
said he is not familiar with the National Motor Vehicle Title Information System,
but he'd love to see an auto theft information-sharing system in place, at least
among law enforcement agencies in the Sacramento region.
Shahan has been on a roll in recent weeks. She's buttonholed several DMV
officials to pitch the national system.
This past week in Washington D.C., she lobbied staff members of several
California congressional members, including those of Democratic Sens. Dianne
Feinstein and Barbara Boxer.
She also asked transportation committee officials in the state Senate to hold a
meeting on the issue. Committee consultant Carrie Cornwell said officials are
planning to set up a meeting.
Shahan says she's in a hurry.
"Time means economic hardship," she said. "Time means lives."

The Bee's Tony Bizjak can be reached at (916) 321-1059 or
tbizjak@sacbee.com.
Caption: Sacramento Bee / Lezlie Sterling Rosemary Shahan Sacramento Bee /
Lezlie Sterling Rosemary Shahan visits the state Capitol to talk with the staff
members of Sen. Ellen Corbett, D-San Leandro, who wrote SB 234, an
amendment to California's "lemon law," which Shahan helped launch 25 years
ago. Shahan is now pushing the DMV to join a national auto theft database.
(Chart) Sacramento Bee / Nathaniel Levine Top vehicle theft states 1. California /
257,543 2. Texas / 93,423 3. Florida / 75,303 4. Arizona / 54,905 5. Washington /
49,287 6. Michigan / 48,223 7. Georgia / 44,477 8. Ohio / 41,379 9. Illinois /
39,385 10. New York / 35,736 Nationwide / 1.2 million Thefts per 10,000
residents (2005) 1. D.C. / 140.2 2. Nevada / 111.5 3. Arizona / 92.4 4.
Washington / 78.4 5. Hawaii / 71.6 6. California / 71.3 7. Maryland / 60.8 8.
Colorado / 56.0 9. Oregon / 52.9 10. Georgia / 49.0 Nationwide / 38.8 Source:
FBI
Section: MAIN NEWS
Page: A1
State's tops in car theft, but it shuns U.S. database - Activist wants the California
DMV to join a program that keeps tabs on cars' IDs.
_action=doc&p_docid=10E868102F1EED60&p_docnum=37&p_queryn
ame=8
Digital age perplexing for state archivists - With no uniform process

to keep records, officials say much is being lost.
Sacramento Bee, The (CA) - Wednesday, December 14, 2005
In the age of the Internet, it is a simple matter to get government information with
a few mouse clicks.
But what if you're interested instead in what your government was doing three
years ago?
State officials - like their counterparts in the federal government and the private
sector - are facing a perplexing paradox: Documents and publications that are
available at lightning speed can disappear just as quickly.
With no uniform or consistent procedures in place to capture the records of
California government, much is being lost, officials say.
Half would be a conservative estimate, said John Jewell, chief of state library
services for the California State Library.
The implications are enormous for historians, government officials and citizens
who want to know what their government is doing.
"You hear the terms 'digital death' and 'digital dark ages,' " Jewell said. "In effect,
we are losing materials for people in 10, 15 or 20 years who will look back and
say, 'We don't know what went on here.' But we could go back to the 1920s and
have no problem."
Clark Kelso, the state's chief information officer, called the problem "huge."
"We probably don't even know what we're losing," he said.
"One of the great protections we have in this country against government abuse
is that government tends to be open," he said. But if digital records disappear, he
said, "that sort of makes a mockery of open government."
Librarians and archivists have begun to propose solutions. But there are many
challenges, from the technology to money to the mindset of people who make
government Web sites.
Before computers , the process was simple, Jewell said. Government agencies
that wanted to print something generally had to go through the state publisher,
which distributed copies of the publication to government libraries.
The model started to fall apart as personal computers became ubiquitous, and
individual offices could publish a few hundred copies of a document without ever
involving the official state publisher. A regional branch of the Department of Food
and Agriculture, for instance, might decide to publish a brochure on how to deal
with a local pest without even notifying headquarters, much less libraries.
"As you got different organizations deciding when and how they would distribute
certain things, it became sort of nebulous," Jewell said.
With the Internet, the trend sped up dramatically.
Now, publications and other documents might appear only on a government Web
site, never in print, and be posted for a few months.
"When we take it down, basically that means we delete it," Jewell said.
Departments focus more on getting current information up and available to the
public than on preserving it for posterity, librarians and archivists say.
As a result, publications as diverse as the directory of state workers,

the Department of Motor Vehicles ' driver's manual and an HMO "report card"
no longer make their way to the State Library.
"Many agencies do not have a formal process for storing and maintaining those
materials," Jewell said.
It's not just historians who depend on it.
"People come in from the agencies, from the Governor's Office, from the
Legislature wanting examples of what took place in 1950, in 1960, '70 or '80,"
said Kristine Ogilvie, head of the State Library's government publications section.
"They want to see what's happened before so they can go forward."
Librarians, archivists and others on the state and national levels have been
discussing ways to preserve digital archives - but the problem has so many
facets that there is no simple solution.
Some of the difficulties are technological. How do you preserve a document in a

format that can be read by computers 100 years from now? That's a century of
updated software, and accounting for new kinds.
Some librarians see this as less pressing than some other challenges, because
much of what appears on the Web is written in the generalized language of the
Internet or other commonly recognized formats.
Another problem is authenticating digital documents. A paper record can be

stamped with the date, and future researchers can verify its age by
characteristics such as paper and type.
That's no easy feat with an undated digital document. And it's hard to know
whether an electronic record was altered after it was first created.
The solutions to all these technical problems must be applied in a wide variety of
state operations, all with their own budgets and unique ways of doing things.
"What policy could we announce that everyone could do cost-effectively right

now?" Kelso asked. "That would be a challenge."
Cost is another big unknown.
People tend to think of the Internet and electronic documents as being far
cheaper to create and preserve than their paper counterparts.
But digital archiving is "more costly than most people think," said James Jacobs,
until recently a government information librarian at the University of California,
San Diego.
Technicians must be paid to make sure servers don't crash and delete
information. Software must be written or adapted to capture and authenticate
staggering amounts of data.
And officials who control budgets may be expecting departments to get this done
without any extra money, said Daniel Greenstein, university librarian at the
California Digital Library, part of the University of California.
"This is the unfunded mandate from hell," said Greenstein, referring to programs
mandated by the state without accompanying money. "Where's the check?"
The Digital Library is developing a set of "utilities" that libraries of all types and
sizes can use as they see fit - an effort that Greenstein said could drive down
costs.
Some in the field say they are frustrated that the issue hasn't taken on greater
urgency.
"It's something our legislators aren't really thinking about, and that's kind of
alarming," Jacobs said.
There are many possible models for how a system of digital archiving could
work.
One involves libraries "harvesting" particular documents after they've been

posted on a Web site. Another involves a more automatic process of capturing
everything on a Web site at certain intervals, and sorting it out later.
Even better, perhaps, would be for departments to have a way to transmit new
material to a library at the same time that they posted it on their Web sites, Jewell
said.
As it stands, these solutions are theoretical. Today, the only surefire way to
guarantee that a document will be available in the future is decidedly low-tech.
"If we absolutely, positively want to ensure that we have the item in 150 years,"
Jewell said, "our best preservation is print."
The Bee's John Hill can be reached at (916) 326-5543 or jhill@sacbee.com.

Caption: Sacramento Bee / Jay Mather Vickie Lockhart, a senior librarian for the
California State Library, views a set of historical documents preserved in the
library's digital archives.
Section: MAIN NEWS
Page: A3
Digital age perplexing for state archivists - With no uniform process to keep
records, officials say much is being lost.
cid=10942FE3CE13FF0E&p_docnum=46&p_queryname=8
Outdated technology slows state to a crawl - Information systems
stumble along as work begins on fixes.
Sacramento Bee, The (CA) - Sunday, April 3, 2005
Author: Clea Benson ; Bee Capitol Bureau
When it comes time for the state to send monthly paychecks to more than
200,000 employees, someone in the controller's office in downtown Sacramento
downloads the data from a mainframecomputer onto a tape the size of an eight-
track and walks it over to the room that houses the printers.
The information-transfer process takes so long that the controller's staff has to
start it before the end of the pay period to get the checks mailed out on time.
And if anything goes wrong, only the old-timers on the controller's staff know how
to fix it. The payroll program was written about 30 years ago in
a computer language so ancient that to recentcomputer -science graduates, it
looks like hieroglyphics.
Decades after the birth of the computer industry, much of it right here in
California, the state's massive information technology systems are disorganized,
outdated and deficient.
The state can trace some of its problems to its failure to invest earlier in new
technology. But observers say the main reason is that, for too long, the state has
scattered the authority for itscomputer systems over hundreds of departments,
with little centralized coordination or oversight. That lack of monitoring, in turn,
led the state to waste hundreds of millions of dollars on failed upgrade projects.
"It's really the politics, meaning the politics of department by department by

department making their own technology and business decisions," said Gregory
G. Curtin, director of the Center for E-Government at the University of Southern
California. "In this day and age, that will kill the promise of technology."
Efforts are under way to change that. Building on an enterprise that began before
he took office, Gov. Arnold Schwarzenegger last year released a strategic plan
for overhauling the way the state manages computer projects. Several major
technology upgrades also are in progress. They include a $100 million effort to
switch the payroll program to a faster and more flexible system.
But in the meantime, California must rely on information technology that often
falls far short of modern standards:
* Californians have a tough time conducting business online with many state
departments.
* The old systems often can't provide data the state needs to measure its own
efficiency. Right now, the state's departments can't even keep track of how much
money they've spent halfway through the year, officials say.
* In some departments, the lack of data can become a matter of life or death.
Prison officials cannot punch up computer records on inmates to determine
whether they have contagious diseases, need medical treatment or could be a
risk to the public when released. The Department of Social Services has no
computerized information on how many children die in the state's foster-care
system or on how often its inspectors visit day-care centers.
Meanwhile, the state has hundreds of distinct computer systems overseen by

seven agency information officers, 50 department information officers and more
than 100 project managers. With little coordination between departments,
technology upgrades often duplicate one another or end up being incompatible.
Even the people in charge of the reform effort say the state will have to do a lot of
work before it can turn things around.
"I would say we are in a nine-inning game, and we may be at the second or third
inning," said Clark Kelso, the state's top information-technology official and the
chief architect of the reform plan. "I think we realize the direction we need to be
going in and that's important, because three years ago, I don't know that we had
a direction."
Right now, in addition to a big-picture restructuring that would include

establishing a central Department of Technology Services, Kelso and other
officials are focused on planning a new statewide accounting system, merging
the state's two large data centers and upgrading the state's Web sites.
The federal government is adding to the pressure by making computerization a

prerequisite for receiving federal dollars for many state programs. California
repeatedly has failed to meet the federal requirements, costing the state more
than $1 billion in fines since 1997.
Problems with the state's child support collection computers accounted for most
of that. But the system that tracks abused and neglected children also fails to
comply with federal rules. And the secretary of state's office is now struggling to
create a centralized voter database that will meet federal standards.
The problems go back a long way.
Over the years, because of poor oversight, the state had to junk costly new
systems that simply didn't work for the California Lottery, the Department of
Motor Vehicles and the child support collection program.
In the case of the DMV in the early 1990s, officials in charge of a new database
project kept approving payments for it even though the company doing the work
was not meeting its schedule. Finally, after $50 million was spent, the DMV
scrapped the project when it became apparent it would never work.
The state auditor later determined that department officials focused too heavily
on meeting deadlines and ignored warnings that the database wasn't working
right.
In 1995, lawmakers created a Department of Information Technology to deal with

the lack of management. At the time, that put California ahead of the curve
compared with other states.
But that experiment failed in 2001, when the new department awarded a $95
million no-bid contract for database software to Oracle Corp. Auditors found that
the contract, later canceled, would have charged the state for millions of dollars
worth of software that it didn't need.
Former Gov. Gray Davis fired the head of the Department of Information
Technology and brought in Kelso as a replacement. The Legislature got rid of the
department in 2002, leaving Kelso without a staff or a budget. He now reports to
the Governor's Office.
Kelso has spent the years since then working with department and agency
technology officials on the reform plan.
State Sen. Debra Bowen, D-Marina del Rey, a longtime observer of the state's
technology problems, says she is "hopeful, but not satisfied" that California is on
the road to improvement.
"California has a particularly large challenge," she said. "First, we're so big, and
many of the things that work in smaller states and smaller jurisdictions aren't
readily scalable. That makes things harder.
"We operate with a different set of rules than the private sector. We deal with
competitive bidding to avoid the appearance or the actuality of cronyism. That
slows things down."
In the past, Kelso compared the state's computer systems to the Titanic and the
Winchester Mystery House - the rambling San Jose mansion filled with stairs and
doors that lead nowhere. These days, he is more positive.
He said he senses increased willingness among counties and state departments

to cooperate on building computer systems.
And in some ways, he believes, California is ahead. No other states offer

wireless Internet connections in all state parks, as California does. State
residents log in frequently to a new Web site operated by the attorney general
listing the home addresses of registered sex offenders.
But he believes it will take between 10 and 15 years to come up with a statewide
technology system that works.
No one really knows how much it could cost. State accounting programs, Kelso
said, "don't separately break out IT spending."
***
The Bee's Clea Benson can be reached at (916) 326-5533 or

cbenson@sacbee.com.
Section: MAIN NEWS
Page: A1
Index Terms: REPORT
Outdated technology slows state to a crawl - Information systems stumble along
as work begins on fixes.
cid=104E5085C60823CF&p_docnum=54&p_queryname=8
CalSTRS checking computer options

Sacramento Bee, The (CA) - Friday, September 3, 2004
Author: Gilbert Chan
Looking at ways to cut costs, the California State Teachers' Retirement System
will explore shifting its computer services from the state to a private firm.
CalSTRS trustees voted Thursday to consider moving technical support services
from the state's Stephen P. Teale Data Center in Rancho Cordova.
Teale is one of two state technical centers and serves more than 250 local and
California government agencies, ranging from American River College to
the Department of Motor Vehicles . It maintains CalSTRS' database and hosts
its Web site for about $7.5 million a year.
CalSTRS will ask companies to submit proposals for a five-year contract worth
about $36.5 million. Chief Executive Officer Jack Ehnes said the fund wants to
determine if others can provide technical support better and at a lower cost than
the state.
CalSTRS, the nation's third-largest public pension fund with $114 billion in
assets, manages retirement benefits for 735,000 retired and active teachers
across the state.
Memo: SACRAMENTO BRIEFING
Section: BUSINESS
Page: D2
CalSTRS checking computer options
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Audit rips state on Web site spending - Companies were paid millions
with no bidding or price comparisons
The Sacramento Bee - Thursday, March 27, 2003
California's Web site has won awards, but it's also a prime example of flawed
and potentially wasteful state contracting practices, State Auditor Elaine Howle
said in a report released Wednesday.
The redesign of the state's Web site was orchestrated by two officials in Gov.
Gray Davis' office. They told departments what companies to hire, bypassing
competitive bidding or simple price comparisons, the audit found.
The state paid one vendor $3.2 million and another $8.4 million without
comparing prices or analyzing other factors, as called for in state guidelines. As a
result, the audit said, the state will never know if it paid a reasonable price.
The audit did not name the officials. But lawmakers said - and references in the
audit made clear - that they are former e-government director Arun Baheti and
former director of executive information services Vin Patel. Both resigned last
year amid controversy over state information technology projects.
Several of the companies that made money from the Web portal had been
members of a council that advised the state on how to design the project. That
created "an appearance of unfairness," the audit said.
As the project costs ballooned, officials failed to justify them, the audit said. And
some cost estimates shown to state officials who oversee spending were too low
and "possibly misleading," it found.
Because the project was divided among various state offices, a consultant was
paid more than once for providing essentially the same service, the audit said.
"I think if you read between the lines, it simply says it was people who knew how
to manipulate the system," said state Sen. Dean Florez, D-Shafter, who as
chairman of the Joint Legislative Audit Committee requested the audit last year.
"These are people that gamed the system. They know the system; they're part of
the system; they come from the system."
The audit also leveled more general criticisms at state programs that allow
departments to buy goods and services without going through time-consuming
competitive bids.
The biggest of these, the California Multiple Awards Schedules, allowed

departments to use a screened list of vendors without comparing prices. About
$889 million in state purchases were made through CMAS in fiscal 2000-01.
Last May, Davis issued an executive order to tighten the procurement rules,
requiring state officials to check prices with at least three vendors.
But before that, the audit found, departments generally ignored rules that called
for comparing prices. In one case, the Department of Corrections bought $4.6
million in computer maintenance services without comparing prices.
The flouting of protocol extended into emergency and sole-source purchases.

Departments are allowed to bypass competitive bidding in emergencies or if only
one business can provide what the state needs.
But departments often failed to document that their purchases fell into these
categories, or just ignored the policy. The Department of Motor Vehicles , for
instance, spent $125,000 on teddy bears to use at promotional events
encouraging people to fill out their census forms. The Department of General
Services, which oversees state procurement, approved it as an emergency
purchase.
Assemblywoman Rebecca Cohn, D-Saratoga, said such practices won't be

tolerated, especially in the context of a staggering budget shortfall. Cohn is the
chairwoman of the Joint Legislative Audit Committee.
"These small stuffed toys will bring no comfort to the children of California who
are asked now to go without health care, textbooks and teachers in this terrible
budget year," she said.
Florez said he plans to ask Attorney General Bill Lockyer to investigate Baheti
and Patel. The two officials did not cooperate with the audit. Florez said the audit
committee should subpoena them to force them to explain their actions in the
portal project.
"It certainly is one of the options," Cohn said. But she stopped short of saying
she would push for subpoenas. The committee she chairs plans to hold a hearing
on the audit April 9.
The Bee in May reported that Baheti and Patel had familial connections with
companies that worked on the portal project. Patel's brother worked for
BroadVision, a Redwood City software company, and Baheti's brother-in-law
worked for Sunnyvale-based Verity Inc.
In response to the audit, Clothilde Hewlett, outgoing director of General Services,

and her replacement, McGeorge School of Law professor Clark Kelso, outlined
steps taken to correct state procurement practices.
Departments must document the need for emergency and sole-source contracts,
they said. And complex information technology projects no longer can be
handled through CMAS or a related technique, master service agreements.
The state's Web portal now is overseen by one state office, the Stephen P. Teale
Data Center, to avoid confusion from the involvement of several departments.
The company that maintains the Web portal, Deloitte Consulting, was recently
forced to bid against other companies, lowering the project cost.
But despite improvements, Kelso said, the state procurement program does not
yet have "a clean bill of health."

Caption: Dean Florez The Democratic state senator who ordered the audit said
people worked the system at the state's expense.
Section: MAIN NEWS
Page: A3
Audit rips state on Web site spending - Companies were paid millions with no
bidding or price comparisons
cid=0F36A58CE6EF0900&p_docnum=92&p_queryname=8
New Oracle player emerges - Legislature explore a consultant's ties

to the state and the company.
The Sacramento Bee - Wednesday, May 8, 2002
A legislative committee investigating the state's controversial software contract

with the Oracle Corp. is examining a man with no proven link to the deal but a
long history with Gov. Gray Davis' administration and the companies involved in
the deal.
State Sen. Steve Peace, D-El Cajon, cited David Lema, an information
technology consultant and former state official, as he complained that a deeply
embedded system of bureaucrats and vendors has led the state into a series of
contracting debacles.
"The history of this state with respect to technology acquisition is putrid," Peace
said during a Joint Legislative Audit Committee hearing that concluded early
Tuesday morning after about 10 hours of testimony on the botched Oracle
contract.
Peace zeroed in on Lema's work for Oracle and Logicon Inc., which stands to
make $28.5 million for its role as middleman in the Oracle deal. He suggested
that Lema was in a position to know something about the numbers used to
calculate the state's supposed savings. And Peace said Lema was at the
forefront of opposition to a conflict-of-interest law he wrote in 1998 to prevent
contracting scandals like the one engulfing the Davis administration. The bill was
vetoed by then-Gov. Pete Wilson.
But Peace produced no evidence Tuesday to support his claims. Lema

vehemently denied them in an interview and said he was mystified at the
committee's focus on him.
"I don't understand it," he said. "I'm shocked. I'm stunned. None of this makes
sense to me."
At the least, Lema's career illustrates the kind of intertwined relationships

between government officials and consultants that have come under the spotlight
in the Oracle case.
Elias Cortez, the suspended head of the Department of Information Technology,

testified that he told Lema to stop working as a consultant in the department's
offices after he found out that Lema formed a business with Vince Hall, who was
then Davis' chief of staff. Hall is now running for the state Assembly in San Diego
and working part time for Lema's company.
Lema, however, said he stopped working at Cortez's office because there was a
space crunch, not because of a perceived conflict-of-interest from a business
relationship with Hall. Hall agreed.
In fact, the two men say, there was no business relationship at the time. Hall left
the Governor's Office in Novem- ber 1999 to form a company, simplegov.com, in
January 2000. The company got Lema to serve on a board of advisers, Hall said,
but he wasn't paid. He did get some stock options in the summer of 2000, but the
company went out of business at the end of the year, and so the options yielded
nothing, Hall said.
Lema disputes Peace's contention that he led the fight against the 1998 conflict-
of-interest law.
"I didn't know the bill existed," he said. "I have no reason to be involved in that. I
have no idea what he was referring to."
And Lema said his work for Logicon and Oracle had nothing to do with the
controversial enterprise licensing agreement with Oracle. That $95 million deal
could end up costing the state $41 million more than it otherwise would have paid
for software, according to a state audit last month. Since the audit, two officials
involved in the deal have resigned and Cortez, the head of the Department of
Information Technology, has been suspended.
Lema said he didn't even know about the state's enterprise licensing agreement
with Oracle until he heard it through the media or through his contacts in the
high-technology world.
"I didn't know an ELA from a hot rock," he said.
Assemblyman Dean Florez, chairman of the Joint Legislative Audit Committee,

said he will ask Lema to testify May 21.
Although it's not clear he played a part, "Mr. Lema's name has come up too many
times in too many interviews for us not to feel it's relevant to what we're working
on," said Florez, D-Shafter.
For eight years, Lema was director of the state's Stephen P. Teale Data Center,
which provides technology support for state agencies and departments.
Lema left in 1989. Around that time, the state was embarking on another
technology deal that would prove to be controversial - the Department of Motor
Vehicles ' purchase of a computer system that never worked and had to be
scrapped.
The Teale Data Center, under Lema, had a hand in the deal. After Lema left
Teale, he went into business with Steven Kolodney, who had been the director of
the state's Office of Information Technology.
After it was revealed that the business got contracts with

Tandem Computers Inc., the company that had sold the computers to DMV,
the state's Fair Political Practices Commission investigated whether Lema and
Kolodney violated conflict-of-interest laws. Lema said he was cleared by the
commission. The commission took no action against him.
In 1998, after Davis was elected governor, Lema said, he was contacted by Lynn
Schenk, now Davis' chief of staff, about joining the transition team to advise
Davis on year 2000 computer issues.
Lema knew Schenk from the early 1980s, when she served as Cabinet secretary
for the Business, Transportation and Housing Agency under Gov. Jerry Brown
and oversaw the Teale Data Center.
Lema said he agreed to be on the transition team, and later was contacted by
Hall about the details.
During his time working for the state, Lema said, he severed connections with
clients in the private sector, including Logicon.
"I had to free myself from all semblance of conflicts," he said.
In 1999, Lema got contracts with the Department of Information Technology and
the Teale Data Center to advise the state on how to prepare for year
2000 computer issues.
Both contracts were a little under $500,000. According to a Department of

General Services policy, information technology agreements below $500,000
qualify for a type of no-bid contract used for Lema's company. His company and
its subcontractors eventually were paid about $855,000, according to figures
provided by the state controller's office.
At the time, there was at least a little internal grumbling about the contract.
According to a memo provided to The Bee, a worker at Teale asked, "What do
we get for our money? What expertise does he have that we do not possess
already?"
The worker also asked about Lema's role as the governor's Y2K special
assistant, advising the "diamond team" of officials leading the year 2000 project.
"Is not Mr. Lema a member of the 'diamond team,' and if so, do not his
recommendations therein constitute a conflict of interest if he directs state
agencies to his own consulting firm?"
Cortez testified Monday that he was told by Hall and another member of the
Davis administration that he should listen to Lema on Y2K computer issues.
But Hall and Lema both said that Cortez in no way reported to Lema.
Lema said he was given the title of "special assistant" to Davis as "a way to say
that this is not just another contractor" and to stress Y2K mission urgency.
He said Cortez never mentioned anything about his supposed business

relationship with Hall. Instead, one of Cortez's deputies told him there was a
space crunch.
After the contracts ended, Lema said, he signed a deal with Oracle in the spring
of 2000 to advise the software giant on the technology needs of state offices
dealing in health and human services, transportation and law enforcement.
Late in 2000, Oracle cut the $6,000-a-month contract in half, Lema said, and in
January 2001 informed him that it would be ending it altogether. Lema said he
continued to be paid until May of that year, but did no real work after January.
The state negotiated the controversial enterprise licensing agreement in April and
May 2001.
***
What's next in the Oracle hearings
The Joint Legislative Audit Committee will meet again at 2 p.m. Monday to hear
from these witnesses:
* Debbie Leibrock, chief, Technology Investment Review Unit, Department of

Finance
* Janice King, acting assistant deputy director, Department of General Services
* Kim Heartley-Humphrey, deputy director for acquisitions, Department of

Information Technology
* Tim Gage, director, Department of Finance
The committee will continue work Tuesday with these witnesses:
* Barry Keene, former director, Department of General Services
* Elias Cortez, director, Department of Information Technology
* Steve Nissen, former head of "reinventing government initiative," Davis

administration
* Tim Gage, director, Department of Finance
* Aileen Adams, secretary of the State and Consumer Services Agency
* Arun Baheti, former director of e-government, Davis administration
* Susan Kennedy, Cabinet secretary, office of the governor

Section: MAIN NEWS
Page: A1
New Oracle player emerges - Legislature explore a consultant's ties to the state
and the company.
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Audit rips state on computers- A new tech agency assigned to
monitor projects is called lax.
The Sacramento Bee - Thursday, June 28, 2001
Author: Jim Sanders ; Bee Capitol Bureau
California is failing in its promise to fix an oversight system that helps plan and
construct state computer systems, costing taxpayers $2 billion per year,
according to a new report by the state auditor's office.
The Department of Information Technology (DOIT), created five years ago in the
wake of two bungled computer projects, is not providing adequate guidance and
oversight, the report found.
The findings were challenged by the technology agency, which said auditors
focused largely on flawed policies and procedures under former Gov. Pete
Wilson and did not adequately consider reforms that are under way.
"The fact of the matter is the (auditors) did not identify any failed major
information technology projects that were approved or sponsored by this
administration," said Elias S. Cortez, DOIT director.
The alleged shortcomings are bad news, nonetheless, for state officials who
created the technology department after the Department of Motor
Vehicles spent $51 million and the Department of Social Services $111 million
on failed computer projects.
In the 170-page report, auditors focused on four nearly completed state projects,
begun from 1993 to 1998, and found that none has been completed on time and
within budget.
Cost overruns for the four projects ranged from $4 million to $28 million, and
completion dates were delayed between nine months and nearly five years for a
wide variety of reasons.
The four projects were an electronic toll-collection system for the California
Department of Transportation and multimillion-dollar computer projects for the
Employment Development Department, the Franchise Tax Board and the
Department of Health Services.
The audit gave passing marks to two of the four state projects, despite the
overruns, but it found the Health Services project lacked adequate planning and
the Caltrans project had significant problems in every aspect studied.
Auditors did not specifically blame the Department of Information Technology for
any of the overruns, noting that individual departments spearhead their
own computer projects, but the auditors claimed the state oversight agency has
been lax in tracking progress.
"(The department) has not always fulfilled its oversight responsibility and, as a
result, has not positioned itself to prevent potentially unnecessary and costly
project delays," the auditors concluded.
In the case of the toll-collection system, for example, the department did not
receive timely progress reports that would have documented changes that more
than doubled the budget - from $27.8 million to $56.1 million, the auditors said.
"DOIT would have been aware of project slippage as it occurred if it had required
monthly reporting of two critical pieces of information: the project's monthly actual
costs and revised estimates of total projected costs (and completion dates)," the
report said.
Auditors claimed the Department of Information Technology has not adequately

identified computer -project priorities, reviewed departments' strategic plans, or
provided proper information, guidance, standards and oversight.
"Although DOIT is developing new processes to meet its responsibilities, it has

not consistently delivered what it has been asked to do by the Legislature," the
report said.
Auditors cited numerous shortcomings, including:
* Of eight state departments studied by auditors, all had filed strategic plans for
their information technology needs since 1997, but none had been reviewed by
the technology department.
* For 10 computer -related projects that were approved, the department could
not provide sufficient evidence that it had thoroughly analyzed proposals before
taking action.
* For nine state projects that should have filed "special project reports" - to track
cost or time overruns - the department had only one-third of the reports in its
possession.
In contesting the audit report, Cortez said the technology department has
performed well under sometimes trying conditions, including a shortage of staff
and a soaring workload that included the state's year 2000 computer efforts.
The department, begun five years ago with just 15 employees, now has 80
authorized positions to handle a "customer base that, if treated as a separate
country, would represent one of the largest economies in the world," Cortez said.
Recruitment and retention have been hampered by a provision in state law,

accepted by legislators when they approved the department, that calls for it to
shut down July 1, 2002. It is unclear how the state will handle oversight after that
date.
The department is in the process of implementing reforms encompassing the

entire life-cycle of computer projects - from conception to construction to
evaluation, Cortez said.
The improvements will eliminate many of the concerns cited by auditors, he said.
"We agree with (auditors) that a great deal of important work remains to
reconstruct the previous administration's flawed IT management structure. ... The
current administration and DOIT are in the process of addressing these needs in
a proactive and collaborating manner," Cortez said.
In response, auditors agreed that the proposed improvements "appear to have

merit" but said they cannot be properly evaluated until they are implemented next
year.
The Bee's Jim Sanders can be reached at (916) 326-5538 or

jsanders@sacbee.com.
Section: MAIN NEWS
Page: A1
Correction: SETTING IT STRAIGHT: Because of an editing error, the first
paragraph of a story on page A1 Thursday about a report on state government
computers was misleading. The paragraph incorrectly suggested that lax
oversight costs taxpayers $2 billion a year. It should have said the state
computer system costs $2 billion a year.
Index Terms: REPORT
Audit rips state on computers- A new tech agency assigned to monitor projects is
called lax.
cid=0EB048259DDF65D9&p_docnum=111&p_queryname=8
State's track record poor
The Sacramento Bee - Wednesday, February 28, 2001
Author: Dan Walters
There are grandiose plans in the Capitol for the state to assume direct control of
California's electric power grid and expand into large-scale power generation as
well.
One reason to be skeptical of these schemes is that the state's track record on
services and facilities it already operates is, shall we say, less than stellar.
An irritating example is the Department of Motor Vehicles , whose long lines,

expensively nonfunctional computer systems and inability to crack down on
fraud make it a poster child for poor government.
But an even better - or worse - one is the public school system, whose academic
achievement record has declined over the last two decades in more or less direct
proportion to the shift of control from local school boards to state officials.
It would take volumes to catalog the state's operational failings in the schools, but
a current example illustrates the syndrome, to wit:
Gov. Gray Davis, as part of his get-tough approach to school performance,
wanted high school students to take and pass a mandatory "exit exam" of basic
standards before receiving diplomas. It was insurance, he said, against students
being graduated without learning what they needed to learn.
Legislation encompassing the governor's exit exam scheme was enacted in

1999, one of several education reforms that Davis advocated during his first year
in office. The law's no-test, no-diploma standard would take effect with the
graduating class of 2004, but students graduating that year would have to begin
taking the test as sophomores and would be allowed to take it as freshmen. That
meant that the first round of tests would be administered in March 2001.
Just as schools were preparing for the 2001 tests, however, state education
officials began worrying about their impact, due in part to lawsuits in other states.
Davis then decided that the 2001 tests for freshmen would be considered
practice tests whose results would not count toward the 2004 requirement. The
Department of Education told districts of the change and local schools told their
parents and students that the March 2001 tests wouldn't count. But unless the
law is actually changed, the March tests - the first round will occur March 7 - will
be counted.
Sen. Jack O'Connell, D-San Luis Obispo, drafted the requisite legislation, but
when it reached the Senate Education Committee, it was altered - against
O'Connell's wishes - to not only make the first test a practice, but to delay the exit
exam's effective date from 2004 to 2005. Liberal critics contend that the test is
not sufficiently aligned with the state's academic standards and could have a
devastating effect on poor and non-English speaking students, dropping their
already abysmal high school graduation rates even further.
In revised form, the bill cleared the Senate last week. But then the Assembly
Education Committee removed the 2005 effective date, returning it to 2004. Even
if the bill now clears the full Assembly, it must go through the Senate again.
Liberals have vowed to kill it unless the test date is delayed.
Davis' office insists that he wants to keep the 2004 date intact, but some in the
Capitol suspect that he would like a one-year delay so that the impact, whatever
it is, comes after the 2004 election, when he may be seeking the presidency. It
wouldn't look good for Davis if huge numbers of non-white students were being
flunked out of high school.
While all of this churns in the Capitol, local school officials, students and parents
don't know whether the March 7 test will be a practice or be for real. They may
not know even as the test is being administered. And the folks who are creating
this uncertainty think they should be operating a complicated power system.
DAN WALTERS' column appears daily, except Saturday. Mail: P.O. Box 15779,
Sacramento, CA 95852; phone (916) 321-1195; fax: (781) 846-8350
E-mail: dwalters@sacbee.com
Recent columns: http://www.capitolalert.com/voices/index_walters.html

Section: MAIN NEWS
Page: A3
State's track record poor
cid=0EB0480D785D8ACD&p_docnum=120&p_queryname=8
Agencies miss goals on disabled veterans - State contracts fall short
of level expected by law
The Sacramento Bee - Monday, December 11, 2000
Author: Melanie Payne ; Bee Staff Writer
Disabled veterans who own businesses aren't getting their fair share of state
contracts.
That fair share, according to the laws passed more than 10 years ago, is 3
percent of the $6.1 billion state agencies spend on goods and services every
year.
"The old boys' network" in the purchasing offices of state agencies is keeping out
disabled-veteran business enterprises, says Gary Ross, CEO of the Association
of Disabled Veteran Business Enterprise Network.
Ross contends that government workers in the purchasing departments are

steering contracts to their friends' and relatives' businesses.
Each state agency is required to make an annual report to the governor showing
how close it came to the 3 percent contract participation goal for disabled-veteran
enterprises. But many agencies don't file the reports.
Less than half of the agencies contacted by The Bee could produce the report.
One report was dated the day of The Bee's request. Michael Greene, a disabled
veterans advocate, did an extensive search for the reports in the State Library
and found reporting to be sporadic.
Those agencies that did file showed participation ranging from 0.03 percent at
the Department of Consumer Affairs to a high of 1.96 percent at the California
State Teachers' Retirement System.
"We do try to adhere to the spirit (of the goal) even though our numbers are low,"
said Patricia Macht, spokeswoman for the California Public Employees'
Retirement System, which had a 0.07 percent participation rate.
Another problem, Macht explained, echoing the complaint of many procurement

officials, is that there aren't many disabled-veteran businesses that provide the
goods and services CalPERS needs.
Gary Hoffman, president of the Central Valley Disabled Veteran Business

Enterprise Network has heard that argument before.
"Do they have computers ? Printers? Desks? Chairs? Of course they do," he
said. "We have business enterprises that can provide those things. We have
janitors that can clean the floor. Basically, every commodity or service they need,
we have a veteran that can supply the service."
The California Department of Veterans Affairs estimates that there are 198,000
disabled veterans in the state. The Department of General Services has certified
671 Disabled Veteran Business Enterprises. To be a state-certified DVBE, the
business must be owned by a veteran who has a military service-related
disability.
Some disabled vets said the state agencies are discriminating against them.
"I've been called a baby-killer, a drug addict, and a burden to society," said Larry
Turner, who owns D&L Concrete Pumping, Inc. in Modesto.
Many of the disabled veterans served in the military during the Vietnam era. The
controversy that still surrounds that war, many of the vets say, has left some
government workers anti-veteran and resentful of the DVBE program.
Other business owners report that they find purchasing agencies and other
contractors resentful of their "preferential status," especially since other
preference programs have been eliminated.
Disabled-veteran programs are different, argued Hoffman. These business

owners were injured or disabled in service to the country. With the DVBE
program, he said, "a grateful nation is trying to say, 'Thank you for your service.'
"
Many people don't share that view. But rather than violate the rules, they
fraudulently skirt them, disabled-veteran business owners claim.
Floyd Knox, owner of Veterans Assistance Network, said he often gets calls from
construction companies bidding on state contracts.
"They say they contacted me in a good-faith effort (to find DVBEs) even though
I'm in computers ," Knox said. They can then go back to the contracting agency
and say they tried to find a DVBE but couldn't.
Hilary McLean, a spokeswoman for Gov. Gray Davis, said these problems were
addressed with new legislation, AB 409, which the governor signed last fall.
The bill called for an advocate to be appointed in the Department of Veterans

Affairs who would monitor the state agency contracts, verifying that contractors
made good-faith efforts to find DVBEs and holding accountable state agencies
that did not achieve the 3 percent goal.
The advocate position was filled early this year by Ron Brand, who said he is
making progress although it's too early to see the results of the reforms.
"A lot of the problem is awareness," he said. "Making sure the contracting
agencies and major prime contractors that work with the state know the
requirement is still out there."
Many purchasing agents got confused after the Proposition 209 passed, Brand
said, believing it did away with all preference programs - which it did not.
Still, some say the problem with the DVBE program might lie with the Department
of Veterans Affairs, contending that the department has been in a state of
disarray for years, leaving many veterans programs without advocacy or
leadership.
"They can't seem to find anyone to run the department properly," said Dick
Dickerson, an assemblyman from District 2 and a former member of the
Assembly's Veteran Affairs Committee. The committee was disbanded last week
and will now be a subcommittee.
Dickerson admitted that since the legislation passed, the Assembly hasn't stayed
on top of the DVBE program. "We haven't followed up or audited it, and perhaps
we should," Dickerson said.
Disabled veterans, however, are not willing to wait on the wheels of government
to turn.
"If they wait long enough, we'll all be dead," said Daniel W. Roberts, president of
the California Disabled Veteran Business Enterprise Alliance.
The government agencies, he said, have used stall tactics since the program
began.
Roberts has met with officials at the attorney general's office to discuss claims of
contract fraud in the program. But as Sandra Michioku, a spokeswoman in the
attorney general's office explained, the Department of General Services, which
awards government contracts, would have to ask the attorney general to pursue
a case, and that hasn't happened.
That's why the alliance is amassing a war chest, and hiring its own attorneys,
Roberts said.
In the past, Roberts said, disabled vets weren't very savvy, and thought goals
and legislation were enough.
"They would laugh out loud at us," Roberts said. "But those days are over."
Caption: Bee graphic Below the goal California law requires state agencies to
set a participation goal of 3 percent in their bonding and contracting activities for
disabled-veteran business enterprises (DVBEs). Acoording to their latest reports,
state agencies are not meeting the goals. Agency / Total contracts awarded /
Amount awarded to DVBEs / % of contract awards to DVBEs Dept. of Consumer
Affairs / $11,722,380 / $3,281 / 0.03% Dept of General Services / $574,451,153 /
$5,237,175 / 0.91% Calif. State Teachers' Retirement System / $810,930 /
$15,882 / 1.96% Dept. of Health Services / $156,162,560 / $644,523 / 0.41%
Calif. Public Employees' Retirement System / $147,401,636 / $98,348 / 0.07%
The following agencies did not provide reports: Department of Motor Vehicles ;
Department of Corrections; Caltrans; Department of Food and Agriculture; and
Department of Education. Source: Bee research
Section: BUSINESS
Page: D1
Index Terms: HermesInput
Agencies miss goals on disabled veterans - State contracts fall short of level
expected by law
cid=0EB047EA27751374&p_docnum=125&p_queryname=8
JUDGE: STATE OWES LOCKHEED $58.8 MILLION

The Sacramento Bee - Wednesday, June 28, 2000
Author: Ramon Coronado ; Bee Staff Writer
The state of California owes Lockheed Martin Information Management Services
$58.8 million stemming from its work on an abandoned
statewide computer system that was supposed to track deadbeat parents, a
judge has decided.
But in legal papers filed last week in Sacramento Superior Court, lawyers for the
state have asked Judge Charles Renfrew, a former federal judge, to reverse his
48-page decision. The ruling, made at the conclusion of a two-month nonjury trial
involving nearly 100 witnesses, can still be appealed.
State officials said they pulled the plug on Lockheed near the end of the five-year
contract because the mammoth computer system simply didn't work. In a 143-
page response to the decision, state lawyers disputed the judge's conclusions,
including that counties used political muscle to keep their own systems.
"We reviewed the judge's decision, and the Department of Social Services has
filed a number of objections," said Blanca Barna, a spokeswoman for the
department.
It was the second major computer contract bungle for the state. In the 1980s,
the Department of Motor Vehicles spent more than $50 million and seven
years upgrading its computer system. When it was done, it didn't work and had
to be abandoned and sold for scrap.
Lockheed contended that the state violated the contract by insisting that the
company customize its software according to each county's preferences.
In its lawsuit against Lockheed, the state claimed that the company's software
was riddled with hundreds of deficiencies, was poorly designed and impossible to
maintain.
Ed Gund, chief operating officer for Lockheed, said company officials are
gratified by the judge's decision. The judge also found that the state failed to
perform its end of the contract. Gund said he doubted the state can persuade the
judge to change his mind.
"Our attorneys have reviewed the (state's) entire response and it does not
contain any new arguments or information that wasn't already presented in trial,"
Gund said.
The aerospace company was awarded the contract in 1992 to automate the
state's child support enforcement system. The aim was to develop
a computer system to connect county district attorneys, who collect child support
payments, in 57 of California's 58 counties. Los Angeles County has its own
system.
The contract, worth $103 million, was amended a half-dozen times. One more
amendment -- never approved -- would have added $26.2 million in payments to
Lockheed.
The system was never fully operational in all counties and was eventually shut
down. A state auditor later identified flawed decisions and incompetent
management on both sides. In 1998, both sides sued each other.
The failure of the system was magnified in California's larger counties, with heavy
caseloads that left some people wrongly accused of owing child support and
needy families waiting for their payments.
After the lawsuits were filed in Sacramento County Superior Court, both sides
agreed to hold a "reference proceeding," a rare procedure using a judge who
was hired to preside over the trial. They agreed on Renfrew, who was a federal
judge in San Francisco from 1972 to 1980. The trial was held in a vacant
courtroom in the old federal courthouse in Sacramento to expedite the process.
Contained in the 18-volume case file is testimony from scores of state officials,
including from the Department of Social Services, which had jurisdiction over
child support cases at the time of thecomputer controversy.
In his decision filed earlier this month, Renfrew found that:
* State officials "consistently missed" deadlines on preliminary work they agreed

to do as part of the contract. For example, he said, a design phase, which was
supposed to last seven months, took 20 months. "A major cause of the delay was
that the state did not understand the coding or technical aspects of the system,"
the judge wrote.
* The state underestimated the magnitude of the work needed to get the counties
to abandon their old practices and procedures. The state failed to ensure that the
counties adopted Lockheed's computer system, called the Statewide-Automated
Child Support System, and failed to help the counties make the necessary
changes for an orderly conversion.
To underscore his conclusion, the judge wrote, "Leslie Frye, the head of the
Department of Social Services, conceded that the state should have exerted a
"heavier hand' in requiring counties to change their business processes."
* The state gave tacit approval to counties that resisted the change by permitting
those counties to select from several alternatives to the new system.
After about 20 smaller counties began using the computer system in 1996, the
judge said problems did not mushroom until the larger "powerful politically"
counties began to go on line.
In its response, the state contended that the judge was wrong in several of his
key conclusions, including that the larger counties -- such as San Francisco and
Fresno -- bailed out of the system because they preferred their own.
Rather, the state said, San Francisco and Fresno encountered difficulties making
the new system work.
The state also disputed the judge's conclusion that it had underestimated the
counties' need for technical assistance and support in installing the system.
The state maintained there was no evidence that conversion problems delayed
implementation. Also, the counties that converted to the statewide system
"devoted significant efforts to the preconversion process, and virtually all had
clean conversions," the state argued.
If the state's bid to reverse the judge's decision is unsuccessful, the decision
becomes a judgment that can be appealed. The judge is expected to rule on the
state's request soon.
Based on the tone and the extensive detail in the judge's decision, it does not
appear likely he will change his mind.
In a detailed chronology of events leading up to the lawsuits, the judge accused

state officials of dropping the ball.
"Much of the delay was due to the state's inability to carry out its responsibilities,"
Renfrew concluded.
During trial, the state asserted that Lockheed had a duty to provide a system that
had "zero critical defects," yet the contract "contained no such requirement," the
judge wrote.
Even if Lockheed's system were technically perfect, the judge said, without the
state helping the counties implement it, the system was doomed to failure.
Quoting from the handwritten notes of a senior state official who attended a high-
level meeting, the judge said, "the issue is now political, emotional, visceral -- not
technical."
"That breach and the failure of the state to pay (Lockheed) for the work
performed under the contract, as well as for other state-directed work essential to
keep (the system) operational was also a breach of the covenant of good faith
and fair dealing," Renfrew wrote.
Bee staff writer Chris Burnett contributed to this report.

Section: MAIN NEWS
Page: A1
JUDGE: STATE OWES LOCKHEED $58.8 MILLION
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HIGH TECH AT JUSTICE CENTER: SLOW SPEED AHEAD
The Sacramento Bee - Friday, March 31, 2000
Author: Blair Anthony Robertson ; Bee Staff Writer
The new computer system at the Carol Miller Justice Center was installed in
time to avoid a Y2K calamity.
But it ended up taking frustrated employees back to the dark ages. There's more
paperwork than ever. Temporary employees have been hired to handle the
deluge. Others are working overtime.
And worst of all, hundreds of arrest warrants originating at the new court facility
near Folsom Boulevard and Howe 4 Avenue have gone into something of a
bureaucratic black hole because the new system is no longer compatible with the
crucial database at the Sacramento County Sheriff's Department. At one point,
even cleared-up traffic tickets weren't being properly processed.
After $400,000 worth of high-tech bells and whistles, court employees are now
making a simple plea: Can you at least get it to do the stuff that our 15-year-old
system did?
The answer: with a lot of extra effort, maybe.
The computer snafu has caused all kinds of problems since it went online Dec.
7, in time to meet a Y2K deadline. Tests showed that the old system might have
crashed when it rolled over from 1999 to 2000.
But several employees say the new replacement software hardly works at all.
And it is performing so poorly that the boss at Sacramento Superior Court is
refusing to pay for it.
"We're at the point where we've had to restore all the functionality we had in the
old system, and warrants was one of those issues," said Michael Roddy, the
Superior Court's executive officer. "We've been working feverishly to try to get it
done."
The new software, called Integrated Case Management System, is a product of

ISD Corp. based in Riverside.
"We have not paid the company for their product," Roddy said. "We don't believe
they have performed their contract, and we're holding their feet to the fire."
ISD sees it differently. Randy Altman, the company's chief executive officer, said
the software works but that it is not completely up and running because local
court employees have not implemented it properly.
One way or the other, the program is misfiring in all kinds of ways.
Traffic tickets have data entered into the wrong fields, or boxes, on
the computer screen. At one point, traffic citations cleared by Superior Court
were not being transferred to the Department of Motor Vehicles , causing some
people to be turned down for driver's licenses, Roddy said. That problem has
been solved.
But the arrest warrant problem has not been so easy to fix. With the
old computer system, misdemeanor warrants would be issued, logged into
the computers at the justice center and almost immediately be in sync with the
Sheriff's Department database.
That way, when police officers on the street ran a background check, all
outstanding warrants would appear. But the newer misdemeanor warrants are
not showing up in the database, and older warrants that were recently cleared up
are not being recorded. Officials say that means the innocent could get arrested
and the guilty could go free.
"We're just now feeling the backlash," said Patty Massengale, a supervisor in the
warrants department of the Sacramento County Sheriff's Department. "It's very
frustrating for us and the public."
For example, she says, people arrive at the clerk's counter insisting they have
served their time for the county work project, but the Sheriff's
Department computers show nothing of the kind. That could cause people who
have cleared up their warrants to still be required to work off their penalties,
cutting weeds or picking up trash, according to Massengale.
Asked about the new system at the justice center, Massengale said, "I don't think
they thought of everything before they jumped into it."
Officials could not find any examples where this actually happened -- but
their computers wouldn't know for sure anyway.
The bail bonds industry is also feeling the pinch.
"It's asinine, whoever designed this," said Mark McLaughlin, co-owner of Ace of
California Bail Bonds.
Charles Pomares, an agent with Alex Padilla Bail Bonds, said business is down
about 10 percent since January.
"The only thing we can attribute it to is the decline in the number of warrants
being served," he said.
Darci LaRoe, who supervises the bail bonds department in Sacramento Superior
Court, said she is not requiring bail agents to pay the normal $97 processing fee
on bonds because of the warrants problem.
"It has turned into a very large headache," she said. "Everything they have done
with the new system has not worked."
Altman, the software executive, said his company has invested 1,500 work-hours
installing and testing the new software, twice what the company normally does.
He says recent test cases have been completed and the compatibility problem
should be solved by today.
Asked if his company has lost money on the project, Altman said, "No
comment."
Roddy says the new system was supposed to cost far less to operate than the
old system's annual $1 million operating budget. But at this point, he admits, the
new software may be scrapped altogether if the bugs are not worked out soon.
Edition: MET CHASE
Section: METRO
Page: B1
HIGH TECH AT JUSTICE CENTER: SLOW SPEED AHEAD
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COMPUTER SNAFUS RIFE, OFFICIALS SAY

The Sacramento Bee - Sunday, August 29, 1999
Author: Dirk Werkman Neighbors staff writer
A $40 million computer -based financial reporting system that Sacramento
County implemented more than a year ago is still producing reports that,
according to a Fair Oaks official, "end up in the trash can."
Sam Crawford, administrator of the Fair Oaks Recreation and Park District, said
the reports prepared by the Comprehensive Online Management Personnel and
Accounting Systems for Sacramento County have caused a "nightmare" for him
and other officials who pay the county to obtain the financial documents. Area
officials call the program COMPASS for short.
Crawford, who during park board meetings for the past year has outlined ongoing
problems linked to the system, said the faulty reports from the county make it
difficult for officials in the park district and other special districts to keep their
books in order.
The district pays the county about $20,000 a year, Crawford said, for reports and
other financial services.
Financial reports have been continuously late, and when they do arrive, they are
often wrong, he said.
Vendors that supply the Fair Oaks park district with a variety of goods and
services have threatened to add late charges to their bills because the new
county system has resulted in many bills being paid late, Crawford said.
COMPASS-related programs also have plagued the Fair Oaks Cemetery

District.
The Shell Oil Co. "cut us off" because the county failed to pay the cemetery
district's gasoline bills on time, said Ray Young, manager of the cemetery district.
"All special districts are experiencing the fact that (the county's COMPASS
officials) are not paying our vendors on time. We are receiving late charges."
Young said he has been told that because the county invested $40 million in the
system, county officials plan to stick with it.
"We've been told that COMPASS is here to stay, and we'd better get used to it,"
Young said.
Young said he is meeting with Supervisor Roger Niello to help resolve the
problems.
COMPASS problems date back to long before Niello was elected to the Board of
Supervisors earlier in the year. Niello has been working in recent weeks with
county financial officials about such problems.
Niello said some problems have occurred with processing payrolls.
"That's serious," he said. "The situation is improving, (but) there is still a ways to
go."
Niello said problems always ensue when a new computer system is installed.
Crawford and Young said they have been told that a high turnover of employees
in the county's finance department has contributed to the COMPASS woes.
Among the problems: Reports that should have gone to other agencies have
been sent instead to districts in Fair Oaks. Crawford has received reports that
should have gone to other park districts, he said, and Young said he has
received reports that should have gone to a cemetery district in Elk Grove.
"Since Day 1, we have had problems," Crawford said of the COMPASS system,
which began operating on July 1, 1998.
Officials from dozens of special districts tried to warn county officials of potential
problems, "but they assured us they would be ready to handle the situation. But
they weren't," Crawford said.
Reports were "always late," he said, noting that the district received a year-end
report from the county Wednesday for the fiscal year that ended June 30. No
reports have been received for the fiscal year that started on July 1, he said.
Crawford told members of the park district board on Aug. 19 that one set of
reports he received from the county "ended up in the trash can" because they
were so inadequate.
"What's the prognosis on COMPASS?" board member Bob Brown asked. "Are
they going to fix it?"
Crawford said, "I think COMPASS is beyond repair."
Brown said with the money the district is spending on COMPASS, it could hire a
part-time accountant who could "do a better job with a quill pen than the county is
doing."
Crawford said an accountant was scheduled to come to the park district Monday
to perform the annual audit of the district. He said the audit has been postponed
until September because the county has not provided the financial reports
required for the audit.
When the new system went into operation, there was "nothing but chaos" for the
first four months, Crawford said. Not much has improved, he added.
Crawford said district officials have wasted time preparing financial reports based
on county reports that county officials later said were erroneous.
"There's no way for us to balance our bankbook," Young said of the COMPASS
reports.
He said the situation reminded him of a scandal several years ago in which the
state Department of Motor Vehicles spent millions of dollars on
a computer system that never functioned correctly.
Edition: NORTHEAST
Section: NEIGHBORS
Page: N1
Record Number: 179
COMPUTER SNAFUS RIFE, OFFICIALS SAY
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$260 MILLION STATE COMPUTER NET PUT ON CRITICAL LIST

The Sacramento Bee - Friday, May 2, 1997
Author: Stephen Green Bee Capitol Bureau
The largest single-unit computer installation ever attempted by California
government is on the verge of failure, according to an Assembly report released
Thursday.
With $260 million at risk for a statewide system to track deadbeat parents who
owe child support, the Legislature needs to decide immediately whether to try to
salvage the system or pull the plug, said Assemblywoman Elaine White Alquist,
D-Santa Clara.
"This system is on life support and the prognosis is bleak," said Alquist, who
chairs the Assembly technology committee.
Several of the state's major computer installations have run into trouble in recent
years, including what the report called the "fabled" failure of a Department of
Motor Vehicles system. Some $54 million had been spent by the time it was
terminated three years ago. And in February, the Corrections Department pulled
the plug on a $40.1 million computer project that would have tracked inmates
and parolees.
"The DMV disaster (looks) like pocket change in comparison" with the child-
support system, Alquist said.
But the chief vendor on the project doesn't see it that way.
Julie Sgarzi, vice president of Lockheed-Martin Information Management

Services in Los Angeles, said in an interview Thursday there "are system issues
and problems to resolve.
". . . But this is not the equivalent of the DMV throwaway. Our view is that the
system will be viable. The investment is well-made. It is not beyond our ability to
deliver by any stretch."
The Department of Social Services launched the project in 1992 with the intent of
linking each county by computer with state databases such as those at the
DMV, Employment Development Department and the tax boards. Once in place,
the system was to track absent parents and attach their assets to help support
their children.
The Statewide Automated Child Support System, as it is called, was projected to

cost $99 million initially, with the federal government picking up much of the tab.
The latest cost projection, however, is $260 million and that doesn't include the
cost of the Los Angeles County system, which has been spun off as an
independent unit.
San Francisco County, which had been trying to tie into the state system since
last fall, pulled out of the project on Thursday and has reactivated an older
system installed in the 1980s.
Corrine Chee of the Social Services Department said agency officials are acutely
aware of the problems and are still working to make the system operable.
In February, she said, the state quit making payments to Lockheed until the
Teaneck, N.J.-based company can prove the system can be made to work.
"We are losing patience with the vendor, but we are still actively working with
them, seeking solutions," Chee said.
She added that similar projects are under way nationwide and that systems in the
eight largest states "are all in trouble."
The California system is working to some degree in 23 counties, Sgarzi pointed

out.
The system currently is not in use in Sacramento County.
Lockheed has been forced to accommodate changing contract requirements and

tremendous growth in the child support caseload, she said. At the same time,
she added, new technology has made equipment available that wasn't
envisioned five or six years ago.
"A substantial amount of the cost increase is because of equipment changes,"

she said.
As part of a plan to correct problems, Lockheed is set to release three sets of
software to counties over the next few weeks.
Chee pointed out that the first release was due at the end of April, but the date
has since been moved to May 5 and then to May 12.
The delay is not a setback, Sgarzi insisted, but a necessary step to ensure that
the software will work as intended.
"The system just wouldn't perform," said Edwina Young, who is in charge of San
Francisco County's child support operation. "We'd get "slime' data," which was
incomplete or garbled.
"The system can't locate people. It can't produce forms. It can't process money.
Those are three things it has to do."
Chee explained that actual spending to date has been $82.6 million: $72.6 million
from the federal government, $4 million from counties and $6 million from the
state.
Alquist's report pointed out, however, that that doesn't include thousands of
hours of county and state staff time that have been devoted to the system. In
addition, the contract limits Lockheed's liability to $4 million if the project fails.
The state would have to pick up the rest and may have to make large
reimbursements to the federal government, the report concluded.
The report was particularly critical of the role of the state Department of
Information Technology, or DOIT, in the project.
The department was created after the DMV computer failure, and John Thomas
Flynn was recruited from Massachusetts to have overall authority for
California computer projects.
Although DOIT has taken some actions, for the most part the agency "has
steered clear of the fray," the report said. There hasn't been adequate oversight
of the installation or contract changes, it continued, and DOIT hasn't been in the
forefront of problem-solving.
"DOIT has had ample time to roll up its sleeves and address the weaknesses in
this troubled project," the report said. "At long last, it is time for DOIT to do it."
DOIT spokesman Richard Halberg said he hasn't seen the report's criticisms and
couldn't comment.
"Our position has been that this is an extremely complex (project) and there have
been numerous technical problems," Halberg said. "We appreciate (Alquist's)
interest. We believe it is still a viable project, and it would be premature at this
point to terminate the project."
Alquist, meanwhile, is planning hearings to explore the problems beginning May

6.
Section: MAIN NEWS
Page: A1
Record Number: 292
$260 MILLION STATE COMPUTER NET PUT ON CRITICAL LIST
------------
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COMPUTER NET COST UP AGAIN, LEGISLATORS TOLD -

PROJECTED EXPENSE FOR TRACKING CHILD SUPPORT NOW $304
MILLION
The Sacramento Bee - Wednesday, May 7, 1997
The cost of building a statewide computer system to track parents who aren't
paying child support has jumped by an estimated $45 million in the past year,
legislators were told Tuesday.
The projected cost for the Statewide Automated Child Support System is now
$304.7 million, said Russell Bohart, who heads the state Health and Welfare
Data Center.
But even if another infusion of money is approved, a succession of speakers

before the Assembly's Information Technology Committee on Tuesday were
unable to say when the problem-plagued system will be fully operational.
"I can't answer that question until we've addressed a number of defects and
changes," said Linda Zawacki, project manager for the chief contractor,
Lockheed Martin Information Management Services.
Lockheed has a plan to correct operational problems, Zawacki said, and by

October it hopes to "stabilize" operations in 22 mostly smaller counties where the
system is being used to some degree. The system is not operating at all in
Sacramento County.
"I don't know that we should keep throwing money at this," replied Assemblyman
Jim Morrissey, R-Santa Ana.
The Department of Social Services has estimated that 738,000 families are
receiving no child support and 168,000 others are getting only partial payments.
The department launched the computer project in 1992 with the intent of linking
California's 58 counties by computer with state databases such as those at the
tax boards and Department of Motor Vehicles . Once in place, the system was
to track absent parents and attach their assets to help support their children.
The cost of the system was initially estimated at $99 million. By the time the
budget was approved for the current fiscal year, the figure had grown to $260
million. Now the Legislature's budget writers are being asked to authorize
another increase, for a total of $304.7 million.
Assemblywoman Elaine White Alquist, the Santa Clara Democrat who chairs the
committee, promised more hearings to explore the problem. In the meantime,
she said, state agencies shouldn't count on any more money until legislators are
convinced the project will work.
John Thomas Flynn, who heads the state Department of Information Technology,
stressed that $304.7 million is a projected cost. Actual costs to date are in the
$80 million range, he said. Under the project, the federal government is
supposed to pay for 90 percent of the costs, but the state may have to refund
money and pay penalties if the system doesn't work.
Flynn said he is optimistic that the system eventually will function as promised.
The project is receiving "intensive oversight and it's beginning to work," he said.
Bohart's staff cited a number of reasons for the latest cost run-up, some of which
have been several years in coming.
Both hardware and software for the system haven't worked as projected, they
pointed out. The child support caseload is growing dramatically, they added, and
that has created a need for more equipment and work sites. Initially, there were
to be 93 work sites around the state, but now there are about 130, they said.
Training has been another large component of cost increases, they said. Training
that initially was to take several weeks is now continuing for two to three months.
Staff at the Health and Welfare Data Center also contended that initial planning
also didn't take into account the wide variance in the way counties run child-
support programs. The system had to be expanded and reconfigured to
accommodate the diverse needs of the counties, they said.
Alquist suggested there was too little consultation with counties in the planning
process.
An assessment of the needs of the system "should have happened at the

beginning of the process rather than while the work is in progress," added
Assemblyman Scott Wildman, D-Los Angeles. "I'm concerned about the lack of
accountability."
Morrissey echoed that view.
"They didn't have a true understanding of what they needed when they let the
contract," Morrissey said. "So there have been all these changes, and changes
are a license to make a profit."
Section: MAIN NEWS
Page: A4
Record Number: 202
COMPUTER NET COST UP AGAIN, LEGISLATORS TOLD - PROJECTED
EXPENSE FOR TRACKING CHILD SUPPORT NOW $304 MILLION
----------
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LOCKHEED'S NEW GAMBIT: FROM WARFARE TO WELFARE

The Sacramento Bee - Monday, March 9, 1998
William D. Hartung and Jennifer Washburn By the year 2000, America's largest
weapons manufacturer, Lockheed Martin, may be as familiar to social service
bureaucrats as it is to the Pentagon's top brass.
If the company's strategy succeeds, Lockheed Martin will not only be a major
aerospace manufacturer but also a leading dispenser of public assistance to
America's neediest citizens. The company's split personality is already evident in
California, where Lockheed holds contracts for everything from the Trident
missile and the Joint Strike Fighter to parking ticket collections in Los Angeles
(worth $49 million) and electronic toll collections in Orange County (where the
state's first tol l road in 70 years is being built). Until recently, Lockheed Martin
was also the contractor responsible for building a statewide computer system to
track child support collections, which has turned into a multibillion-dollar
boondoggle.
Surprised? Lockheed last made headlines when it bilked American taxpayers

$855 million to pay for a recent series of mergers that sent its stock prices
soaring. Now, this king of corporate welfare turned free-marketeer is trying to
cash in on the drive to privatize welfare and boot poor people off the dole.
Already, a division of the company - Lockheed Martin Information Management

Systems (IMS) - has been pushing to run full-scale welfare programs, worth
several billion apiece, in Texas and Arizona. Although public employee unions
and social welfare advocates have managed to sidetrack these bids for now, a
new "welfare reform" division is busy gobbling up contracts to run welfare-to-work
programs and automated kiosks for the distribution of food stamps and cash
assistance in dozens of states and localities.
Unfortunately, the move from warfare to welfare is not an exercise in beating

swords into plowshares; rather, it is part of Lockheed Martin's grand strategy to
grab taxpayer dollars. Today the average household pays a "Lockheed Martin
tax" of approximately $200 per year to cover an array of military and civilian
government contracts. Beyond the $12 billion it continues to rake in annually
from the Pentagon, Lockheed Martin now receives $6 billion to $8 billion in
nonmilitary funds from federa l agencies as diverse as the Energy Department
and the Census Bureau.
And that doesn't even include the corporation's growing empire of state and local
government business. If you're a deadbeat parent in Florida, Lockheed Martin
gets 12 cents from the government for every dollar it collects from you. Get
slammed with a parking ticket in Washington, D.C., and Lockheed Martin gets
what could be as much as an average $3 cut. Now that new federal welfare laws
have ceded states control over an annual $17 billion in welfare funds, Lockheed
Martin is betting that publi c assistance will be the next big prize.
So what's at stake here? Contracting out garbage collection, computer upgrades

and other routine public functions is one thing. But what Lockheed is proposing
would allow private companies to run entire government programs; in the case of
welfare and Medicaid, moreover, these are essential government services,
affecting the most disfranchised members of the population, who are least able to
defend their rights.
Such concerns become even more troubling when Lockheed Martin is the
privatizer in question. This is the company whose fondness for doleing out bribes
helped Congress to pass the Foreign Corrupt Practices Act in 1977; the company
whose multibillion-dollar overcharges on the C-5A transport plane made "cost
overrun" a household phrase; and the company whose $250 million government
bailout in 1971 inspired Sen. William Proxmire to coin the term "corporate
welfare."
Lockheed and other privatizers boast that their technological expertise and
innovation will cut governments costs so dramatically that they can profit and still
save taxpayers money. But a close look at Lockheed's performance thus far
raises serious questions about whether the rush to privatize is going too far, too
fast.
Last November, California canceled its contract with Lockheed to build a

statewide computer system to track child support collections when Lockheed's
problem-ridden system, originally projected to cost $99 million, escalated into a
$277 million debacle. Lockheed's contract limits its own liability to just $3 million -
a legal sleight of hand that could put California taxpayers on the hook for the bulk
of the system's $170 million-plus cost overrun. Similarly, last summer,
Connecticut terminated a $14.3 million computer contract with Lockheed to
handle the state's foster-care programs after the system nearly delivered $8
million in overpayments.
The company's history of technology mishaps is made worse by its record of

rampant corruption. Last summer, while bidding to privatize Texas' welfare
system, Lockheed Martin became mired in allegations of improper lobbying when
a local union identified seven current or former state officials - many of whom
were closely involved in preparing the state's request for bids - who had lobbying
contracts with Lockheed. That same summer in Washington, D.C., the company
was knee-deep in another revolving-door imbroglio involving allegations of bid
rigging on a $26 million parking contract. At issue was the company's hiring of 12
former officials of Mayor Marion Barry's administration, many of whom worked in
agencies involved in the contract dec ision. An FBI investigation is still pending.
Lockheed, not surprisingly, is a big player in California politics: The company and
its top executives have given more than $133,500 in political donations to Gov.
Pete Wilson, and more than $550,000 to other state candidates and causes from
1989 to 1995, according to records at the secretary of state's office. Lockheed
knows how to sell politicians on the magic "cost savings" of privatization, and
how to grease the necessary political wheels to win contracts. But California's
privatization record, including the Department of Motor Vehicles '
infamous computer fiasco (a $54 million loss) and the recent cancellation of a
major Department of Corrections' computer contract (worth $40.1 million) should
make any politician cautious.
If Lockheed's performance is any indication, California would do well to keep a

tight government reign on its public system. Otherwise, taxpayers and people
who rely on public benefits could end up paying a high price at the expense of
corporate profits.
William D. Hartung and Jennifer Washburn are based at the World Policy
Institute, at the New School for Social Research in New York City. They can be
reached by mail at 65 Fifth Ave., Suite 413, N.Y., N.Y. 10003. This piece was
adapted from a longer article that appeared in the March 2 issue of the Nation
magazine.
Section: EDITORIALS
Page: B5
Record Number: 010
LOCKHEED'S NEW GAMBIT: FROM WARFARE TO WELFARE
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PRISON AGENCY SUES FIRM OVER COMPUTER PLAN - TRW
BLAMED FOR ERRORS, DELAYS; STATE WANTS TO SEIZE $10
MILLION
The Sacramento Bee - Tuesday, February 25, 1997
State corrections officials have pulled the plug on a $40.1
million computer project that would have tracked inmates and parolees, and are
suing the company, TRW, for alleged breach of contract, misrepresentation and
unfair business practices.
The Department of Corrections also is taking steps to seize a $10 million deposit
that TRW was required to make in case the company defaulted on the contract.
The project stalled nearly a year ago after the state rejected a design plan for the
mammoth system, department spokesman Tipton Kindel said Monday.
The suit was filed as a "last resort," Kindel said, after months of negotiations with
TRW failed to get the project back on track. A new contract for the project will be
advertised in four to six months, he said.
Linda Javier, spokeswoman for Ohio-based TRW, said she could not comment
on the situation other than to say the company had tried to resolve its differences
with the state.
"We are disappointed and regret the fact that the state has taken this step," she
said.
Kindel estimated that hiring a new contractor will add several years to the
timetable of an effort that already is three years behind schedule. That would
mean an operating system couldn't be in place until 2002 or 2003.
TRW won the contract in 1994 for the first in a five-phase project to automate the
department's records and incorporate existing computer operations into a new
Correctional Management Information System.
Phase I called for computerizing what amounts to personnel files on inmates and
parolees. At present, paper files are kept on 145,000 inmates and 106,000
parolees. The files show where inmates and parolees are housed, their
convictions, parole and court dates, gang memberships, medical information and
employment and education data.
But according to the department's suit, filed last Thursday in Sacramento County
Superior Court, TRW "intentionally underbid" the computer project.
TRW intended the project to be a "loss leader to facilitate lucrative state

procurement contracts in the future," the complaint alleged. "TRW subsequently
mismanaged the contract, failed to perform according to specifications, and
abandoned its contractual obligations . . . "
The issues came to a head last March, the suit continued, when TRW submitted
a design plan for the project that was three months late. Corrections officials
rejected the plan after concluding it contained errors and structural problems.
The agreement with TRW was one of the first large state computer contracts
signed after the failure of a $51 million installation at the Department of Motor
Vehicles . Corrections officials wrote safeguards into the TRW pact that did not
appear in earlier contracts.
As a result, the state was paying TRW in stages after segments of the contract
were successfully completed. The state had given TRW only $2 million by the
time the design plan was rejected.
The state also required the company to put $10 million on deposit in the event of
a default and an independent contractor called Logicon was hired to verify that
TRW was delivering acceptable work.
Assemblywoman Liz Figueroa, D-Fremont, who has been monitoring the

situation for a budget subcommittee, credited Logicon with finding the defects in
the design plan.
The suit contends TRW offered to settle the dispute in September if the company
would be released from the contract. But the state rejected the offer, the suit
said.
The complaint asks for unspecified general and punitive damages from TRW to
compensate the state for loss of the benefits of the system, staff time and $2
million in federal funds that would have been available for the project.
Section: MAIN NEWS
Page: A4
Index Terms: LAWSUIT
Record Number: 116
PRISON AGENCY SUES FIRM OVER COMPUTER PLAN - TRW BLAMED
FOR ERRORS, DELAYS; STATE WANTS TO SEIZE $10 MILLION
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CRACKDOWN ON COMPUTER PACTS

The Sacramento Bee - Tuesday, October 1, 1996
Author: Bee Capitol Bureau
Gov. Pete Wilson vetoed legislation Monday that would have
barred computer firms that failed to live up to their contractual obligations to the
state from bidding on future government pacts.
The governor said AB 2988 by Assemblywoman Debra Bowen, D-Marina Del

Rey, would have reduced "the state's flexibility in dealing with this rapidly
developing technology." He also said the bill could have driven up project costs
by reducing competition.
Bowen has been a leading critic of the Wilson administration's handling

of computer -related contracting. The state has experienced several cost
overruns on computer projects. For example, theDepartment of Motor
Vehicles spent $51 million on a system that, after seven years, could never be
made to work properly
Memo: CAPITOL DIGEST
Section: MAIN NEWS
Page: A4
Record Number: 128
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EX-MANAGER OF FAILED DMV COMPUTERS FINED FOR CONFLICT -

QUIT TO REPRESENT PROJECT CONTRACTOR BEFORE HIS
FORMER AGENCY
The Sacramento Bee - Friday, September 6, 1996
Author: Dan Bernstein Bee Capitol Bureau
A state official who managed a failed $51 million computer system for
the Department of Motor Vehicles was fined $9,000 Thursday for switching
jobs to represent the project's chief contractor before his former colleagues
Dennis Walker was the second state official fined for conflict-of-interest violations
in connection with a computer system that was plagued by rampant cost
increases, mismanagement and falsified documents.
Walker, who managed the project for the DMV in the late 1980s before going to
work for Tandem Computers Inc. of Cupertino, agreed to settle a complaint filed
against him last year by the Fair Political Practices Commission.
After he left the DMV, Walker continued to attend internal meetings with
department officials while representing Tandem, and he also wrote letters to the
department in connection with the contract, according to the settlement.
Those actions violated the state's "revolving door" law, which prohibits a former
state official from representing a private party in connection with a matter he or
she participated in while employed by a state agency.
"Clearly, Tandem regarded Mr. Walker as a critical hire and the company
benefited by having him as an employee," said Deanne Canar, an attorney for
the FPPC.
On the other hand, she said, Walker remained "above board" in his dealings with
the DMV, and the department seemed to welcome him in his new capacity.
"The DMV officials involved in the . . . project were pleased to have a person with
(Walker's) knowledge, background and expertise represent Tandem," according
to a stipulation of the facts in the case.
Walker said Thursday he assumed there was nothing wrong or illegal with going
to work for Tandem because he alerted his supervisors to the prospect and they
didn't express any concerns.
"I left on approved leave," said Walker, who now oversees licensing of adult and
child-care centers for the Department of Social Services. "There was no issue in
my mind at the time that there was a legal problem."
Walker had refused in 1994 to testify about the DMV computer project before an
Assembly committee and to cooperate with state auditors.
The settlement agreement was approved by the FPPC on a 3-1 vote, with
Commissioner Carol Scott voting no. Scott said later she thought the fine should
have been higher.
In March, the FPPC settled a similar case against Steve Kolodney, the former
head of the state Office of Information Technology, who also went to work for
Tandem in connection with the computersystem. Kolodney was fined $16,200
for numerous violations of the state's "revolving door" law
Section: MAIN NEWS
Page: A4
Record Number: 216
EX-MANAGER OF FAILED DMV COMPUTERS FINED FOR CONFLICT - QUIT
TO REPRESENT PROJECT CONTRACTOR BEFORE HIS FORMER AGENCY
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BIG STATE COMPUTER COMPLEX - $35 MILLION PROJECT FOR

RANCHO CORDOVA
The Sacramento Bee - Wednesday, August 14, 1996
Author: Bob Walter Bee Staff Writer
The state government's main computer nerve center will move into a mammoth,
ultra-high-tech complex that will be built along the Highway 50 corridor at a cost
of more than $35 million, officials said Tuesday
The Department of General Services notified the Legislature this week that
McCuen Properties of Sacramento was the winning bidder to build the new
Stephen P. Teale Consolidated Data Center between Gold Camp Drive and
White Rock Road in Rancho Cordova.
The new center will be the state's largest computer facility, where about 350
employees will provide data processing and a vast variety of other services for
273 state departments, bureaus and commissions.
"In terms of customer base and the variety of application systems that they run,
we certainly rank in the top ten worldwide," Lee Kercher, Teale's assistant
director of operations, said Tuesday. "Quite possibly, we may be the largest."
The 154,840-square-foot center is scheduled to be under construction by fall and

to open in late 1997 or early 1998, said Lane Richmond, project manager for
General Services' office of real estate and design services.
The complex will replace the 18-year-old Teale Data Center, near Interstate 80
and Arden Way. That 147,000-square-foot center sits in a 100-year floodplain,
has outdated cooling, communications and electrical systems and a roof that
needs to be replaced, officials said.
"We really have suffered in the last few years," Kercher said. "At one point, I think
we had about 20 leaks in the building and one technician said her office was the
only working shower."
The recent scorching weather also has taken a toll on the

undercooled computer center, Kercher said, which has the staggering storage
capacity of more than 3 terabytes - or 3 trillion bytes - ofcomputer memory.
"We managed to survive the spate of power outages over the weekend, but it
was a struggle," he said. "We are looking forward to not having to baby
everything every single day."
Teale began operating in 1973 with 15 state agencies as clients. The center
functions as an independent contractor, charging agencies for round-the-clock
services that range from processing payroll and personnel records to tabulating
election returns and managing meals and parole dates for prison inmates.
Today, the center serves clients ranging from the tiny California Arts Council to
the Department of Transportation and the Department of Motor Vehicles , said
Glen Matsuoka, assistant director for administration and finance.
The center billed its customers about $73 million during the fiscal year that ended
June 30, Matsuoka said. And the center, which must be self-supporting and does
not receive general fund money from the state, doesn't have a lock on any of
those clients.
"Our clients can go out and get other bids for the services we provide," Matsuoka
said, noting that the center has cut its rates eight times in the last five years.
During that same period, he said, Teale also has cut its budget from $85 million
to $75 million a year, reduced its staff by almost 14 percent - and tripled its
workload.
According to the agreement with McCuen, lease payments for the new center will
total $76.8 million and the total rental cost - including utilities, maintenance and
janitorial and security services - will be $152.6 million over the 20-year lease.
Officials said moving into the new center will save about $3 million in the first two
years compared with refurbishing the existing complex. Savings will total $24
million over 20 years, according to General Services.
The agreement actually calls for a 4.5-year firm lease, but the state would have
to pay off the unamortized costs of the complex if it terminates the lease within
15 years. For example, the 4.5-year payoff would be $25.4 million and the 10-
year payoff would be $17.2 million.
Developer Peter McCuen could not be reached Tuesday. One of the region's
most prominent developers, his firm has built Library Plaza and the U.S. Bank
building in downtown Sacramento and is negotiating with the Hilton Corp. to build
a convention-style hotel on J Street.
McCuen Properties also is building a 400,000-square-foot office complex for the

Money Store at Raley's Landing in West Sacramento and has a contract with
Sacramento County to market the defunct Mather Air Force Base.
The state put the new Teale Center out to bid last November. McCuen was the
low bidder and has been negotiating with the state for about four months,
Richmond said. The Legislature has 30 days to comment or suggest changes in
the deal with McCuen before a contract is awarded
Caption: 1 MAP
Bee/R.L. Rebach Locator map of Rancho Cordova (To view complete map
please see microfilm)
Section: MAIN NEWS
Page: A1
Record Number: 225
BIG STATE COMPUTER COMPLEX - $35 MILLION PROJECT FOR RANCHO
CORDOVA
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name=8
CORRECTIONS OFFICIALS REJECT COMPUTER PROJECT DESIGN

The Sacramento Bee - Saturday, May 4, 1996
Officials at the state Department of Corrections have rejected the design plan for
a mammoth computer project to automate department records and have
threatened to declare the contractor in default.
The state also has suspended a $2 million payment to TRW Inc., prime
contractor on the $96 million project, pending further negotiations with the
company.
TRW officials, meanwhile, have blamed corrections staff for delays and change
orders that they claim will add $12 million to the cost and cause the installation
schedule to slip by 13 months.
Corrections Director James Gomez rejected TRW's criticism, saying, "To date
the state has not been presented with an acceptable reason for the cost increase
or all the time delay.
"TRW is contractually obligated to deliver to the department a fully

operational computer system at the price agreed to in the contract."
Linda Hurtado of TRW's Oakland office responded that the company is

attempting to resolve the differences.
"With negotiations ongoing, it would be inappropriate to discuss the matter," she

said.
Even before the latest problems, the project was behind schedule and over
budget.
The installation was authorized in 1992 as the first phase of the five-part project
that eventually was intended to automate the department's records and
incorporate existing computer operations.
Phase One calls for computerizing records on each prisoner. Currently,

information on all 138,000 inmates is kept in paper files.
The job was to take three years and cost $54.5 million. But before the latest
delays, the schedule had slipped to five years and costs to $96 million. There are
no schedules and cost estimates for the next four phases.
TRW's share of the Phase One project is a $40.1 million contract to design, build
and install a records system. The contract calls for paying the contractor in
stages as segments are successfully finished. To date, a department spokesman
said, TRW has received only $2 million and another $2 million payment is on
hold.
Project records show that TRW was to have a document called the Detail Design
Specification finished by last December. But it wasn't received until March and
then was rejected, corrections officials said, because of errors, structural
problems and components that were either missing or duplicated.
The alleged flaws were detected by Logicon Inc., a second contractor that was
hired to do an independent review of TRW's work. Similar companies, called
independent validation and verification contractors, have been hired for each of
the state's major computer installations in the wake of the $51 million failure of
a computer installation at the Department of Motor Vehicles in 1994.
This is the first time that an oversight contractor's findings have stopped a major
project, according to John Thomas Flynn, who oversees the
state's computer installations.
"I'm pleased the process seems to be working," Flynn said. "This is the time to
find the problems - in the design stage. If the problems aren't detected until late
in the project, it's a road to hell."
Assemblywoman Debra Bowen, who had urged the hiring of the oversight
contractors, said the money appears to have been well spent.
"The bad news is that when problems of this sort are detected early it's often a
signal of more bad news to come," the Marina Del Rey Democrat said
Section: MAIN NEWS
Page: A4
Record Number: 135
CORRECTIONS OFFICIALS REJECT COMPUTER PROJECT DESIGN
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COUNTY TO JOIN CHILD AGENCY NETWORK - GOAL: PREVENT

ANOTHER ADRIAN CONWAY CASE
The Sacramento Bee - Wednesday, April 10, 1996
Author: Dorsey Griffith Bee Staff Writer
A statewide computer system linking county child welfare departments is being
hailed by local child protection advocates as an important step in avoiding
tragedies like the death in January of 3-year-old Adrian Conway
Sacramento County supervisors Tuesday authorized the county Department of

Health and Human Services to implement the new system, which should be
ready for local use in six months and linked to other agencies statewide by mid-
1997.
Had the system been in place before Adrian's death, various agencies in
Sacramento and Yolo counties involved in the case might have had a more
accurate understanding of how the family was doing, said Stephen J. Wirtz, a
psychologist with the Child Abuse Prevention Council of Sacramento.
"They could therefore make their intervention more appropriate to the state of the
family," he said.
Adrian was beaten to death at his Del Paso Heights home just two months after
county child protective workers decided he was not in imminent danger of being
abused. His mother, Tammy Holycross, is now in jail awaiting trial on murder
charges.
California counties each have their own case management systems for tracking
children. In Sacramento County, health services officials say, that system is
outdated and accessible by only a small number of employees. The 1993-1994
grand jury called for better computer technology and easier access to child
welfare information.
The system will link more than 400 personal computers and 40 printers at a cost
of about $1.5 million over the next 13/4 years, most of which will be paid with
state and federal funds. Statewide cost of the project is $185 million.
Health and Human Services director Bob Caulk said the system will allow cases
to be tracked across county lines and provide more accurate and comprehensive
information.
"But the most important thing is that it will make their work more efficient and cut
paperwork by up to 50 percent," Caulk said. "Social workers will spend more time
doing social work and less time doing paperwork."
Roger Dickinson, chairman of the Board of Supervisors, expressed cautious

optimism about the new system, citing the state's "checkered history" in
developing major computer networks.
"It's clearly the right direction to go," he said. "But glitches is a polite term for
some of these state-developed systems."
The state in recent years has been taken to task for spending millions on
major computer projects riddled with problems. A $51 million Department of
Motor Vehicles system could never be made to work properly. And frustrating
attempts at automating a child-support tracking system at the Department of
Social Services have cost more than $80 million.
Still, observers are hopeful. "It's very promising," said Marie Marsh, executive
director of the Child Abuse Prevention Council. "I'm confident we'll have a great
improvement.
Section: METRO
Page: B1
Record Number: 084
COUNTY TO JOIN CHILD AGENCY NETWORK - GOAL: PREVENT ANOTHER
ADRIAN CONWAY CASE
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STATE COMPUTER CZAR HAS CONTROVERSIAL PAST - BACK

EAST, REVIEWS OF HIM RANGE FROM "LIGHTWEIGHT' TO GOOD
LEADER
The Sacramento Bee - Sunday, March 17, 1996
When John Thomas Flynn became the state's first computer systems czar a few
months ago, one of his tasks was to identify the biggest projects being installed
and review their progress reports.
There turned out to be 20 of them with a combined cost exceeding $1 billion per
year. That was the easy part. He's still struggling with the second step. The
progress reports come in 20 different formats.
That's one of the reasons there was bipartisan agreement last year to hire
someone to take charge of the state's troubled information technology programs.
After a lengthy search, Gov. Pete Wilson gave the nod to Flynn, calling him "one
of the best minds" in the business, someone credited with helping bring order
and standardization to disjointedcomputer operations run by the Commonwealth
of Massachusetts.
But Flynn, 46, also was no stranger to controversy in the Bay State. Critics
contend he was chiefly a Republican political operative with limited experience
and a history of flaps involving state contracts.
"He was a dubious appointment . . . who'd worked as a very small contractor in

information systems," said Anne Larner, executive director of the advisory board
for the Massachusetts Bay Transit Authority. "It didn't take many questions or
pushing to see that he was just a lightweight."
Yet some of Flynn's former colleagues, such as Massachusetts Comptroller

William Kilmartin, remember him fondly as someone who "provided leadership in
a fast-changing profession."
As head of the new Department of Information Technology in California, Flynn

has Cabinet rank, a salary of $107,940 and a daunting challenge.
A series of audits and investigations concluded millions of dollars has been

wasted on equipment purchases and some systems have never worked properly.
Auditors found few common standards and systems that can't talk to each other.
The most widely publicized problem involved a system at the Department of

Motor Vehicles that was scrapped after $51 million and seven years was spent
on the effort.
The massive scale of the job is what makes it attractive, Flynn said in an
interview.
"This is like the big enchilada," he explained. "It's an environment the size of
General Electric."
For several years before becoming Massachusetts information chief in 1993,

Flynn had worked for two national technology consulting firms and then headed
his own small company.
Previously, he'd worked as an auditor for federal contracts and as project

manager for consultants that advised transit agencies on
large computer systems, including clients in Oakland and San Diego.
He'd also used his computer background to assist presidential campaigns by

setting up payrolls and other administrative systems. That led to posts in the
Reagan and Bush administrations, including a three-year stint as New England
representative for the U.S. Department of Labor.
Flynn left that job in 1989 and the following year was a volunteer for William
Weld's successful gubernatorial campaign in Massachusetts.
Flynn served on two of Weld's transition teams and was a finalist for the job of
state labor secretary. When someone else was chosen, there was an effort to
install him as general manager of the transit authority, which serves 78
communities. That's where he ran into Larner, who claimed the Weld
administration tried to muscle her advisory board into selecting Flynn.
Before long, board members were publicly denouncing Flynn, and the state
attorney general found that the Weld administration violated state open meeting
laws as part of a behind-the-scenes effort to place Flynn in the job. The post
eventually went to John Haley, then-deputy general manager of California's Bay
Area Rapid Transit district.
Within two weeks of losing the transit job, Flynn was in line for three no-bid
consulting contracts with the state transportation agency, and new controversies
were born.
The contracts totaled $25,000 and were just under the limit for putting them out
for competitive bids. Once awarded, Transportation Secretary Richard Taylor
tried to amend the contracts so they would total $57,000.
But he was stopped twice by the state Administration and Finance Agency, which
ruled Flynn had no unique qualifications for the work and competitive bids were
required.
One of the contracts involved writing specifications for a study that was to be put
out to bid. It concerned setting up a structure to monitor whether women and
minority contractors were getting a fair share of transportation agency business.
The Committee on Post Audit and Oversight of the Massachusetts House of

Representatives later concluded that portions of Flynn's work product on the
contract were identical to similar specifications written in 1990 by a contractor for
the state Water Resources Authority.
The committee chairman, Democratic Rep. William Nagle Jr. of Northampton,

said Flynn's contracts appear to have been awarded "for partisan reasons" and
the "cut and paste work is further evidence of that."
Flynn responded that he was "always confused" about why there was
controversy over the contracts. "I was asked to do the work . . . and just tried to
do a job in areas where I had a strong background," he said.
Any suggestion of plagiarism is a "bogus charge," Flynn said.
Nagle also was critical when Flynn was later named director of state technology
operations.
"Is this guy that uniquely qualified?" he asked. "They tried to place this guy three
times in three different places."
The Massachusetts agency at the time had a $50 million budget, 200 employees
and had two chief functions: providing state government with a
central computer operation and managing its telephone system.
California, by contrast, has a number of independent computer systems with in-

house management teams spread among various agencies. Flynn's staff will
number 15 when it's at full strength and is charged with monitoring the
procurement, installation and the integration of systems.
It also is to provide direction for using technology to increase efficiency and lower
costs.
It was a difficult process to overhaul management structures and begin to impose

uniform standards for computer operations throughout Massachusetts state
government, said Diane Ledwell, director of technical services for the
comptroller's agency. But she said Flynn won some national awards for his
efforts.
"John's stint was successful," she said

Caption: Bee / Kim D. Johnson John Thomas Flynn, 46, is head of the state's
new Department of Information Technology. Before taking that post a few months
ago, he held a similar job in Massachusetts. He earlier served in the Reagan and
Bush administrations.
Section: MAIN NEWS
Page: A3
Record Number: 061
STATE COMPUTER CZAR HAS CONTROVERSIAL PAST - BACK EAST,
REVIEWS OF HIM RANGE FROM "LIGHTWEIGHT' TO GOOD LEADER
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HIGH TECH, BUT LOW RESULTS

The Sacramento Bee - Monday, March 4, 1996
Author: Dan Walters
Those with computer access to the Internet can tap into the state government's
complex of web pages and find, among other things, a report from a commission
on the implementation of computertechnology in the state bureaucracy
That's a bit ironic because the commission was appointed in the wake of a $49
million computer fiasco in the Department of Motor Vehicles . The DMV
bought a hardware/software system that was totally unusable and had to eat the
cost. And the commission's report was just one in a series of post-DMV studies
that conclude, in effect, that the state is doing an erratic job of computerizing
itself.
And that's ironic, too, because California is the computer capital of the world.
Its computer -related industries are exploding and more than half of Californians
have home computers , according to a recent survey.
In theory, government and computers should be an ideal match because much

of what public agencies do involves words and numbers, everything from auto
license renewals to filling out welfare eligibility forms. The practice, however, has
differed from the theory.
Although the state spends an estimated $1 billion a year

on computer technology, its efforts have been cumbersome, poorly coordinated
and often outright failures.
The commission that Gov. Pete Wilson appointed after the DMV disaster resulted
in the creation of a new Department of Information Technology to oversee
technology programs.
But, as the Legislature's fiscal analyst notes in a recent overview of the state
budget, "Given the magnitude of . . . the problems, it is clearly going to take time
to rectify this situation."
Bob Dell'Agostino, who keeps track of computers for the Legislature's budget
office, says that while some departments have gone into technology smoothly,
many others have had major problems, of which the DMV is just the most
spectacular example.
The latter wanted a computer system for its new veterans home in Barstow to
track medical billings, but implementation is a year and a half behind schedule -
an eon when dealing with technology that transforms itself within a few months.
The key to digital success anywhere is an ability to think creatively about

applying technology, not merely buying hardware and software for its own sake.
But the culture of government does not lend itself to such a free-wheeling
approach, either in middle management or at the political level.
Governmental processes are designed for control; there's no bottom-line motive;

bureaucrats and public employee unions are leery of anything that eliminates
bodies and/or reduces baseline budgets; equipment and software vendors
sometimes pull political strings; and failures usually result in the creation of even
more layers of oversight.
"There has to be a change in the culture," says Dell'Agostino. "There has to be

some leadership at the top."
"Reinventing Government" is both the title of a book popular in government

circles and a new mantra. Governments, reformers say, must go through the
same streamlining and concentration on core functions as private corporations.
The implementation of high-tech applications is one of the steps that's necessary

if government at all levels is to succeed. But it's an incredibly difficult transition for
those in government to make. Just the other day, it was revealed that the Rocklin
Unified School District in Placer County blew $700,000 on a
new computer system that doesn't work and the company that supplied much of
the equipment is bankrupt - a DMV fiasco in miniature.
DAN WALTERS' column appears daily except Saturday. Mail: P.O. Box 15779,
Sacramento, 95852; phone: (916) 321-1195; fax: (916) 444-7838; e-mail:
70662.21@compuserve.com
Section: MAIN NEWS
Page: A3
Record Number: 095
HIGH TECH, BUT LOW RESULTS
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INADEQUATE COMPUTER SYSTEM PLAGUES DISTRICT

The Sacramento Bee - Sunday, February 25, 1996
Author: Molly Kinetz Neighbors staff writer
The state Department of Motor Vehicles ' problem money spent on
inoperable computer systems has come to Placer County. At a cost of at least
$700,000, the Rocklin Unified School District installed
customized computer hardware and software that didn't work
The total cost of the nearly unusable system is not known because payment
reports before 1992 were not retained, said Linda Wright, administrative assistant
in the business office. No records are available that the system was put out for
competitive bid either, Wright said.
A report presented to the board Wednesday night said the hardware installed
was not uniform, had no warranty and lacked memory sufficient to operate
Windows software. The software had no documentation, lacked network security,
was incompatible with other software and frequently failed.
"Most districts purchase off the shelf," said Lorraine Becker, assistant
superintendent of curriculum. "This district had the computers built to
specification."
Becker has worked on salvaging the system since she joined the district last
year. The installation and operation of the system until then were supervised by
David Beeskau, assistant superintendent of business, who resigned suddenly
last year.
"We have not traced back who approved what or did what before I arrived," she
said.
The hardware and cabling were poorly designed, the specifications were loosely
written, which allowed installation of materials below industry standards, and
inspections were not required. Students were able to surf the local network at
will.
"The kids had two years of free rein before the teachers were given the ability to
have access to the network," Becker said. "Many of the kids are very
sophisticated and can access networks."
The schools most severely affected were Antelope Creek and Cobblestone
elementary schools and Rocklin High School. In 1995, the high school was
retrofitted with new cables and disk drives on the computers . The improvement
is marked, said technology teacher Susan Espaa. The cost of the retrofitting was
not available at press time. It is an expense that will have to be incurred at
Antelope Creek and Cobblestone.
In 1990, the district hired Denvek Software Inc. to develop the technology. DSI is
now bankrupt, but its influence lingers. Afraid of viruses and security breaks by
students, DSI did not include disk drives on any of the computers .
Neither teachers nor students could start a project at home, bring the disk in and
continue working at school. Eventually, home and school would be connected by
modem, according to DSI.
"Eventually" hasn't come, but the high school system is faster after the retrofit
and less subject to crashing, Becker said.
But Antelope Creek and Cobblestone need the same upgrades, at about $50,000
per school, Becker said. Victory High School, the district office and offices at
each school also need new equipment.
Victory, an alternative-education school, has minimal programs to assist

students, Becker's report says. "They have stand-alone computers (at the
alternative school), they are not networked," she said. "That does raise an equity
issue."
Money is key, as was made clear at Wednesday's board meeting when Spring
View Middle School's Principal David Pope came to the board with a request to
update technology at Spring View.
He favored an option that would cost at least $60,900. Other, less expensive
options were presented that would bring Spring View up to district minimum
standards.
"The district level of support needs to be followed rather than what was
requested from Spring View," Becker said.
The board voted unanimously for the least expensive option for Spring View, one
that costs $36,000. The money probably will come out of developer fees or some
other limited-use fund, Becker said. It will not come from the general fund.
Once the hardware and software are cleaned up and running properly, the district
will have to focus funds on supporting the system, Becker said.
"Networks require care and feeding," she said, and the district does not have
people trained for that job.
A business with a network of 300 computers and two servers, as the high school
has, would have two full-time technical support people, Espana said
Edition: PLACER
Section: NEIGHBORS
Page: N1
Record Number: 189
INADEQUATE COMPUTER SYSTEM PLAGUES DISTRICT
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LITTLE PROGRESS SEEN IN STATE COMPUTER WASTE

The Sacramento Bee - Wednesday, January 24, 1996
Eighteen months after it was revealed the state was wasting millions of dollars on
bungled computer projects, a survey issued Tuesday shows that "relatively little
progress" has been made toward fixing the problems
A report by Legislative Analyst Elizabeth Hill identified 10 major projects totaling

in excess of $2 billion that were recommended for careful oversight by the
Legislature. Six of them were on a "watch list" the analyst developed in 1994 and
four more have been added - at the California Lottery, the Franchise Tax Board,
the Department of General Services and a new project at the Department of
Motor Vehicles to replace one that was scrapped.
"Continuation of these problems will inhibit the ability of state departments to

achieve an appropriate return on their (current) investment of over $1 billion," Hill
said in the report.
Jesus Arredondo, a spokesman for Gov. Pete Wilson, said the Governor's Office
did not have immediate comment on the report.
Efforts to modernize and replace technology systems have been an ongoing

embarrassment for the Wilson administration.
At the DMV, seven years and $51 million were spent on a computer system that
could never be made to work properly. Costs of automating a child-support
tracking system at the Department of Social Services have increased 71 percent
to $260 million. At the California Lottery, a contract was canceled for alleged non-
performance in 1993. The vendor sued and recently got the contract reinstated
after the lottery agreed to pay $7.2 million in legal fees and assume many new
costs.
The deal "gives new meaning to the term "open-ended,' " said Assemblywoman
Debra Bowen, D-Marina Del Rey, former chair of a technology subcommittee.
The lottery contract "has an $87 million floor with absolutely no ceiling."
In 1994, Wilson appointed a task force to study the problems and then followed
up on one of the group's recommendations to centralize project acquisition and
oversight under one person who reports to the governor.
John T. Flynn, who held a similar post in Massachusetts, was hired recently to
head California's new Department of Information Technology.
Flynn said Tuesday he welcomes the report and continuing input by Hill and her
staff.
He pointed out that his office has only officially been in existence since Jan. 1,
but independent contractors already have been hired to monitor each of the
major projects.
"Everyone understands that there have been problems . . . but I'm very happy to
report independent organizations (will be doing) analysis of these projects," Flynn
said.
Other recommendations of the governor's task force were to be included in an

implementation plan developed by Wilson's Office of Planning and Research.
Hill's report noted that the plan was finished more than a year ago but the
administration hasn't released it yet.
Lee Grissom, director of the planning office, was unavailable for comment
Tuesday.
Hill commended the Legislature for taking an activist role in seeking solutions to
the problems and suggested concentrating future efforts in three areas:
Closely monitor technology projects and keep pressure on the administration to

implement reforms recommended by her office, the task force and the state
auditor.
Hold the Department of Information Technology accountable for results and
remove any barriers that are identified as interfering with the department's
mission.
Make sure the new department has a stable base of funding that is shared by
other agencies receiving its services
Caption: Elizabeth Hill: She urges the Legislature to keep a close eye on
agencies' computer systems. * Debra Bowen: She says the lottery's contract
"gives new meaning to the term "open-ended.' "
Section: MAIN NEWS
Page: A3
Record Number: 009
LITTLE PROGRESS SEEN IN STATE COMPUTER WASTE
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WILSON'S DRIVE TO PRIVATIZE ANGERS UNIONS

SACRAMENTO BEE - Friday, October 20, 1995
Author: Ken Chavez Bee Capitol Bureau
Gov. Pete Wilson's long-running feud with labor unions and their Democratic
allies in the Legislature escalated Thursday over a new administration effort to
vastly widen the scope of state government services that can be taken over by
private enterprises.
In what his aides describe as an unprecedented step, the Republican governor

has asked all of his Cabinet officers to review their agencies' duties with an eye
toward identifying programs that can be done better and cheaper by the private
sector.
In a memorandum to Cabinet members, George Dunn, Wilson's deputy chief of

staff, said the potential for contracting out more services to the private sector
"serves the governor's goal of an efficient and "businesslike' government."
But labor union representatives expressed skepticism - and some outright

opposition - to Wilson's objectives, saying there is no guarantee that privatization
saves money. "Just on its face value, it doesn't follow that government services
are going to be better or cheaper by wholesale privatization," says Chris Voight,
a spokesman for three state-employee unions representing attorneys, scientists
and engineers. "We have seen contracting out result in higher costs and poorer
quality."
The California State Employees' Association, the largest public-employee union
in the state, underscored that point with a news release illustrating what it saw as
the pitfalls of privatization - including a lack of oversight given to private firms
hired to do government work.
As examples, CSEA cited the $50 million the Department of Motor

Vehicles paid to a private consultant for a computer system that never worked
properly. The union also said consultants working for the Department of
Insurance were found to have submitted phony expense claims.
"Privatization is not a miracle cure," said CSEA President Yolanda Solari. "It was
one of the causes of corruption that motivated CSEA to press the state to pass
civil service reforms in the 1930s."
Wilson's move on the privatization front is the latest in a series of steps he's
taken to further a business-oriented agenda that he and Republicans in the
Legislature have been pursuing for years.
He has called for a repeal of the requirement that employees who work longer
than eight hours a day be paid overtime, and last week proposed new prevailing-
wage rules that would pull the state away from paying union wages to workers
hired for public construction projects.
Senate President Pro Tem David Lockyer, D-Hayward, said he is open to

privatization proposals that can be shown to have potential cost savings, but, he
added, "If you think about it, it's hard to imagine services being provided in a
significantly cheaper way unless you simply pay the workers less and deprive
them of health care."
Wally Knox, D-Los Angeles, chairman of the Assembly Labor and Employment
Committee, said he worries that "what sounds like a call on the part of the
governor to privatize, no matter what, fails to distinguish between inept
government and simply an attack on people holding jobs."
The internal review now under way, one high-ranking Wilson official said, does
not have a specific target for the amount of government operations Wilson would
like to privatize. Other options include transfering government programs to local
governments, non-profit organizations or dropping certain services all together.
"The governor's intention - to use what is becoming an almost trite phrase - is to

find the right size of government," the official said. "This is an analytical approach
to find out how big does this (government) have to be given the fact that it is
funded by public dollars."
The scope of Wilson's final proposal - due in March - may require the passage of
a constitutional amendment to overturn a 1934 voter-approved initiative that put
tough restrictions on the state's ability contract out government work to private
firms.
Section: MAIN NEWS
Page: A3
Record Number: 008
WILSON'S DRIVE TO PRIVATIZE ANGERS UNIONS
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COMPUTER FLOP COSTLY FOR COUNTY - MILLIONS SPENT

BEFORE SYSTEM FINALLY SPIKED
SACRAMENTO BEE - Thursday, August 10, 1995
Author: Catherine Bridge Neighbors staff writer
They wanted a Chevy, paid for a Cadillac and got a lemon. That's the critics'
assessment of the Criminal Justice Information System that cost El Dorado
County $3.2 million before it was quietly dumped last October, just about the time
the county discovered that it had to slash $7.6 million from its budget to stay
solvent.
The computer debacle surfaced recently with the issuance of the 1994-95 grand
jury report in which the county was criticized for "rushing into costly projects" like
CJIS. "With little attention to planning and administrative requirements, the
county spent $3.2 million and in the end scrapped the project," says the grand
jury report.
The idea to link all the criminal justice departments via a

sophisticated computer network originated in 1989 at the same time automated
systems were being planned for financial management and property records.
Inslaw, a Washington, D.C.-based company that had already provided one
record-keeping system in Superior Court was awarded a contract in 1991, with
system testing to be completed and installation to begin by late 1992.
A simplified version now operates in the Sheriff's Department, but the Municipal
and Superior Court, the district attorney's office, the public defender and the
probation department were never able to get the system up and running.
"Ultimately, (CJIS) took on the dimensions of the Winchester Mystery House,"

said Undersheriff Jim Roth. "We wound up with doors and hallways that went no
place."
By the time the decision came to pull the plug, it was too late to recoup the
county's losses.
"When we put out our request for proposal, we wanted an already operational
system," said Supervisor John Upton, who's been on the board throughout the
long process. "The CJIS (Inslaw) people convinced our people they had one. It
took us a long time to realize that it was not. (By then), too much time, too many
faces had changed to face them on the legal issues. It was best just to pick up
the pieces."
Those "pieces" include an automated records system that produces reports in

the Sheriff's Department.
"We came out with a system we could use because we put in a lot of time and
effort that others didn't necessarily," said Roth.
In the Communications and Information Services Department, director Ollie

Reighn calculates that $650,000 of the $3.2 million went to upgrade the
mainframe computer and buy software that is applicable to other county uses.
Of the total remaining, he said, $1.4 million went to Inslaw for software and
consultants' time, and $1.2 million was spent on staff time trying to make the
system work.
"My best guesstimate is that the county's real out-of-pocket loss amounted to
about $1.2 million," he said. He remains convinced that CJIS would have been
workable if department heads had not lost faith in it.
Opinions about what went wrong vary from department to department. Roth is
convinced that an early failure to do a needs assessment study of all criminal
justice departments, because it would cost $10,000 to $20,000, doomed the
project.
"We didn't draw the plans before we started building the house," he said.
Cathy Monaghan, chief clerk of the Municipal Court, said that with the California
court system in a state of constant flux over the past five years, perhaps no
system could adequately integrate all departments and update all changes.
"In five years, we've never done anything the same way twice," she said. "The
state is constantly changing its codes, fines and bills."
Among CJIS's harshest critics are the Superior Court officials.

"From the very outset, CJIS came as a fiat from above," recalled Judge Patrick
Riley. "We were told what we'd have."
When new chief clerk and computer expert Sharon Lawrence was hired in 1993,
"she confirmed what we suspected: It wouldn't work," Riley said. By then a year
over schedule, CJIS was supposed to be up and running by July 1993, according
to Lawrence.
"Staff came in on weekends and couldn't get the system to accept a single case,"
she said. "It just kept crashing."
Because nothing was working, the county's data processing center, then called
Information Services and Support, had to redesign and customize the software,
adding levels of complexity that led to fears that none but experts could ever
master the system.
"The technology (from Inslaw) was 10 years out of date," said Lawrence. "It was
impossible to learn on your own."
Meanwhile, Riley had contacted other judges in California and learned that not
only did no one else use the Inslaw system, but that Stanislaus County
!JJzeVials also learned that other partially integrated information systems like
JALAN and SUSTAIN ranging from $300,000 to $600,000 were up and running
in a number of other counties.
"Shasta County started the whole process at the same time we did," Lawrence
said. "They went with JALAN, spent $600,000 and had it up by July 1992." After
months of failure to make the system work, Riley said he went to then Chief
Administrative Officer Paul McIntosh in August 1993, and told him, "We owe it to
the taxpayers to look at something different." He said he still thinks that ending
CJIS then could have led to as much as $1.5 million in savings.
Instead, the National Center for State Courts was asked to assess the project
and make recommendations to help implement it. Its October 1993 report was
upbeat about the system's ultimate workability, suggesting some 11 steps
primarily to be undertaken by ISS to stabilize the system and train people to use
it.
Though "disappointed" by the center's report, Riley said, "we were willing to try
it." But nothing happened. "All the recommendations had to be carried out by the
ISS's John Sestok (who has since resigned), and just never were," said
Lawrence. No one interviewed knew why, though Judge Riley suggested that
because the system was so cumbersome and complex, "it became apparent
we'd have to put on a night shift to enter data, and no one wanted to face that
fact."
The end came in October 1994, when the CJIS steering committee of the
criminal justice department and ISS representatives simply decided to stop
working on the system.
"We never got it to operate independently, let alone on an integrated basis," said
Lawrence, who compares the system's failure and cost to county taxpayers with
the computer scandal at theDepartment of Motor Vehicles that cost state
taxpayers $50 million last year.
"When I came up from San Diego, I couldn't believe a county this size would
want to design its own system," she said. "I'll only go with a system with a proven
track record."
Inslaw president William Hamilton did not return a call requesting his comment by
press time.
Edition: EAST
Section: NEIGHBORS
Page: N1
Record Number: 063
COMPUTER FLOP COSTLY FOR COUNTY - MILLIONS SPENT BEFORE
SYSTEM FINALLY SPIKED
taction=doc&p_docid=0EB0DB46EAE342C0&p_docnum=218&p_queryname=8
HOW STATE "EMERGENCIES' EVADE RULES ON BIDDING

SACRAMENTO BEE - Sunday, August 13, 1995
The peanut-butter emergency hit Mule Creek State Prison near Ione in early
September of last year.
That came on the heels of the cake-mix emergency at the prison in Corcoran.
Both generated a flurry of paperwork to justify urgent food contracts so that

prison menus didn't have to be altered.
Those are just two of the "sole-source" contracts - awarded without competitive
bidding - that have been approved on an emergency basis since last August,
when Gov. Pete Wilson banned such agreements. They total millions of dollars,
according to a Bee examination of state expenditure records.
With exceptions such as repairs, all state purchasing is to be by competitive bid

"except in the case of state emergency or where public health and safety so
requires," Wilson's executive order said.
The order was issued in response to a series of scandals in state purchasing.

The most notable involved a failed computer project at the Department of
Motor Vehicles that Wilson called "a $50 million bureaucratic sinkhole."
A review of contracts issued since the ban shows sole-source exceptions have
been granted for all sorts of generally available items such as alfalfa, chicken
parts, helicopters, used cars, photo copiers, socks, asphalt, software, shingles,
night stands, lawn mowers, tire chains and underpants.
Sole-source contracts were used to hire conference speakers, rent hotel rooms,
build trails and to count giant garter snakes.
At the Department of General Services, which oversees state contracting, Chief

Deputy Director Steve Olsen was asked if his department has followed the
governor's intent on contracting.
"I'll let you draw your own conclusions," Olsen replied.
One who already has is Assemblywoman Debra Bowen, D-Marina Del Rey,
who's been pushing for contracting reforms since she was elected in 1992.
"One of the reasons we spend too much money in government is that we don't
procure well," Bowen said. "The reason we have a bid system is to get the lowest
possible price and so that no one will be paying off political contributors" with
government contracts.
There doesn't seem to be a commitment to reigning in excessive or irresponsible

contracting, she said. During budget hearings this year, Bowen said, she learned
the state was paying more for personal computers acquired under contract than
it would if they were purchased from a discount store.
Most state contracting operations aren't computerized, so it is difficult even to

track sole-source contracts.
It took the General Services Department weeks to tally the contracts written
during the first eight months of the ban. That report listed about 700 contracts
worth $10,000 or more, but checks with other state agencies found another 600
such agreements had been overlooked by the department.
And there were no figures on contracts of less than $10,000, since General
Services doesn't keep tallies on procurements that small.
There's also no list of sole-source contracts that were awarded before Wilson's
order and have since been extended. The Department of Parks and Recreation,
for example, hired a sole-source contractor in February 1994 for $75,000 to
monitor the restoration of historic buildings damaged by the Northridge
earthquake. After the latest amendment in October, the contract now totals
$580,000.
General Services officials acknowledge their procurement division is understaffed

and works with overly complex regulations. State Auditor Kurt Sjoberg suggests
that's one reason sole-source contracts are favored by the bureaucracy - to avoid
time-wasting regulations.
Long-range plans are being developed to simplify the contracting process, the
officials say.
Acting procurement chief Pat Jones said her buyers are given considerable
latitude to determine what is an emergency purchase. In the case of the $11,388
contract for peanut butter, Jones agreed it isn't really an emergency if inmates
have to eat other kinds of sandwiches. But in that case it was more efficient to
buy from a vendor who already had a contract to supply other institutions, she
said. Otherwise, several months would have elapsed while the contract was
advertised and bids were evaluated.
Many of the other contracts, she said, were for products and services where
there is only one vendor or for specialized equipment. That's particularly true for
many computer parts, software programs and equipment maintenance services,
she said.
When the Board of Equalization spent $29,000 on a mailing machine, Pitney

Bowes equipment was purchased so that it would be compatible with existing
machinery. A $26,577 order for mobile radios for the Department of Fish and
Game specified Motorola products for the same reason.
In other cases, Jones said, competitive bids were sought but no qualified bids
were received. If there isn't time to re-advertise the contract, her buyers negotiate
with a supplier to fill the order.
The Prison Industry Authority, which makes and purchases supplies and
equipment for government agencies, shows up most often on rosters of sole-
source contracts.
PIA spokesman Reggie Drew insisted such contracting is essential.
"When you crank out $11 million in meat purchases, operational things happen,"
he said. "You don't get the amount of yield you expected. The customer wants
more. There's normal variation in any system. You have to start making spot
purchases until you get your (new) contract in place."
But longtime PIA board member Leonard Greenstone attributes much of the
sole-source contracting to mismanagement. Attempts to computerize PIA
operations have been met with numerous setbacks, he said, while inventory
controls and delivery schedules have been chronic problems.
"They don't have enough control over their business to know what they need,"
Greenstone said.
A review of other contracts turned up a number where the bureaucracy created

its own emergency.
General Services had a contract for printing plates that had been bid
competitively. But records show it was discovered in November that the contract
specifications were wrong. The department was forced to issue a $37,699 sole-
source contract for different plates so that printing schedules could be kept.
About the same time, the Office of Emergency Services got an urgent request for
pumps when heavy rains flooded part of the State Archives building in downtown
Sacramento as well as some nearby city and county offices.
A spokesman explained that the Military Department was asked to transport the
pumps from a storage yard, but refused when it was discovered they were on
trailers that couldn't legally be hauled over state roads.
The Sacramento Fire Department moved the pumps and was able to start them,
but each one failed because of age and worn parts, he said.
Emergency Services issued a sole-source contract for $17,520 to buy new

pumps and legal trailers and was ready for the next round of flooding.
The records also show that even the governor's office issued sole-source
contracts.
Last spring, a contract for $8,500 plus expenses was issued to a "facilitator" to
help launch the governor's Rural Development Council. The unpaid appointees
are to develop a rural economic growth strategy.
"This was essential," said Carol Whiteside, Wilson's director of intergovernmental

affairs.
"This is a lot different than buying furniture or renting building space," she said.
"We had specialized people (on the council) who could each see a piece of the
puzzle. We needed someone to move in and get people working together to
accomplish the goals."
It was pointed out that Wilson had a legislative mandate to have a rural strategy
in place by Dec. 31, 1994. But it wasn't until 14 months after the deadline that he
got around to appointing the council.
"Yes. . . . We were feeling kind of under the gun," Whiteside replied.

Section: MAIN NEWS
Page: A1
Record Number: 037
HOW STATE "EMERGENCIES' EVADE RULES ON BIDDING
taction=doc&p_docid=0EB0DB2E0ED3B1B0&p_docnum=224&p_queryname=8
DMV URGED TO UNLOAD WOEFUL COMPUTER SYSTEM

SACRAMENTO BEE - Saturday, May 13, 1995
Slightly used Tandem Cyclone computer system. Cost $18 million new. Asking
$800,000, but willing to dicker. As is. Call the California Department of Motor
Vehicles .
The big engine that couldn't - the Department of Motor Vehicles ' scandal-
plagued computer system - should be de clared surplus and offered for sale for
about five cents on the dollar, according to a draft report circulating among state
officials.
DMV officials spent seven years and $49.4 million trying to update their
vast computer system. But they finally conceded last year that the system could
never be made to work properly and they canceled the project.
A consultant called The Warner Group looked at more than 20 options for using
the equipment and concluded none was cost-effective, said DMV spokesman
Evan Nossoff.
The computer main frame "was purchased back in 1989 and there's a new
generation of computers out there now," Nossoff said. "In the early '90s, the
value of big main frames also dropped sharply."
He stressed that although Warner recommends selling the equipment as surplus,

no decision will be made until the report is finalized.
Chong Ha, director of the state's Teale Data Center, said he agreed with the
report's finding that the system could bring between $500,000 and $800,000 on
the resale market.
The heart of the system is six Cyclone computers and related equipment
purchased from Tandem Computer Corp. of Cupertino. Those ate up $18 million
of the $49.4 million committed to the project.
The DMV hasn't finished paying for the Cyclones yet. About $1.5 million is still
owed, according to state officials, and is being paid off in monthly installments of
$286,461.
Tandem spokeswoman Sally Smith said the company would have no comment
on the situation. One of the issues in dispute is whether the Cyclones ar powerful
enough to do what the DMV wanted. There also was controversy over the
reliability of the computer hard drives.
But most of the criticism went to the planning, installation and configuration of the
project by the DMV and Department of Finance staffs, rather than
Tandem's computer hardware.
"It's outrageous that this project was implemented in such a slipshod fashion,"
Gov. Pete Wilson said last year.
A series of audits and investigations concluded that state employees had

seriously mismanaged the effort. But none of those in charge of policy decisions
was disciplined. Four mid-level employees had their pay docked for three to six
months for falsifying some payment records.
DMV officials expressed hope that another state agency might buy the system.
But Boatwright said he suspects "nobody wants to touch it with an 80-foot pole."
In the Senate budget subcommittee he chairs, Boatwright initiated steps this
week to monitor the resale effort.
In response to the DMV and other computer fiascoes in state government,

Wilson appointed a task force to study the problem. Its report last September
urged major changes in the way the state contracts for computer technology and
oversees installation.
Wilson last month began steps to put the task force's key recommendations in
place.
Section: MAIN NEWS
Page: A1
Record Number: 084
DMV URGED TO UNLOAD WOEFUL COMPUTER SYSTEM
taction=doc&p_docid=0EB0DB29D35D38D2&p_docnum=225&p_queryname=8
ANOTHER COMPUTER DEBACLE

SACRAMENTO BEE - Monday, April 24, 1995
Ten years ago, the Legislature authorized the development of SAWS, the
Statewide Automated Welfare System, a computer system that would allow
thousands of California welfare officials to store, recall and update welfare
regulations on everything from AFDC to food stamps, perform millions of
complex calculations instantaneously, speed the determination of eligibility,
improve efficiency and reduce fraud.
But in a devastating report, state Auditor Kurt Sjoberg reports that SAWS is on
the verge of collapse. The project is five years behind schedule and if allowed to
run its course will be a half-billion dollars more costly than originally projected.
And it will probably never work; the complexity of the project has overwhelmed
the ability of the Department of Social Services to manage it. Sjoberg
recommends that SAWS, which has already consumed $100 million, be
scrapped and that a new pro posal be put out for competitive bid.
Designing systems to manipulate billions of transactions is difficult to carry off

even under the best management. But in this instance, the audit describes an
inexcusable level of bureaucratic incompetence. Investigators found that the
officials in charge never developed measurable objectives and therefore weren't
able to evaluate the effectiveness or progress of SAWS; didn't keep track of what
was spent; and didn't require the various vendors who supplied components for
the system to share the risks if the system failed. Six different people have
headed the project in eight years. The Office of Information Technology, which
the auditor says failed to monitor the situation and raise warnings, is singled out
for special criticism.
Both the SAWS audit and the earlier computer debacle at the Department of
Motor Vehicles are expensive demonstrations that California lacks the in-house
capability to design huge, complexcomputer systems. The auditor therefor
recommends that the state and counties simply define what their welfare
system computer needs are and invite private contractors to design solutions.
To protect taxpayers, the successful bidder would have to share both the
rewards for success and the risks of failure. The model the auditor suggests is a
recent Caltrans I-5 bridge repair deal under which the contractor received
bonuses for satisfactory work completed on time and under budget ut which
would also have required him to pay substantial penalties for cost overruns and
delays. It's not a bad place to start.
Section: EDITORIALS
Page: B6
Record Number: 161
ANOTHER COMPUTER DEBACLE
taction=doc&p_docid=0EB0DB29E19A3D65&p_docnum=226&p_queryname=8
CRITICS BLAST FAILED STATE PROJECTS, SPIRALING COSTS IN

CONTRACTING
SACRAMENTO BEE - Monday, April 24, 1995
In the jargon of those who make a living on state contracts, this one was "a foot
in the door."
It was a simple, no-bid contract for $21,850 to study ways to

consolidate computer data bases at the state Department of Transportation. All
the work was to be finished in two months.
But nearly two years later - after numerous amendments and extensions - the
costs totaled $918,400.
At one point, the Department of General Services denied further contract

amendments and directed Caltrans to put the work out to competitive bid. But
after two rounds of bidding and bid protests, plus new criteria for scoring the bids,
the original contractor got the job anyway.
It's the kind of situation that gives ammunition to reformers who contend state
contracting for a broad spectrum of goods and services is out of control.
"I'm fed up with these contracts that seem to take on a life of their own," said
Assemblyman Richard Katz, D-Panorama City.
"The abuses keep happening," added Sen. Daniel Boatwright, D-Concord. "The
state doesn't get the best bang for its buck and there doesn't seem to be any
accountability."
Caltrans Director James van Loben Sels contends, however, that the state got
full value for its contract. The job turned out to be much more complex than
anticipated, he explained, and the contractor also was given additional tasks.
The contractor "provided Caltrans with an excellent work product" that exceeded
contract requirements, he insisted.
Yet a pilot project for the new system in the Los Angeles area wasn't fully
implemented as scheduled on April 1. Doug Failing, the division chief for design,
said he expects the system will produce management reports for key projects by
the end of the summer. It should be available for all projects a year after that, he
said.
Even when there's agreement on the need for reform, critics find the pace of
change excruciatingly slow.
It was last September that "some of the best and brightest (experts) in the world,"
as Gov. Pete Wilson called them, produced a report urging major changes in the
way the state contracts forcomputer technology and oversees its installation.
Yet it wasn't until April 13 that Wilson began steps to put their key
recommendation in place. The panel had called for a new position of chief of
information, reporting directly to the governor, to oversee
state computer procurements and installation.
The governor announced creation of the new position, but no one has been hired
to fill it. There's also no budget for the new office and no administration proposal
to make the necessary legislative changes.
Lee Grissom, who heads the governor's office of policy research, was charged
with setting up the office. But Grissom admits to having no background
in computers .
It hasn't been easy to recruit someone who can oversee hundreds of millions of
dollars in technology procurements, he said, but once that happens, reforms will
be quick in coming. "There's a new attitude, focus and approach to these issues,"
he said.
But that didn't satisfy Assemblywoman Debra Bowen, D-Marina Del Rey, who's
emerged as the Assembly's chief computer guru.
"I think it's frightening that we still have all the same procedures in place that
gave us failed computer procurements," she said. "There should be some
urgency."
Boatwright also pointed to a succession of state audits in recent years showing

the state was overpaying for everything from paper clips to engineering services.
Some of those products and services don't perform as they were intended, he
continued, and still others were of dubious value to begin with.
Several celebrated cases have come to light in the past year:
* The Department of Motor Vehicles spent seven years and $49.4 million on a
new computer system that was shelved when DMV managers realized it would
never work properly. Auditors found numerous violations of state contracting
procedures and one illegal payment of $46,000 to the major contractor.
* The Department of Housing and Community Development was authorized to

purchase up to $100,000 worth of computer equipment without having to get
approval from the General Services and Finance departments. To get around
that limit, the housing agency bought a variety of equipment by issuing nine
separate invoices less than $100,000.
* The oil industry asked the Department of Conservation to do a study on how

much environmental regulation was costing their businesses. The successful
bidder received a $149,920 contract, which was later amended to $181,765.
Among those who worked on the study were an oil lobbyist and others who had
opposed statewide environmental initiatives. Senate Democrats denounced the
study's objectivity and questioned why the state should pay for a report that's part
of an oil-industry lobbying strategy. The report was cited as one reason for
refusing to confirm the head of the conservation department in another post.
Many such contracts often have been let without competitive bids. "Sole-source"
contracts, as they are called, have been "a problem we've seen recurring over
the years," according to state Auditor Kurt Sjoberg.
Lack of competition could mean the state is paying higher prices and not getting
the best product, he said.
The Department of General Services, charged with overseeing state contracting,

has no system for tracking sole-source contracts, said spokeswoman Ann
Richards. But one survey of spending by a state auditor in the 1992-93 fiscal
year found the department approved sole-source exemptions totaling $118
million for commodity purchases such as food, furniture and cars. That amounted
to about $1 in every $4 spent by state agencies on commodity purchases of
more than $10,000.
At the same time, the department reported that sole-source contracts

for computer equipment alone totaled $68.5 million.
After contracting became an election-year issue, Wilson also moved to curb sole-
source contracts last summer except in emergencies or because of public health
and safety concerns.
But then General Services followed up with a memo that identified 21 categories
of exemptions to Wilson's order, ranging from parts purchases to repairs to
leased facilities.
Richards said since General Services doesn't track the contracts, there's no way
to know whether the governor's order is being followed. Spot checks with some
agencies showed some reductions in sole-source contracts.
Memo: BATTLING THE BUDGET BULGE
Section: MAIN NEWS
Page: A10
Index Terms: SERIES
Record Number: 205
CRITICS BLAST FAILED STATE PROJECTS, SPIRALING COSTS IN
CONTRACTING
taction=doc&p_docid=0EB0DB28A71A00C0&p_docnum=228&p_queryname=8
AUDIT RIPS BIG STATE COMPUTER PROJECT

SACRAMENTO BEE - Wednesday, April 19, 1995
Author: Mary Lynne Vellinga Bee Capitol Bureau
The largest computer project ever undertaken by state government has been
mismanaged and is ill-suited for its stated mission of linking county welfare
offices statewide, the California state auditor said Tuesday.
If the Department of Social Services goes ahead with plans to expand its
pilot computer project to the rest of the state, it could wind up spending as much
as $1 billion on a system with serious flaws, Auditor Kurt Sjoberg concluded in a
report written by consultant Ernst & Young.
The Legislature, concerned about the direction of the Statewide Automated

Welfare System (SAWS), last year directed the Bureau of State Audits to
commission the report, which cost $411,000.
Ernst & Young also criticized Social Services for failing to adequately evaluate
SAWS' performance in the handful of counties in which it is now operating.
"There is a lack of leadership, clear authority and accountability for what needs to
be done to implement welfare automation," the report stated.
Sjoberg added that by failing to require Unisys, the company building the system,
to share any risk of cost overruns, the state was essentially giving the firm a
blank check.
In 1986, the state estimated welfare automation would cost $554 million, the
auditor found. The report now projects that costs could reach $1 billion, with no
firm completion date in sight.
The Health and Welfare Agency, which oversees Social Services, announced
shortly after the report came out Tuesday that it was moving management of
SAWS and two other problem-plaguedcomputer projects from Social Services to
the state Health and Welfare Data Center.
The current manager of SAWS will be reassigned to another post within Social
Services, said Thomas Nagle, recently hired as undersecretary of Health and
Welfare.
"There have been some problems," Nagle acknowledged. "What we have to

figure out is what it will take to bring these projects to a conclusion.
"I think if you were to place projects of this magnitude in any single department,
you're asking for problems," Nagle said.
But he and department Secretary Sandra Smoley also defended the SAWS
project. Unlike last year's scandal at the Department of Motor Vehicles , in
which the department admitted spending $49 million on a computer system that
didn't work, SAWS has produced some measurable results, they said.
"The difference was (DMV) flipped the switch and nothing happened," Smoley
said. "This works."
Under the pilot project, the SAWS system is fully or partially operating in nine
counties thus far, with another five counties expected to come on line soon.
But the pilot project hasn't been free of problems, the auditor noted. The
estimated cost has ballooned from $78 million to $109 million just in the past
year. And the system - run on a mainframecomputer in the Health and Welfare
Data Center - has turned out to be much slower than expected.
The pilot system may also lose money for as long as 93/4 years, exposing "the
state's general fund to significant risk," the auditor concluded.
The report said the Legislature should slow funding for the SAWS pilot until
numerous conditions are met, including requiring Unisys to provide a firm price
quote for all hardware and software services needed to run the system for the
next three years.
In the long term, the report suggested, Social Services should go out to bid for a
statewide system instead of automatically proceeding with the current approach,
which runs on proprietary software only available through Unisys.
Section: METRO
Page: B1
Record Number: 262
AUDIT RIPS BIG STATE COMPUTER PROJECT
taction=doc&p_docid=0EB0DB2789533694&p_docnum=229&p_queryname=8
WILSON SEEKS WIZARD TO GUIDE GOVERNMENT IN BUYING

COMPUTERS
SACRAMENTO BEE - Friday, April 14, 1995
Author: Mary Lynne Vellinga Bee Capitol Bureau
With the state auditor expected to issue a highly critical report on yet another
huge troubled computer project next week, the Wilson administration Thursday
announced that it is creating a new office to better oversee government spending
on technology.
The new office will be headed by a computer czar reporting directly to the
governor. In September, calling the current state of affairs "a crisis," a task force
appointed by Gov. Pete Wilson recommended creation of such a position. But
seven months later, the governor does not yet have someone to fill the job, even
though he is proceeding with the new unit.
"We have been actively trying to find the right person," said Lee Grissom, who
heads the governor's Office of Planning and Research. "We think we're fairly
close, but it's not a done deal yet."
Until the new chief information technology officer is hired, Grissom said, he will
be running the new office. Grissom conceded he has no computer expertise, but
said he will be concentrating on getting the unit set up and hiring staff, most of
whom will come from other state departments. He said he hopes to have the
new computer chief hired by June.
Grissom said the office will start out with a small staff of about 10. He said he
wasn't sure how much Wilson will ask the Legislature to budget for the
operation.
The state's computer snafus garnered enormous publicity last year, when
the Department of Motor Vehicles revealed it had dumped $49 million into
a computer system that didn't work. A flurry of reports ensued, all
recommending changes in the way the state purchases
large computer systems. The governor's task force of private-
sector computer experts issued one of those reports.
The Wilson administration is likely to suffer another computer embarrassment

next week when the California state auditor is expected to issue a report raising
questions about an $800 million Department of Social Services computer project
aimed at linking county welfare offices. Several knowledgeable sources said they
expect the report to be scathing.
At the same time he is setting up the new technology office, Wilson plans to act
on another task force recommendation - abolishing the Office of Information
Technology, which now has oversight overcomputer projects but has been
widely criticized for failing to prevent disasters.
Wilson can't abolish the office without legislative approval, however. Grissom
said the administration would be introducing a bill or working with someone who
has an existing measure. Sen. Alfred Alquist, D-San Jose, has already
introduced legislation to get rid of OIT and set up a new technology agency.
Grissom said OIT, housed in the Department of Finance, has merely been "a
numbers cruncher," reviewing finances for computer projects without offering
criticism or direction. He said the new technology director will have broad
oversight of computer projects statewide, and will have "the direct ear and
attention of the governor on these projects."
He or she will not, however, have the authority to step in and unilaterally stop
a computer project that is going awry.
The computer czar's job will pay about $99,000, a fraction of what similar
positions in the private sector offer. Jack L. Hancock, chairman of the governor's
task force, said he expects the person hired to be someone who has already
retired from the business world.
While Wilson's spokesmen hailed Thursday's announcement as major progress,

one legislative critic, Assemblywoman Debra Bowen, D-Marina Del Rey, said it's
too early to tell whether it means anything.
"The question is whether we've just simply rearranged all the boxcars on the train
and we're headed down the same track," she said. "OIT was supposed to have
broad authority, too. OIT was supposed to be the champion of technology."
Section: MAIN NEWS
Page: A3
Record Number: 205
WILSON SEEKS WIZARD TO GUIDE GOVERNMENT IN BUYING
COMPUTERS
taction=doc&p_docid=0EB0DB1E26E74C2E&p_docnum=233&p_queryname=8
STATE BOARD OKS LONE BID- MORE THAN DOUBLE ESTIMATE

SACRAMENTO BEE - Sunday, March 5, 1995
Striving to keep a major computer project on track, the state Board of
Equalization signed a $15.1 million management consulting contract last fall after
receiving just one bid - for nearly 23/4 times the original cost estimate.
The bid was submitted jointly by three firms that had been expected to submit
separate bids.
The contract was awarded Oct. 13 to Software AG of North America, based in

Reston, Va. It included subcontracts with Systems Programming Limited in San
Francisco and Andersen Consulting in New York City. The latter two firms were
among seven that had submitted letters of intent to bid on the contract in May.
"The appearance of this thing is awfully fishy," said Joe Crowley, who is
monitoring the project for the legislative analyst's office. His office has
recommended that the Legislature not approve $2.5 million in additional funds
sought for the project for fiscal year 1996-97.
Board officials said that while they had initial concerns about the bid, they
determined the increased cost was justified because they had imposed several
additional requirements after initially estimating the cost at $6.2 million.
"We had to add a lot of language to the RFP (request for proposal) that we did
not have originally when we estimated the budget," said Rick Vagg, chief of the
technology services division for the board.
"We put the risk completely on the contractor," he added. "There are significant
penalties and liability if it doesn't work and is not on time."
Patricia Jones, manager of technology acquisitions for the Department of

General Services, said it is unusual for her department to award a major contract
to a sole bidder. But she said it is not unusual for competing firms to team up in
the bidding process.
"We were surprised we only got one bid, but we didn't do an investigation to see
what they were saying to each other," she said. "This has happened before, but
usually we still have other vendors bidding."
While the department requires multiple bids before awarding contracts for certain
products and services, that is not the case for information systems, Jones said.
The contract is the latest phase of an ambitious project to expand

the computer system for the Board of Equalization, which collects state and use
taxes and a wide variety of business and excise taxes and fees. The project
ormally named the Integrated Revenue Information System, or IRIS - calls for
moving the board's in-house computer operation to the Stephen P. Teale Data
Center, which houses systems for several other state agencies.
Begun in 1991, the project originally was expected to be completed within five
years at a cost of $30 million. But in 1993, the board determined that its staff
lacked the expertise to complete the "migration" to the data center, and an
outside consultant would have to be brought in to complete it on time.
At that time, the board estimated that hiring the consultant would cost an
additional $6.2 million - well below the final price tag of $15.1 million.
The cost overrun on the consulting contract has raised the total cost of the
project to $47.3 million, according to the legislative analyst's office.
It is scheduled to be operational in mid-1997.
Vagg said bidding specifications for the contract were made unusually stringent
partly in response to the Department of Motor Vehicles ' computer fiasco. In
that case, the state poured $49 million into a failed computer system without any
guarantee that it would operate as intended.
He said that rebidding the consulting contract would have resulted in delays of up
to two years, and probably would not have resulted in any additional bidders.
"We feel we had a representative participation" in the original bids, Vagg said.
"We had a very, very stringent set of technical requirements that (call for) a lot of
skill and resources."
He noted that the board was able to reduce the amount of the contract by more
than $600,000 by removing certain tasks from the project. And he said the
contract cost compares favorably with similar ones awarded in other states.
Bernard Kalscheuer, deputy director of the state Department of Finance, who

signed off on the changes to the computer project, said he was satisfied with the
new funding and technical aspects.
"Obviously, it raises a question when you have three original bidders or

interested contractors filing a joint arrangement for bidding," he said. "But the
Department of General Services felt there was no problem with that."
Section: MAIN NEWS
Page: A3
Record Number: 186
STATE BOARD OKS LONE BID- MORE THAN DOUBLE ESTIMATE
taction=doc&p_docid=0EB0DB1886F8DD3F&p_docnum=236&p_queryname=8
PROBE CITES MISCONDUCT BY STATE WORKERS

SACRAMENTO BEE - Thursday, February 9, 1995
Last spring, a state Transportation Department engineer allegedly used his state
car regularly on state time for a decidedly non-state purpose - to gamble at a
card room in the Oakland area. During that period, he reportedly billed the state
for $5,571 in overtime.
The previous year, another Caltrans employee in Sacramento allegedly began

using his state computer during office hours to work on his private seismic
inspection business. He also allegedly teamed up with two other Caltrans
employees who used state equipment to help remodel a ski lodge in Strawberry.
Those were among the allegations contained in a report issued Wednesday by

state Auditor Kurt Sjoberg under a government whistle-blower program. It
detailed the results of eight investigations of alleged employee misconduct that
were completed during the last five months of 1994.
"They're a typical cross section," said Sjoberg, who estimated that the state's
whistle-blower hotline has exposed about 2,500 instances of employee abuse
during its 15-year history.
In the case of the Caltrans engineer with an alleged penchant for gambling, the
Bureau of State Audits found that between March and July 1994 he frequently
drove his state car to a cardroom during business hours. During one two-week
period, he reportedly gambled on state time for at least two hours a day.
The cardroom had a video camera for security purposes, and the state employee
was captured on videotape on three occasions.
"They (cardroom owners) kept the tapes and we were able to review them,"
Sjoberg said.
According to the audit report, the employee said the activity occurred while he
was inspecting a highway project in the area.
"We found that the employee reported between 24 and 32 hours of overtime per
month during this period for a total of 141 hours of overtime," the report stated.
"The state paid the employee approximately $5,571 for the overtime he reported
he worked during this period."
A spokesman for Caltrans, Jim Drago, said the matter is still under review and
disciplinary action has yet to be initiated. "There's been no decision on a penalty
or a punishment," he said, adding that such action could include demanding
repayment of the overtime paid to the employee.
In the other case involving Caltrans, auditors found that three employees in the
department's structural division used their state computers to store information
about a private ski lodge remodeling project. They also allegedly used state
drafting equipment to assist them in the project.
In addition, one of the employees was in San Bernardino to conduct seismic

inspections for a private business for three days in 1992 in which he claimed to
be working nine-hour days for the state, according to the audit report.
Caltrans also has not completed its review of that case, Drago said.
Among the other allegations listed in the report were:
* A state prison manager who ordered employees to do work on his house during
state time in 1990 and 1993, and who authorized overtime improperly for other
prison employees. He also allegedly mistreated and sexually harassed several
employees at the prison. The Department of Corrections has moved to demote
the employee, who is fighting the action.
* An associate safety engineer for the Department of Industrial Relations who

solicited and received fill dirt from a construction company that operates in the
district where she performs inspections. The gift prompted a competing firm,
which received a safety citation, to complain of favoritism. While no evidence was
found to support that claim, the engineer was reprimanded for creating the
appearance of impropriety.
* An employee of the Department of Motor Vehicles who in 1994 used her

state telephone to make at least 46 long-distance telephone calls, totaling more
than seven hours, to sell vitamin products for a private business. She was
reprimanded and is being required to repay the state for her time and calls.
Section: MAIN NEWS
Page: A3
Record Number: 212
PROBE CITES MISCONDUCT BY STATE WORKERS
taction=doc&p_docid=0EB0DAEAD782FF89&p_docnum=245&p_queryname=8
REPORT URGES STATE COMPUTER "CZAR' - WILSON'S TASK

FORCE SLAMS TECHNOLOGY BUREAUCRACY
SACRAMENTO BEE - Friday, September 16, 1994
After reviewing state government's major computer foul-ups, a private-sector
task force recommended Thursday that a " computer czar" take over the
acquisition and management of major information technology projects.
The governor's Task Force on Government Technology, Policy and Procurement

also would shake up the technology bureaucracy and hold vendors more
accountable for the operation of the equipment they sell.
"California is in the midst of an information technology crisis where th dangers of

not changing are greater than the dangers of changing," the task force
concluded.
Many of the recommendations echo the findings of a report issued in April by

Legislative Analyst Elizabeth Hill. Both reports called for abolishing the Office of
Information Technology in the Department of Finance, which has had overall
responsibility for major computer projects in state agencies.
The technology office, which has three dozen employees and a $2 million
budget, has failed in its job as a watchdog and gatekeeper for major projects, Hill
said, allowing state agencies to wander off by themselves in wildly divergent
directions in seeking solutions to their problems.
The task force would replace the office with a chief information officer ort of
a computer czar - who would report directly to the governor and be part of his
policy staff. The officer would oversee technology projects throughout state
government.
Gov. Pete Wilson appointed the seven-member task force in May after legislative
hearings on a failed $49 million computer project at the Department of Motor
Vehicles . The state also has a dozen other troubled projects under way,
including three at the Department of Social Services valued at more than $1
billion.
The chairman was Jack Hancock of Walnut Creek, a retired Army general and
Pacific Bell executive.
Among other findings, the task force recommended.
* Shortening the amount of time necessary to acquire and implement technology

projects by reforming contract procedures.
* Giving vendors a greater financial stake in the project through a system of

bonuses and penalties.
* Changing personnel rules to attract more non-career employees with

specialized expertise to join state service.
Assemblywoman Debra Bowen, D-Marina Del Rey, who chairs a special

legislative committee on computer technology, said she was generally pleased
with the recommendations.
She was disappointed, however, that there wasn't more emphasis on getting
away from the custom computer systems that most agencies have been building
rather than standard technologies.
"The more you customize, the greater the risk of failure," Bowen said.
She added that changing personnel rules wouldn't have changed much in the
DMV situation since civil servants had been saying for several years that the
project was doomed and political appointees ignored their counsel.
"There needs to be more discussion as to who's really accountable . . . ," she

said.
In accepting the task force findings, Wilson said they will be reviewed and
implementation will begin immediately. He also directed Lee Grissom of the
Office of Planning and Research to develop any legislative and budget changes
that are needed.
Section: MAIN NEWS
Page: A6
Index Terms: REPORT TECHNOLOGY CALIF GOVERNMENT
Record Number: 062
REPORT URGES STATE COMPUTER "CZAR' - WILSON'S TASK FORCE
SLAMS TECHNOLOGY BUREAUCRACY
taction=doc&p_docid=0EB0DADF6F1E1EF5&p_docnum=247&p_queryname=8
AUDITOR'S FINDINGS RIP DMV - COMPUTER SCANDAL'S COST

HITS $49 MILLION
SACRAMENTO BEE - Thursday, August 18, 1994
The computer scandal at the Department of Motor Vehicles grew more
serious Wednesday with a $5 million cost increase, revelations of forged
documents, and new restrictions on contracting imposed by Gov. Pete Wilson.
The failed project cost California taxpayers $49.4 million - $5.1 million more than
the figure given to the Legislature last spring, state Auditor Kurt Sjoberg
reported.
His audit confirmed earlier reports of mismanagement of

DMV computer contracts by several agencies during the seven years the project
was under way. It also verified the failure to follow state contracting procedures.
In addition, $46,000 was illegally paid to Tandem Computer Corp. - the chief
DMV contractor - with a purchase order that was falsified by DMV employees,
according to the report and confirmed by DMV officials.
A former project manager who is still on the state payroll has refused to
cooperate with investigators, Sjoberg said.
Wilson, who requested the audit along with several legislators, responded
Wednesday by banning "sole-source" contracts by state agencies except in
emergencies.
While state agencies normally must get several bids on contracts, they were
allowed to deal directly with a single vendor under certain circumstances. Such
"sole-source" contracts figured in the failed DMV project.
The governor also ordered departments to strictly follow state acquisition and
payment procedures. And he asked Dean Dunphy, secretary of Business,
Transportation and Housing, to determine if anyone involved in the DMV project
should be disciplined.
The state Fair Political Practices Commission, the attorney general's office and
the Sacramento County District Attorney's Office are conducting criminal probes
into the affair.
In a statement, Wilson said the DMV set out to update its vast computer system
and "under the pretense that it could run this project without proper oversight and
management, instead turned it into a $50 million bureaucratic sinkhole."
"It's outrageous that this project was implemented in such a slipshod fashion," he
said.
Wilson's statement and a written response by current DMV Director Frank Zolin
noted that major financial decisions were made during the administration of
former Gov. George Deukmejian.
Yet Assemblyman Richard Katz, D-Panorama City, said that two of the key
players under Deukmejian continued to have major roles in the project under
Wilson.
A.A. "Del" Pierce, who was DMV director until February 1991, was promoted by
Wilson to become Zolin's boss at the Business, Transportation and Housing
Agency. Pierce now heads the California Lottery.
Steve Kolodney had charge of oversight of the project during the 1980s as head
of the Office of Information Technology in the Department of Finance. He left in
1989 to become a consultant to Tandem and then was appointed by Wilson in
April 1991 to head the technology office again.
"The audit makes it clear this project was failing from day one," Katz said. "Those
two people in my mind are responsible for the taxpayers' having lost $50 million. .
. . There were either conflicts of interest or gross incompetence. It's time for
Governor Wilson to fire Kolodney and Pierce and stop trying to pin most of this
on the previous administration."
A spokesman for Wilson said Pierce is on leave with serious medical problems,
and Kolodney has "taken himself out" of computer projects while the
investigations are under way. Personnel actions, if any, will be put off until
Dunphy completes a review, he said.
At the DMV, however, spokesman Evan Nossoff said four people have been
disciplined for their role in making the illegal $46,000 payment to
Tandem Computer . He refused to reveal their names or the sanctions.
"There was no personal gain by anyone," Nossoff said. "Tandem had a legitimate
bill and they found a way to pay (it), but it wasn't done in an appropriate way. The
net effect is the taxpayers paid the bill from the wrong funds."
Otherwise, DMV officials had few quarrels with Sjoberg's findings. They could not
confirm his finding of $5.1 million in extra expenses, saying they needed more
data on how the figures were calculated.
The department has no formal accounting system for project costs, Nossoff said,
but is developing one as Sjoberg suggested.
"We're trying to be part of the solution and we've cooperated with the auditor,"
Nossoff said. "The history of the project changed when Frank Zolin came in. The
people who put a halt to the project are in charge. . . . Many management
changes have been made."
Sjoberg identified Dennis Walker as the former project manager who refused to
cooperate with auditors. Walker headed the DMV computer acquisition until
September 1990, when he left to become Tandem's chief representative on the
project. Sixteen months later, he was rehired by the state to oversee a
mammoth computer project at the Department of Social Services.
After refusing to testify at a legislative hearing in May, Walker was shifted to a

branch that oversees licensing of day-care homes.
Efforts to reach Walker through his department were not successful Wednesday.
Section: MAIN NEWS
Page: A1
Index Terms: CALIF VEHICLE TECHNOLOGY COST
Record Number: 139
AUDITOR'S FINDINGS RIP DMV - COMPUTER SCANDAL'S COST HITS $49
MILLION
taction=doc&p_docid=0EB0DAD7779CBF35&p_docnum=250&p_queryname=8
DMV "STONEWALLED' COMPUTER REVIEW, WITNESS SAYS

SACRAMENTO BEE - Tuesday, July 19, 1994
More than three years before the Department of Motor Vehicles pulled the plug
on its dysfunctional $44 million computer project, serious concerns over its
viability were being raised by the Department of Finance.
Ron Kuhnel, who was then acting chief of the Office of Information Technology in
the Finance Department, told legislators Monday that DMV progress reports on
the project had been "extremely inadequate." He spoke before the Assembly
Transportation Committee, which has been investigating the case.
An analyst whom Kuhnel had sent to DMV to monitor the project had been
"stonewalled," he said. Ernst & Young, the contractor hired to bring the project on
line, had been terminated by mutual consent of the company and the DMV. In
addition, a pilot project to determine if the new system would work had been
aborted, and the DMV was moving ahead with plans for the main project.
"The department (DMV) wasn't forthcoming about the difficulty they were in,"
Kuhnel said. "Lack of good documentation usually means lack of a good
project."
Despite those problems, Kuhnel said he approved continued funding for the
project in late 1990, after concluding that the state could save $8.8 million per
year with the new computer system.
It was approved with "reluctance and concern," Kuhnel said, after the DMV
submitted a new and more detailed status report.
The DMV began developing a new computer system in 1987 for its vast driver's
license and motor vehicle databases. It was to be in place by 1993 at a projected
cost of $26.8 million. But by the time DMV Director Frank Zolin canceled it in
December, $44.3 million had been spent.
The committee chairman, Assemblyman Richard Katz, D-Panorama City, asked

Kuhnel if he'd been pressured to keep money flowing to the project.
Kuhnel responded that he had calls from the DMV and the chief contractor,
Tandem Computer Corp. of Cupertino, but "no overt pressure." Kuhnel said "it
was extremely important for the DMV to modernize" its computer system.
Much of Kuhnel's testimony, along with records released by the committee,

contradicted statements given the committee in May by A.A. "Del" Pierce, who
was DMV director in 1990.
"We had confidence in the project," Pierce told the committee. "There had been
nothing at that time to lead us to believe there was any reason why the project
was going to fail."
Pierce, who now heads the California Lottery, was on leave Monday recovering
from a medical procedure and could not be reached for comment.
Zolin, who replaced Pierce in 1991, said he was unaware of any problems when
he took over the agency. "I was not provided with all the information I should
have received," Zolin said.
Eventually, Zolin took direct charge of the project and replaced several key
people. By late 1993, however, he'd become convinced that project would never
work and discontinued it.
The Legislature put $500,000 in the recently approved budget for an outside
consultant to review DMV's computer needs and recommend a future course.
Last week, however, Gov. Pete Wilson vetoed the money and directed DMV to
hire its own consultant.
Section: MAIN NEWS
Page: A4
Index Terms: CALIF TECHNOLOGY REVIEW
Record Number: 032
DMV "STONEWALLED' COMPUTER REVIEW, WITNESS SAYS
taction=doc&p_docid=0EB0DAD738CD5DBF&p_docnum=251&p_queryname=8
STATE'S NO-BID CONTRACTS - OF SYSTEM COSTS STATE

MILLIONS
SACRAMENTO BEE - Sunday, July 17, 1994
Author: Mary Lynne Vellinga and Stephen Green Bee Staff Writers
The California Department of Transportation hires a former Army colleague of the
agency director for a $21,850 consulting job without competitive bidding. Within
14 months, the contract grows to nearly $1 million.
The Student Aid Commission pays more than $22 million to Electronic Data
Systems Corp. for maintaining its computer system - also without taking
competitive bids.
These are just two of the thousands of state contracts awarded recently without
competition. Each year, state agencies spend hundreds of millions of dollars
outside the normal bidding process on everything from consultant services to
cars, a practice critics say fails to get the best price for goods and services and
opens the door to favoritism.
These so-called "sole-source" contracts have come under increased scrutiny with
the exposure of several troubled state computer projects and many more that
are in potential trouble. Sole-source contracts have played a key role in several
of these cases.
"It's certainly something that's been of great concern in some of the

big computer projects," said Assemblywoman Debra Bowen, D-Marina Del Rey.
"I think it's happening all over the state of California; I think it's out of control,"
State Sen. Daniel Boatwright, D-Concord, said of sole sourcing.
The designation "sole source" doesn't always mean the state just hired one
company with no competition. Often it means an agency didn't follow all the
state's technical purchasing procedures, but at least did some shopping around.
In many cases, however, it does mean that only one company was considered.
These no-bid contracts, Boatwright maintained, "Result in favoritism because

(state employees) can go pick their friends, which usually means (the contract)
doesn't go as required by law, to the lowest responsible bidder."
An April report by the Bureau of State Audits singled out sole-source contracts
for criticism. The auditor reviewed 87 sole-source consulting arrangements, and
determined that the justification for 29 of them was inadequate. State regulations
allow sole sourcing of most contracts only when there's an emergency, when
there's only one possible source for the goods or services or when the state's
needs are best served by not going out to bid.
Many of the questionable sole-source contracts identified by the audit had been
justified on the grounds that a particular consultant had prior experience with a
project or had unique expertise.
"Although we recognize expertise is limited in many disciplines, . . . we question

whether only one expert consultant is available and appropriate to perform tasks
such as real estate appraisals or botanical consulting," the report stated.
In an interview, state Auditor Kurt Sjoberg said departments often use sole-
source contracts to get around the state's long and cumbersome bidding
process, even if there's no real emergency.
"The abuse of sole-source contracts is a problem we've seen recurring over the
years," Sjoberg said. Lack of competition could mean the state is paying higher
prices and not getting the best product, he added.
In the past, the auditor has uncovered many cases where state officials steered
contracts to friends, relatives and political contributors. The Sacramento County
district attorney is investigating allegations that state employees steered a
contract to a company that later hired them as employees or consultants.
Concern over contracting with friends was clearly on the mind of Assemblyman
Richard Katz, D-Panorama City, when he summoned Caltrans Director James
van Loben Sels to a hearing last month.
A former Army colleague of van Loben Sels - Michael Cox - received a sole-
source contract for $21,850 from Caltrans. It then was amended numerous times
and eventually totaled $918,400.
At one point, the Department of General Services denied further contract

Cox ended up with the contract anyway.
Van Loben Sels insisted he had nothing to do with hiring Cox, having "recused"
himself from any contract dealings.
But according to unofficial minutes from a conference the previous September,

van Loben Sels bragged about bringing in Cox. "I brought my hatchet man in
from the Army Corps to come in and take a look around within all the little
empires within Caltrans and start asking some questions," van Loben Sels was
quoted as saying at the meeting.
Last week, van Loben Sels denied having made such a remark. "He had no
involvement in that decision," an aide said.
Katz, nonetheless, called the sole-source arrangement bad management - a

process that leaves the state open to charges of bias and unfairness. By the time
Cox has completed the contract, Katz said, Caltrans will have paid him nearly $1
million to help develop a new information system and won't even have a
feasibility study to show for it.
"That's how we ended up with a $44 million computer system at the

( Department of Motor Vehicles ) that doesn't work," Katz said. "It's a process
that scares the hell out of me."
Agencies often justify sole-source contracts by saying they're needed to address

an emergency. But the contracts frequently end up dragging on for years, giving
the company with the sole-source deal a greater edge over potential competitors
if the business is ever opened up for bid.
At the California Student Aid Commission, for instance, Electronic Data Systems
(EDS) was brought in on a sole-source basis in 1992 to take over maintenance of
the commission's troubled financial aid computer system. At the time, the
commission said it would pay EDS - which already had a contract to run an
earlier loan processing system - an additional $9.8 million, and promised to put
the business out to bid by late 1992. But state documents show that the amount
being paid to EDS has since ballooned to almost $23 million, and the contract
hasn't been put out to bid yet. Student Aid recently told General Services it would
solicit bids by the end of this year.
One state employee familiar with the Student Aid project called EDS' relationship
with the agency "the Winchester Mystery House of contracts."
Student Aid officials contend the price increases stem largely from changes in
federal laws governing student loans and grants.
The state doesn't compile precise figures on how much money goes to sole-
source contracts each year, but statistics suggest it's at least several hundred
million dollars.
In the area of commodity purchases such as cars, pavement and food for
prisons, for instance, General Services approved sole-source exemptions totaling
$118 million in fiscal 1992-93, about $1 in every $4 spent by state agencies on
commodity purchases of more than $10,000.
Contracts for computer equipment and services are tracked separately. Sole-
source contracts in that area totaled $68.5 million in 1992-93.
General Services doesn't keep track of the biggest category of sole sourcing: all
other services. Departments are required to advertise service contracts in the
California State Contracts Register, unless they receive an exemption from
General Services.
In the 11 months ended May 31, General Services approved 2,466 advertisin
exemptions for service contracts ranging in size from $1,000 to more than
$500,000. Agencies that receive advertising exemptions are still supposed to get
three quotes.
Some critics say General Services does little besides rubber stamp sole-source
requests without seriously questioning if they're necessary.
According to the state auditor's report, General Services recently approved a

sole-source consulting contract for the Department of Education even though the
department itself identified seven other people who could do the job.
Two people within General Services are responsible for approving all the
requests for sole-source service contracts - about 250 a month.
"How good a job are you going to do? There's limited resources," said Carl
DeVerter, the man in charge of reviewing the requests.
Still, DeVerter maintained, General Services' oversight does keep agencies on

their toes. His office does deny some requests - about 17.6 percent of those
received in between July 1, 1993, and May 31 of this year.
Many of the smaller sole-source contracts never come under General Services
review at all, however, because departments have been granted the authority to
issue contracts on their own under specified amounts. This delegation of
authority has led to many abuses over the years, according to another recent
report by Sjoberg's office.
General Services is required to audit contracting by each of the departments at

least every three years. But as of August 1993, Sjoberg found that 80 of the 151
departments had not been audited within the time limit. The 80 departments had
issued $214 million in unaudited contracts.
Sjoberg also found that some departments engage in creative financing to get
around the ceiling on contracting authority. The Department of Housing and
Community Development, for example, has a $100,000 purchasing limit
for computer equipment. To avoid getting approvals from General Services and
the Department of Finance, the housing agency bought equipment by issuing
nine separate invoices under $100,000.
A spokesman for the agency said the end of the fiscal year was approaching. If
the purchase was delayed by reviews, the available money might have been lost.
Section: MAIN NEWS
Page: A1
Index Terms: CALIF FINANCE PROBE
Record Number: 166
STATE'S NO-BID CONTRACTS - OF SYSTEM COSTS STATE MILLIONS
http://loanworkout.org/2009/10/brown-sues-state-street-bank-for-massive-fraud-against-
calpers-and-calstrs/
Brown Sues State Street Bank for Massive

Fraud Against CalPERS and CalSTRS
by MOE BEDARD · 0 COMMENTS
in ATTO RNEY GENERAL
SACRAMENTO – Seeking to recover more than $200 million in illegal overcharges

and penalties, Attorney General Edmund G. Brown Jr. today announced that he has
filed suit against State Street Bank and Trust — one of the world’s leading providers
of financial services to institutional investors — for committing “unconscionable
fraud” against California’s two largest pension funds — CalPERS and CalSTRS.
The suit, which was unsealed today by a Sacramento Superior Court judge, contends
that Boston-based State Street illegally overcharged CalPERS and CalSTRS for the
costs of executing foreign currency trades since 2001.
“Over a period of eight years, State Street bankers committed unconscionable fraud
by misappropriating millions of dollars that rightfully belonged to California’s public
pension funds,” Brown said. “This is just the latest example of how clever financial
traders violate laws and rip off the public trust.”
The case was originally filed under seal by whistleblowers – “Associates Against FX
Insider Trading,” who alleged that State Street added a secret and substantial mark-
up to the price of interbank foreign currency trades. The interbank rate is the price at
which major banks buy and sell foreign currency.
Subsequently, Brown launched an independent investigation into the allegations.
Brown’s investigation revealed that State Street was indeed overcharging the two
funds. Despite being contractually obligated to charge the interbank rate at the
precise time of the trade, State Street consistently charged at or near the highest rate
of the day, even if the interbank rate was lower at the time of trade.
Additionally, State Street concealed the fraud by deliberately failing to include time
stamp data in its reports, so that the pension funds could not determine the true
execution costs by verifying when State Street actually executed the trades.
Commenting on this deception, one State Street senior vice president said to another
executive that “…if providing execution costs will give [CalPERS] any insight into
how much we make off of FX transactions, I will be shocked if [State Street] or
anyone would agree to reveal the information.”
Brown’s office estimates that the pension funds were overcharged by more than
$56.6 million over eight years. The lawsuit asks for relief in the amount of triple
California’s damages, civil penalties of $10,000 for each false claim; and recovery of
costs, attorneys’ fees and expenses. It is estimated that damages and penalties could
exceed more than $200 million.
Under California’s False Claims Act, anyone who has previously undisclosed
information about a fraud, overcharge, or other false claim against the state, can file
a sealed lawsuit on behalf of California to recover the losses. They must notify the
Attorney General as well.
Such a case is called a “qui tam” case. If there is a monetary recovery, the law
provides that the whistleblower “qui tam plaintiff” receives a share of the amount
recovered if the requirements of the statute are met.
A copy of the complaint is attached.
###
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News & Alerts section of our website
at:http://ag.ca.gov/newsalerts/release.php?id=1823
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http://www.latimes.com/business/la-fi-calpers25-2009nov25,0,1479680.story?track=rss
CalPERS probes oversight of two outside

hedge fund advisors
The firms were working without required contracts. The official who oversees the
pension fund's $5.8-billion hedge fund portfolio reportedly was disciplined.
By Evan Halper and Marc Lifsher
November 25, 2009
Reporting from Sacramento - California's huge public employee pension fund, under scrutiny
after suffering billions of dollars in investment losses, is now investigating its own oversight
of hedge fund deals.
As part of the inquiry, California Public Employees' Retirement System officials found that
$36 million was paid to two hedge fund advisors who had been working without contracts.
The official who oversees the $5.8-billion hedge fund portfolio was temporarily placed on
leave and fined, according to people briefed on the matter.
A CalPERS spokesman declined to discuss the disciplinary action but acknowledged that
CalPERS was investigating its dealings with two outside advisors, hedge fund management
firm Paamco and a unit of Swiss banking giant UBS.
Both firms have been working with CalPERS since 2003, but their contracts lapsed two years
ago. CalPERS continued to do millions of dollars of business with them regardless, which
financial experts say exposed the system to legal and financial risk.
"We recently discovered that certain CalPERS controls and procedures were not followed in
the last two years," fund spokesman Brad Pacheco said in a statement. "We have taken
immediate steps to correct the issues and are working to strengthen our procedures to ensure
that all policies are followed correctly and proper controls are in place.
"While we can't talk about specific personnel, we are reviewing the actions taken by our
staff," he said.
The disclosure is the latest in a series of incidents tarnishing the reputation of CalPERS, the
nation's largest public employees' retirement plan with an investment portfolio of $200
billion. The fund's once-sterling reputation has been rocked by huge investment losses and
by revelations of rich fees earned by middlemen who help Wall Street firms win investment
capital from CalPERS.
The official placed on leave was Kurt Silberstein, who oversees the CalPERS hedge fund
program in his job as senior portfolio manager for global equity, according to people briefed
by CalPERS who were not authorized to speak publicly and spoke on the condition they not
be named.
These people said that Silberstein was forced to forfeit 10% of his $222,249 annual salary for
six months and was placed briefly on administrative leave while the matter was investigated.
Silberstein declined to confirm or deny those accounts. "You have to work through public
affairs," he said.
A spokesman for UBS declined to comment on the latest CalPERS investigation. Executives
at Irvine-based Paamco, which stands for Pacific Alternative Asset Management Co., did not
return a message left with their office.
Experts say the breach is troubling.
"If you have no contract it is difficult to meet your obligation to monitor these outside
advisors diligently," said Blaine Aikin, chief executive of Fiduciary 360, a company that
advises institutional investors on management practices. "The contracts are meant to make
sure the service providers are performing the functions they are hired to do faithfully. It is
cause for concern. I would agree with those in CalPERS who decided to launch an
investigation. Contracting properly is a fundamental fiduciary duty."
An online write-up of the organization's hedge fund program refers to Paamco and UBS as a
key "set of eyes" the pension system relies on to monitor the hedge fund program. It says
Silberstein's hedge fund team rigorously monitors every aspect of the program with
"questions, scrutiny, examination and thoughtfulness."
The UBS and Paamco contracts are not the first overseen by Silberstein that have raised
questions internally, e-mails obtained by The Times show.
In 2002, former CalPERS investment manager Jeff Baker sent an e-mail to a superior
asserting that another outside advisory firm had improperly received an $11.7-million bonus
even though it missed its earnings targets.
Baker put the blame on contract language negotiated by Silberstein. CalPERS officials,
however, said they investigated the claim and found that the contract was appropriate and
Silberstein had not acted improperly.
The outside investment firm, Oak Associates of Akron, Ohio, was dropped soon afterward.
Baker, who has since left CalPERS, declined to comment.
For years, CalPERS has been known as a progressive fund that bet heavily in real estate and
other high-risk investments to boost returns for its members, at the same time pressuring
large corporations to rein in outsize salaries for top executives.
But investment losses have hit the fund hard. CalPERS' portfolio sank 23.5% in the last fiscal
year, while the average large pension fund dropped 18.8%. It lost nearly $1 billion after
betting in 2007 on the mammoth Newhall Ranch housing development north of Los Angeles.
The fund is also under a spotlight after recent disclosures of the rich fees earned by so-called
placement agents, who lobby pension funds on behalf of big money managers.
One well-known middleman, former Los Angeles Deputy Mayor Alfred J.R. Villalobos, has
raked in at least $70 million in fees over the last decade from investment firms eager to pitch
their services to the fund.
evan.halper@latimes.com
marc.lifsher@latimes.com
Copyright © 2009, The Los Angeles Times
http://www.sacbee.com/capitolandcalifornia/story/1944952.html
Union donors got CalPERS deals while leader

was board member
amcintosh@sacbee.com
PUBLISHED SUNDAY, JUN. 14, 2009
Companies that received multimillion-dollar deals with CalPERS pumped more than
$300,000 into a union campaign fund overseen by Sean Harrigan while he was one
of the giant pension fund's board members from 2000-2004.
Harrigan, a veteran leader of the United Food and Commercial Workers union,
acknowledged in an interview on Friday that while on the CalPERS board and voting
on pension fund investment decisions he actively solicited money managers and
pension fund industry consultants to donate to the UFCW Issues Education Fund.
"I invited not more than two dozen firms to participate," added Harrigan, whose
CalPERS board tenure included a stint as president.
It was not a pay-to-play scheme, Harrigan insisted, and he never let the donations
influence his decisions to either support or reject CalPERS investments.
"The issue was totally lawful," Harrigan, 62, said Friday.

"There was never any retribution to people who chose not to participate and there
was no impact on strong relationships I had with people who chose not to
participate," Harrigan said.
The ex-labor leader, now an investment consultant, said he requested contributions

not only from financial firms, but also from other companies seeking or providing
real estate, pension fund consulting, medical, legal, accounting and other
professional services to CalPERS.
Other UFCW leaders also requested donations from fund managers for the union's
issues education fund, approaching companies with whom they had relationships, he
added. Some contributors to the union fund also did work for smaller UFCW pension
funds in California, Harrigan said.
Altogether, money managers and other public pension fund consultants and
professional advisers put more than $1 million into the union fund between 2000-
2004, state campaign finance records show.
Harrigan has been subpoenaed by California Attorney General Jerry Brown as part of
an expanding multi-state investigation into corruption at public pension funds in
New York and California involving so-called "placement agents" who open doors and
help fund managers secure investments from public pension funds.
Last month, Harrigan also resigned as a member of the Los Angeles Fire and Police
Pensions Board after he was asked to produce information about his income to
investigators handling a related Securities and Exchange Commission inquiry into
pension fund activities.
An examination of campaign contribution records, disclosures CalPERS board

members file when they have contacts with money managers and documents
outlining approved deals show the UFCW campaign fund received contributions
from money managers as their deals were being considered by the CalPERS board.
Among the examples:
• In July 2001, CalPERS closed a $125 million deal with urban developer CIM Group
after board members – including Harrigan – initially rejected it.
On March 18, 2003, the board approved up to $280 million with the CIM California
Real Estate Fund, supplementing the initial $125 million. Seventeen days later, CIM
donated $12,000 to the UFCW union fund, records show.
Harrigan, meanwhile, bought a penthouse apartment at Sky Lofts, one of the CIM
projects that CalPERS backed in downtown Los Angeles, for $887,500 in 2006,
according to property records.
Harrigan told The Bee he paid fair market value for the 22nd floor loft. He said CIM
allowed him to identify which apartment he wanted to reserve before they were built
in the renovated downtown office tower or marketed to other consumers.
CIM spokesman Bill Mendel said CIM contributed $30,000 to a UFCW Person of the
Year event between 2002-2004, which he also said aimed "to raise money for
leukemia." CIM's contribution paid for an advertisement in the Person of the Year
event's souvenir booklet, he said.
• CalPERS committed to investing $50 million in FS Equity Partners V LP (Freeman

Spogli & Co.) fund in 2003.
In April 2003, Freeman & Spogli gave $3,000 to the UFCW union fund. On March
31, 2004, Freeman Spogli announced the finalizing of its FS Equity Fund Partners V
Fund, along with the CalPERS investment.
Three days later, Freeman & Spogli donated $3,000 more to the UFCW fund,
documents show. CEO Bradford Freeman was unavailable to comment Friday. "I
don't know that anyone can speak to you on this," an assistant said, before hanging
up.
• In mid-March 2004, CalPERS committed to investing $25 million in a new venture

capital fund called Markstone Capital created by Los Angeles businessman Elliot
Broidy. The fund aimed to invest in Israeli startups.
The pension fund's decision was preceded by dozens of high-level meetings and
generous political donations by Broidy, his wife and Markstone Capital.
In April 2003, Broidy himself donated $6,000 to the UCFW union fund.
Broidy then met with Harrigan in June 2003 and sent a thank-you letter to Harrigan
via the UFCW's office in Brea, CalPERS documents show.
He met with or contacted other CalPERS board members about his new fund, too,
including then-Treasurer Phil Angelides and then-Controller Steve Westly.
In March 2004, days after the CalPERS investment with Markstone was announced,
Broidy donated another $3,000 to the union fund. He made another $3,000
donation a month later in April 2004, documents show.
Broidy spokesman Jim McCarthy said the businessman was unavailable for
comment. McCarthy said Broidy was solicited for contributions to a "non-profit" not
by Harrigan himself, but by other UFCW officials organizing the Person of Year
Award dinner to honor Harrigan.
"Mr. Broidy was among dozens of other individuals, companies and money managers
who contributed to a commemorative printed journal for an event that was attended
by hundreds of people, including many senior elected officials," McCarthy added.
• One of the largest contributors to the union fund was Yucaipa American Funds
LLC, a financial firm owned by millionaire businessman Ron Burkle.
Harrigan noted that the relationship between Burkle, himself and the UFCW
predated Yucaipa's dealings with CalPERS because of Burkle's past as a grocery
industry executive.
In October and November 2001, Harrigan had several telephone conversations

directly with Burkle and other members of his company about his plans to create a
merchant bank – The Yucaipa Companies.
On Feb. 4, 2002, CalPERS announced deals and investments with Yucaipa for up to
$560 million.
Between Sept. 20, 2002, and April 23, 2004, Yucaipa American Funds put $36,000
in three $12,000 donations into Harrigan's union fund, documents show.
Company officials could not be reached for comment.

Harrigan said his union used some of the money companies contributed for member
education and voter registration efforts. Some of the cash also financed the UFCW
Western State Council's annual Person of the Year Award gala dinner, he said.
Harrigan confirmed that he was named person of the year by the UFCW and feted at
an event that featured a day of golf and a gala dinner attended by 300 to 400 people
in Monterey. The dinners have cost between $100,000 and $200,000 to organize
and stage, documents show.
Harrigan joined the CalPERS board in 2000 and became CalPERS president in
February 2003. He left the board at the end of 2004.
In 2001, Harrigan also became executive director of the Western States Council, an
umbrella group for UFCW locals and the grocery worker union's members in
California, Arizona, Nevada, Utah and Hawaii.
Pat Macht, a CalPERS spokeswoman, said she was not aware that Harrigan was
soliciting CalPERS vendors and fund managers to donate to his union's fund while he
served as a board member and chairman.
No rules prohibit the activity, though CalPERS has tried to stop the practice in the
past, Macht said.
In 1998, CalPERS adopted a policy to prohibit board members from soliciting

campaign contributions from firms doing business with or seeking business with the
retirement fund.
The policy was adopted after reports that then-state Controller Kathleen Connell and
then-state Treasurer Matt Fong – who both sat on the pension fund's board –
together collected about $400,000 in political donations from firms doing business
with or seeking business with the state's retirement system.
Connell challenged the CalPERS policy in court and overturned it; since then, there's
been no policy to prohibit fundraising by CalPERS board members, according to
both Macht and Harrigan.
"A number of politicians did it. Other members of the board did it," Harrigan said.
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Feds Investigate Ex-CalPERS Officials
December 8, 2009
Dale Kasler
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Advertisement
Federal officials are investigating possible ties between CalPERS' former chief executive, a controversial former
board member and a financier who just pleaded guilty in a New York pension fund corruption case.
Court records show the Securities and Exchange Commission issued a subpoena in June to financier Elliott
Broidy, who pleaded guilty Thursday to
felony charges that he showered nearly $1 million in illegal gifts on state officials in New York.
The federal enforcement agency demanded records of any contacts Broidy had with former CalPERS CEO Fred
Buenrostro and former CalPERS board member Alfred Villalobos, among others.
Broidy's spokesman, Jim McCarthy, downplayed the significance of the subpoena Friday, saying it merely
represents "questions that the SEC asked."
The SEC's subpoena and Broidy's plea represent new turns in a multi-state probe of possible influence-peddling
at the California Public Employees' Retirement System and other major U.S. public pension funds. CalPERS
already has said it is investigating its dealings with Villalobos.
Villalobos has earned more than $60 million since leaving the CalPERS board in 1995 by representing private
clients seeking investment dollars from the pension fund.
Until this week, Broidy was head ofMarkstone Capital Group, a Los Angeles private equity firm that
obtained a $50 million investment commitment from CalPERS in 2004. Markstone specializes in deals in
Israel.
Following Broidy's guilty plea, CalPERS is reviewing its ties with Markstone, said fund spokeswoman Pat Macht.
The pension fund also is
broadening its investigation into Villalobos and other so-called "placement agents" to include the fund's
dealings with Markstone, she said.
"Markstone is now included in the list of topics" being investigated, she said. The Markstone investment has
earned a 5 percent return, according to CalPERS records.
In an interview Friday, Buenrostro said he recalls meeting Broidy. "He at one point told me about his
investment proposal," Buenrostro said.
But the former CEO said he simply directed Broidy to the CalPERS investment staff.
Villalobos, in a written statement to The Bee, said he has met Broidy "in a social setting" but never worked for
him or Markstone.
While he ran CalPERS, Buenrostro was married at Villalobos' Lake Tahoe mansion, although he said he
reimbursed his host for the costs.
Buenrostro, who left CalPERS in 2008, now works for Villalobos.
In its subpoena, the SEC also demanded records of any contact between Broidy and Lou Moret, a Los Angeles
business consultant who joined the CalPERS board in early 2008. As reported by The Bee, Moret paid $67,000
last year to settle a civil fraud lawsuit. That suit wasn't connected to any of the pension fund investigations.
Moret couldn't be reached for comment.
The SEC has been investigating pension fund corruption since the spring, issuing scores of subpoenas to
investment managers and others around the country. Its probe of Broidy focuses on public pension funds in
California, including CalPERS and two in Los Angeles, according to court records.
At a hearing in U.S. District Court in Los Angeles in September, SEC lawyer Leslie Hakala said the agency was
investigating "whether improper
payments have been made in connection with public pension fund investments," according to a transcript. She
said she didn't know enough whether to suspect Broidy of any wrongdoing.
Hakala couldn't be reached for comment Friday.
The influence-peddling investigation originated with indictments in March charging top New York state officials
with taking kickbacks in exchange for pension fund investments.
In pleading guilty Thursday to a felony count of rewarding official misconduct, the 52-year-old Broidy admitted
paying nearly $1 million in bribes to New York state officials. In return, Markstone got a $250 million
investment from the state's pension fund, said New York Attorney General Andrew Cuomo.
Among other things, Cuomo said Broidy paid $90,000 to the girlfriend of a top state official. The girlfriend:
actress Peggy Lipton, best known as the star of the 1960s TV series "The Mod Squad," according to the
Associated Press and the Wall Street Journal.
Broidy is facing up to four years in prison. He is free pending sentencing.
A well-known Los Angeles philanthropist, Broidy resigned from the city's police and fire pension board in May
after the SEC sent him an informal request for documents.
Sean Harrigan, a former CalPERS board president, resigned from the Los Angeles board after receiving a similar
request.
The Bee has reported that Broidy donated $6,000 to a union campaign fund overseen by Harrigan a year before
CalPERS committed to the $50 million investment with Broidy's firm.
Shortly after the investment was announced, Broidy donated another $6,000 to the fund.
Harrigan was president of the CalPERS board at the time. He left the board in late 2004, several months after
CalPERS agreed to the Broidy
investment.
In all, the union campaign fund overseen by Harrigan received more than $300,000 from investment firms that
obtained CalPERS money, The Bee reported.
Harrigan, a longtime leader with the United Food and Commercial Workers union, acknowledged earlier this
year that he actively solicited
investment-firm donations to the union's Issues Education Fund. He said he did nothing wrong.
For more stories on investments and markets, please see Hispanic Business' Finance Channel
http://www.hispanicbusiness.com/news/2009/12/8/feds_investigate_excalpers_offic
ials.htm
Feds Investigate Ex-CalPERS Officials
December 8, 2009
Dale Kasler
Federal officials are investigating possible ties between CalPERS' former chief executive, a controversial former
board member and a financier who just pleaded guilty in a New York pension fund corruption case.
Court records show the Securities and Exchange Commission issued a subpoena in June to financier Elliott
Broidy, who pleaded guilty Thursday to
felony charges that he showered nearly $1 million in illegal gifts on state officials in New York.
The federal enforcement agency demanded records of any contacts Broidy had with former CalPERS CEO Fred
Buenrostro and former CalPERS board member Alfred Villalobos, among others.
Broidy's spokesman, Jim McCarthy, downplayed the significance of the subpoena Friday, saying it merely
represents "questions that the SEC asked."
The SEC's subpoena and Broidy's plea represent new turns in a multi-state probe of possible influence-peddling
at the California Public Employees' Retirement System and other major U.S. public pension funds. CalPERS
already has said it is investigating its dealings with Villalobos.
Villalobos has earned more than $60 million since leaving the CalPERS board in 1995 by representing private
clients seeking investment dollars from the pension fund.
Until this week, Broidy was head ofMarkstone Capital Group, a Los Angeles private equity firm that
obtained a $50 million investment commitment from CalPERS in 2004. Markstone specializes in deals in
Israel.
Following Broidy's guilty plea, CalPERS is reviewing its ties with Markstone, said fund spokeswoman Pat Macht.
The pension fund also is
broadening its investigation into Villalobos and other so-called "placement agents" to include the fund's
dealings with Markstone, she said.
"Markstone is now included in the list of topics" being investigated, she said. The Markstone investment has
earned a 5 percent return, according to CalPERS records.
In an interview Friday, Buenrostro said he recalls meeting Broidy. "He at one point told me about his
investment proposal," Buenrostro said.
But the former CEO said he simply directed Broidy to the CalPERS investment staff.
Villalobos, in a written statement to The Bee, said he has met Broidy "in a social setting" but never worked for
him or Markstone.
While he ran CalPERS, Buenrostro was married at Villalobos' Lake Tahoe mansion, although he said he
reimbursed his host for the costs.
Buenrostro, who left CalPERS in 2008, now works for Villalobos.
In its subpoena, the SEC also demanded records of any contact between Broidy and Lou Moret, a Los Angeles
business consultant who joined the CalPERS board in early 2008. As reported by The Bee, Moret paid $67,000
last year to settle a civil fraud lawsuit. That suit wasn't connected to any of the pension fund investigations.
Moret couldn't be reached for comment.
The SEC has been investigating pension fund corruption since the spring, issuing scores of subpoenas to
investment managers and others around the country. Its probe of Broidy focuses on public pension funds in
California, including CalPERS and two in Los Angeles, according to court records.
At a hearing in U.S. District Court in Los Angeles in September, SEC lawyer Leslie Hakala said the agency was
investigating "whether improper
payments have been made in connection with public pension fund investments," according to a transcript. She
said she didn't know enough whether to suspect Broidy of any wrongdoing.
Hakala couldn't be reached for comment Friday.
The influence-peddling investigation originated with indictments in March charging top New York state officials
with taking kickbacks in exchange for pension fund investments.
In pleading guilty Thursday to a felony count of rewarding official misconduct, the 52-year-old Broidy admitted
paying nearly $1 million in bribes to New York state officials. In return, Markstone got a $250 million
investment from the state's pension fund, said New York Attorney General Andrew Cuomo.
Among other things, Cuomo said Broidy paid $90,000 to the girlfriend of a top state official. The girlfriend:
actress Peggy Lipton, best known as the star of the 1960s TV series "The Mod Squad," according to the
Associated Press and the Wall Street Journal.
Broidy is facing up to four years in prison. He is free pending sentencing.
A well-known Los Angeles philanthropist, Broidy resigned from the city's police and fire pension board in May
after the SEC sent him an informal request for documents.
Sean Harrigan, a former CalPERS board president, resigned from the Los Angeles board after receiving a similar
request.
The Bee has reported that Broidy donated $6,000 to a union campaign fund overseen by Harrigan a year before
CalPERS committed to the $50 million investment with Broidy's firm.
Shortly after the investment was announced, Broidy donated another $6,000 to the fund.
Harrigan was president of the CalPERS board at the time. He left the board in late 2004, several months after
CalPERS agreed to the Broidy
investment.
In all, the union campaign fund overseen by Harrigan received more than $300,000 from investment firms that
obtained CalPERS money, The Bee reported.
Harrigan, a longtime leader with the United Food and Commercial Workers union, acknowledged earlier this
year that he actively solicited
investment-firm donations to the union's Issues Education Fund. He said he did nothing wrong.
For more stories on investments and markets, please see Hispanic Business' Finance Channel
http://online.wsj.com/article/SB125553138534384951.html
• OCTOBER 15, 2009
Calpers Rocked by 'Pay to Play'

• Article
• Video
• Comments (58)
By CRAIG KARMIN and PETER LATTMAN
America's largest public-pension fund, Calpers, revealed that a former board member had
reaped more than $50 million in fees for arranging investments that could saddle state
taxpayers with hundreds of millions of dollars in losses.
The disclosure deepens concerns that alleged conflicts of interest are undermining state
retirement funds.
The California Public Employees' Retirement System said it is launching a "special review" into
payments by money managers -- including billionaire Leon Black's Apollo Management LP -- to
firms including Arvco Financial Ventures LLC. Arvco is headed by Al Villalobos, who served on
Calpers's board from 1993 to 1995.
View Full Image
Zuma Press
Calpers Chief Executive Fred Buenrostro in March 2005.

More
• More Pain for State's Taxpayers, Cities
• Noted: Calpers and 'Pay to Play'
• Calpers Takes Another Property Hit

8/19/2009
• Calpers Has Worst Year, Off 23.4%

7/22/2009
Calpers made no accusation of wrongdoing. "We are gathering facts to confirm that the $50
million in fees paid to Arvco did not come at our expense," said spokeswoman Pat Macht.
Mr. Villalobos said in a statement Wednesday that he would cooperate with Calpers's review,
which he said would find that staff, advisers and board members at Calpers "have acted
properly."
The disclosure stands to embarrass Calpers, a longtime champion of good corporate

governance. It also promises to cast the fund even deeper into conflict in California, because
the burden of Calpers's soured investments stands to fall flatly on taxpayers who are already
reeling from a huge state budget deficit and steep unemployment.
Calpers funds the guaranteed pensions of retired state employees from returns on its
investments and contributions from local governments. With its investments tanking, Calpers
has requested more money from municipalities. To pay up, many of these governments will
have to cut services or raise taxes.
"Whenever any public fund does anything to detract from their investment performance, the
victims are local governments and state governments," David Crane, an economics adviser to
Gov. Arnold Schwarzenegger, said Wednesday.
Calpers's disclosure also renews questions over the role of the middlemen who collect fees
from private-equity firms, hedge funds and other investment firms eager to manage a slice of
these vast public assets.
These so-called placement agents came under scrutiny in March, when New York Attorney
General Andrew Cuomo announced two arrests. In that case, a connected middleman
allegedly received kickbacks for helping investment firms gain access to billions of dollars of
New York pension money.
Mr. Cuomo has said his staff is coordinating with law-enforcement agents to examine similar
"pay to play" issues at pension funds in states including New Mexico, Connecticut and Illinois.
The Securities and Exchange Commission has proposed a ban on placement agents for state
and municipal pension funds.
Now questions about "pay to play" turn to California. This week, Gov. Schwarzenegger signed
a bill that requires disclosure of all fees paid by investment firms to placement agents.
On Wednesday, Scott Gerber, a spokesman for California Attorney General Jerry Brown, said
his office "has an ongoing, independent investigation" into the use of placement agents. He
said the office will cooperate with the SEC and other government agencies in ongoing probes,
but declined to give details on the investigation.
Calpers's losses amid the financial crisis topped $50 billion and shrank the fund by more than
23% through June 30, leading to its worst fiscal year ever. For the year ended in June, the
median return of public-pension funds with $5 billion or more in assets was a 19% decline,
according to Wilshire Consulting.
Public criticism of Calpers has been building for months, over poor returns, the deep burdens it
places on municipalities and pensions that in some cases exceed $100,000 a year. In August,
the fund's chief actuary, Ron Seeling, publicly said California's pension costs were
"unsustainable."
Calpers says its internal probe was sparked by an internal review showing the tens of millions
in fees Mr. Villalobos's placement agent firm had secured from money managers over five
years.
Mr. Villalobos's firm pitched the services of Apollo, Mr. Black's New York private-equity firm,
according to documents The Wall Street Journal requested from Calpers in a Sept. 23 Public
Records Act request. According to these documents, Apollo paid Arvco at least $40.9 million in
fees.
Since 2006, Calpers has committed more than $3.5 billion to Apollo funds, the largest
committment to any firm in Calpers's $20 billion private-equity investment portfolio.
These investments have been among Calpers's worst performers, according to fund
documents. Calpers committed $1 billion in 2008 to Apollo Credit Opportunities Fund I, which
invests in debt markets and was down 49% as of March, according to Calpers documents.
Investments in two other Apollo funds -- $1 billion in its flagship private-equity fund, and $200
million in an Amsterdam-listed vehicle that invests in Apollo's funds and deals -- were both
down around 60%.
Apollo's funds have recovered substantially since the market lows in March.
Getty Images
Calpers also acquired a roughly 9% direct ownership stake in Apollo for about $600 million in
2007. After that direct link was solidified, Apollo continued to pay Arvco substantial fees to
access Calpers cash.
Mr. Villalobos's connections in the state of California go back decades. He worked as a

consultant to California Gov. Ronald Reagan and later helped raise money for California Gov.
Pete Wilson, who named Mr. Villalobos to the State Personnel Board. That board, which
administers the state's civil-service system, picked him as its representative on the Calpers
board in 1993.
Mr. Villalobos left Calpers in 1995. About two years later, he started Arvco in Stateline, Nev.
Interviews and a review of public documents show Mr. Villalobos maintained close ties to
people at Calpers, including a former head of its investment committee and its former chief
executive.
Mr. Villalobos's daughter, who has worked on several Calpers deals with him, and Arvco
employees contributed to the election campaign of Calpers board member Charles Valdes,
who served as head of the pension fund's investment committee for 13 years.
A surprising $50-million, "pay-to-play" revelation from Calpers and what the likely fallout will be from the News Hub
panel.
Mr. Valdes is being investigated by California's Fair Political Practice Commission for
accepting campaign donations that exceeded the legal limit for his 2005 re-election to the
board.
A representative for Mr. Valdes has said the campaign misunderstood the limit rules, according
to commission documents. Mr. Valdes did not return a call for comment Wednesday. Mr.
Villalobos's daughter did not respond to a request for comment placed with Arvco.
Former Calpers Chief Executive Officer Fred Buenrostro, who stepped down last summer, was
hired in August by Arvco and does research and prepares marketing materials for the firm's
clients, he said in an interview Wednesday. He served for several years on the Calpers board
before he became CEO, and from 1993 to 1995, he was trustee on alongside Mr. Villalobos.
"That's where our friendship began," Mr. Buenrostro said.
Calpers staffers sometimes felt that Mr. Buenrostro pressured them to look favorably on deals
where Arvco was a placement agent, according to several people familiar with the matter.
Mr. Buenrostro says all he did was "make introductions to staff and if there were questions
about the investment process, I would answer them."
Calpers's review will be conducted by the law firm Steptoe & Johnson LLP, the fund said. It
also recently hired the consulting firm Houlihan Lokey to advise it about its poorly performing
investments, according to people familiar with the matter.
Write to Craig Karmin at craig.karmin@wsj.com and Peter Lattman at peter.lattman@wsj.com
http://www.reuters.com/article/idUSBNG16705320091125
Calpers mulls dumping BlackRock on

real estate-WSJ
Wed Nov 25, 2009 12:25am EST
Stocks
BlackRock, Inc.
BLK.N
$232.20
-5.07-2.14%
12:00am PST
AllianceBernstein Holding L.P.

Nov 25 (Reuters) - Calpers, the biggest U.S. public pension fund,
is considering dumping asset manager BlackRock Inc (BLK.N)
as its real estate consultant, the Wall Street Journal said, citing
people familiar with the matter.
STOCKS | BONDS | FUNDS NEWS | ETFS NEWS
California Public Employees' Retirement System's investment of $500 million into Peter
Cooper Village and Stuyvesant Town, an 11,000-apartment Manhattan housing complex, is
widely considered worthless, the paper said, without identifying the sources.
The housing complex is owned by Tishman Speyer Props LLC and a unit of BlackRock.
The paper had reported earlier that the housing complex is on the verge of a loan default.
Calpers paid BlackRock $12.6 million in real estate advisory fees last year, the paper said.
The real-estate review began several months ago and could be completed as soon as year
end, the paper said, citing people familiar with the process.
Brad Pacheco, a Calpers spokesman, told the paper the $200 billion pension fund wouldn't
"speculate on the future of our real-estate relationships until the review is complete."
BlackRock spokesman Brian Beades told Reuters his company does not comment on client
activity. Calpers could not be immediately reached for comment outside of regular U.S.
business hours.
The pension fund voted last week to reduce its exposure to fixed-income investments
managed by AllianceBernstein Holding LP (AB.N) and PIMCO, but, at the same time,
approved one-year contract extensions with the two money managers. (Reporting by Sakthi
Prasad in Bangalore; Editing by Muralikumar Anantharaman)
((sakthi.prasad@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80
4135 5800; Reuters Messaging: sakthi.prasad.reuters.com@reuters.net))
• 2009
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/12/10/BU371B294N.DTL
CalPERS set to fire investment managers

Robert Selna, Chronicle Staff Writer
Friday, December 11, 2009
The California Public Employees' Retirement System has fired or soon will
terminate some of its real estate investment managers in the face of
significant real estate asset losses.
In a recent memo to CalPERS' investment committee, investment adviser

Pension Consulting Alliance Inc. said that "a number of managers have been
or are in the process of being terminated as their performance and judgment
proved to be well below expectations."
The report did not name the managers.
In October, Victor MacFarlane, of San Francisco's MacFarlane Partners,

resigned as an adviser to CalPERS after a decadelong relationship with the
pension fund.
MacFarlane Partners engineered a $971 million CalPERS investment in

LandSource Communities Development, which held undeveloped land at
Newhall Ranch, outside Los Angeles. LandSource went bankrupt in 2008 and
CalPERS lost its investment.
The memo noted that the $200 billion pension fund, the biggest in the United
States, had seen a 48.7 percent decline in its real estate holdings this year.
The real estate holdings make up 6.9 percent of CalPERS market value.
Things are not expected to get better right away.
The memo said the real estate investments probably will continue to lose
value for the next year or more.
There is widespread speculation that CalPERS will fire investment manager

BlackRock Inc. of New York.
BlackRock steered CalPERS into a $500 million investment in a New York

apartment complex. The loan on the complex is said to be verging on default
and CalPERS might lose its money.
Clark McKinley, a spokesman for CalPERS, would neither confirm nor deny
that BlackRock would be fired.
He said the pension fund would be focusing on lower-risk investments.
E-mail Robert Selna at rselna@sfchronicle.com
This article appeared on page D - 1 of the San Francisco Chronicle
Read more: http://www.sfgate.com/cgi-

bin/article.cgi?f=/c/a/2009/12/10/BU371B294N.DTL#ixzz0bPE37cKH
http://www.californiabankruptcylawyerblog.com/bankruptcy_law/
October 23, 2009

Oakland Bankruptcy Attorney comments on a New York bankruptcy
that could cost CalPERS more than $500 million
Oakland Bankruptcy Attorney comments on a New York bankruptcy that could cost CalPERS
more than $500 million
CalPERS may lose the $500 million it invested in the Manhattan apartment complex called Peter
Cooper Village and Stuyvesant Town. CalPERS was part of an investment group that purchased
the complex for $5.4 billion in 2006. CalSTRS, another state public pension fund, has already
written of the $100 million it invested in the deal. The project, owned by a partnership led by
Tishman Speyer Properties and BlackRock Inc. is expected to go into default within the next few
months and is expected to file for Chapter 7 or Chapter 11 bankruptcy protection. The value of
the real estate has dropped to an estimated $2.1 billion from the $5.4 billion purchase price 3
years ago.
This is not the first significant real estate loss that CalPERS has suffered this year. The public
pension fund lost nearly $1 billion on one real estate project, known as LandSource, which filed
for Chapter 11 bankruptcy reorganization protection earlier this year. CalSTRS has lost 43% on
its real estate holdings this year, and the two funds have lost more than $100 billion during the
past fiscal year as their real estate, stock market and other investments declined in value. Much
of the decline was in stocks and other financial instruments, but their real estate portfolios have
shrunk dramatically in value as the economy has slid into recession.
CalPERS Could Lose $500 million on N.Y. Real Estate Deal, Sacramento Bee, October 15, 2009
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http://www.forbes.com/2009/01/07/intelligent-investing-calpers-real-estate-
panelJan8.html
CalPERS Is Suffering Too

David Serchuk, 01.08.09, 06:00 AM EST
Real Estate hasn't just brought retail investors low--the country's largest pension fund
bet big on the bubble.
Recent problems at the California Public Employment Retirement System (CaliPERS) have
inspired conflicting emotions among the members of the Forbes.com Investor Team.
Through the end of 2008, the massive pension system saw its stock portfolio drop 41%, and
its real estate holdings, as of last November, had dropped nearly a third, from $9 billion to
$5.8 billion, according to the Sacramento Bee. Altogether, CalPERS saw the overall value of
its fund drop to $186 billion at the end of 2008 from $260 billion in October 2007, notes
theFresno Bee.
CalPERS purchased most of its real estate holdings in Arizona, Florida and California, states
among those hardest hit during the real estate crash. Making matters worse, CalPERS
bought into many of these areas either when they were at their hottest or when the market
was already starting to slide. The Forbes.com Investor Team grappled with how much
CalPERS was the victim of bad timing vs. bad decision making.
Stephen Roseman is in the former camp. The owner of Thesis Capital notes that over the
past few years, despite its missteps into real estate, CalPERS still only has 11% of its
portfolio in that sector, and it has made itself more diversified over the past several years, not
less. Roseman adds that CalPERS has been hit by hit by the same issues that have hit
everyone else: a root in global assets. "This is what happens when all asset classes fall," he
says.
Marc Lowlicht, president of the wealth management division of Further Lane Asset
Management, is more in the former category. He notes that because CalPERS can raise
money from its members should it get in too much trouble, it is likely insulated from problems
of solvency. Still, he believed that the pension suffered from the same issues that have hit so
many in the financial world: being overly concentrated in one area. In CalPERS' case, that
one area was booming real estate.
Michael Ervolini, chief executive officer of Cabot Research, which looks at the financial world
through the lens of behavioral science, notes that if there's a problem at CalPERS, it's that
the firm fell victim to what so many have during this current financial crisis: overconfidence in
its own good judgment. "Our ego wants us to feel good about ourselves," he says. "So we
accumulate data that supports us being confident."
CalPERS To Blame?
Lowlicht: I would say you're talking that CalPERS is in the same trouble it's in because of
the investors who put all their money in with Madoff. They overextended themselves and
overexposed themselves to real estate and got caught. It's getting back to asset allocation.
And not only looking for things at the top and diversification. CalPERS is in trouble for the
same fundamental reasons that I was saying why investors shouldn't have all their money
with one manager. Is it the next shoe to drop? I think CalPERS has the ability as a pension
fund to raise money, and they'll be OK just because of their sheer size. But when look at
CalPERS' problems vs. the banks' problems, with having too many bad loans, vs. the issues
with Madoff--whenever you overexpose yourself, that's what you're looking at.
Comment On This Story
Ervolini: If you look at the seat underneath it--and we're all susceptible to it--its
overconfidence and a lack of humility. Across behavioral finance, one of the primary factors
for people making bad financial decisions is overconfidence. And to some extent, we're
oriented in that direction. Our ego wants us to feel good about ourselves, so we accumulate
data that supports us being confident. But if we're not like Stephen and Mark and use facts to
support our decisions, and we just use our recollection, then we get overconfident, based on
a misinterpretation of what happened. And suddenly, instead of recognizing that I was lucky
to get two out of out of five right, I look back and I say, "Well, I'm pretty smart. I got a lot
right." And you'll find this overconfidence at the core of many a financial problem.
INTELLIGENT INVESTING
•
Lowlicht: I would love to see CalPERS' investment mandate. Is there a fiduciary breech
there?
Roseman: For starters, CalPERS' investment mandate is public. They only have 11% of
their portfolio in real estate, and in their model portfolio, their target is 10%. So, again, this is
not ... the press couches it a certain way. Just like people like to ascribe at [the] end of today
that the market was up today because of Obama. Or down today because of Obama. Or
down today because of oil. The reality, is it's an oversimplification. CalPERS only has 11.2%
in their current allocation, as of Oct. 31, in real estate. I don't know if there is any
overallocation. CalPERS is an incredibly diversified entity.
I'm not particularly close to CalPERS. One of my shepherds in the business, Russell Reed,
was, until recently, the CIO at CalPERS. Russell is first and foremost an academic, and
Russell was only there a couple of years. But I look at some of the changes they made, and
they've become, if you look at their historic allocation, more diversified over the years, not
less. If look at [what] their allocations are--it's all public, it's all on their Web site, so there's no
veil of secrecy here. Again, they only had 11% of their portfolio allocated to real estate. I
don't think anyone would describe that as being overconcentrated.
CalPERS is affected by what everyone is affected by, which is a root in global assets. The
only thing that goes up in bear markets is correlation, and correlations have moved to one.
So when you say correlations have moved to one, what we say is that asset values are
coming in. So short of CalPERS going to cash, which is not possible, there was no way to
fend off a decline in global assets.
They're invested in global assets, as was the Harvard endowment, the Yale endowment, the
Wisconsin teachers' endowment, Houston firefighters--all these endowments are invested in
assets globally. And [when] you have exposure to assets, it doesn't matter how much you
have exposed to hedge funds, which in theory should blunt that [exposure] to many asset
classes. [You] have benefited from diversification in that regard. They are suffering from, lest
we make it more sinister than it is, a root in global assets. This is what happens when all
asset classes fall. At this point, only being in cash or running a short book would have saved
you from anything other than that.
Lowlicht: I agree that they're suffering because of global impact. There's nobody in this
market in the past six months that made money, unless they were short. I can't say nobody,
but that's been my experience. From what I've been reading, a lot of the damage they've
been getting has been from overexposure to real estate. But I agree with Stephen that they
would have been suffering regardless.
Ervolini: Absolutely. And any comment I was making was really within real estate. Are you in
fixed assets, vertical assets or are you in development? And to the extent that you're more
aggressive, did you pick the right people? Were you there at the right time? I don't want to
second guess them; they're a sophisticated firm. But there is always potential, when you're
doing well, to keep betting more. Because you feel good about the decisions you're making.
taction=doc&p_docid=0EB0DAD3B47CE48C&p_docnum=254&p_queryname=8
LETTERS
SACRAMENTO BEE - Tuesday, July 5, 1994
State automation
Re "State fears a computer nightmare," June 16: The article addressed the
Statewide Automated Welfare System (SAWS) and the Child Welfare Service
Case Management System (CWS/CMS). Most of the information provided on
SAWS and CWS/CMS in the article was either incorrect or misleading.
The article cited two cost estimates for SAWS - $711 million and $798 million -
and concluded that the cost of SAWS has increased by nearly $100 million while
less of the state will be implemented (Los Angeles County will implement its own
system).
The $711 million figure was a September 1992 estimate of the project cost to
implement, operate and maintain SAWS statewide (including Los Angeles
County) for the first five years of the project. The $798 million figure was a
December 1993 estimate of the cost to implement, operate and maintain SAWS
in all counties except Los Angeles for the first 12 years of the project. There has
been no $100 million increase in the SAWS cost estimate. Similar problems exist
with the other information an d cost figures cited regarding CDSS projects in the
article.
To ensure the success of the SAWS and CWS/CMS projects, the CDSS, in
cooperation with several state departments and county and federal agencies,
developed and implemented plans and policies for the management and
oversight of the projects. Long before the California Department of Motor
Vehicles ' disclosure and the subsequent public attention to the state's
information technology activities, CDSS formed oversight committees to its
automation projects.
Further, we recognize that huge computer projects of this magnitude must be
carefully monitored. This is precisely the reason Gov. Pete Wilson has convened
the Governor's Task Force on Information Policy and Technology Pro curement.
This effort will bring both private-and public-sector oversight to assure that the
taxpayers of California receive the most cost-effective technology systems
possible.
Eloise Anderson, Director
Department of Social Services
Sacramento
Re "State computer projects in disarray," June 18: I am

a computer professional who is employed by a large bureaucratic information
services department as well as operating my own consulting business. There is
an information technology war battling its way through many businesses and
government agencies. It's the purveyors of the new PC-related technologies
battling the well-entrenched centralized data processing departments.
Many of the people demanding the migration from centralized computers to PC-
based local area networks, etc., are not computer people. No, they are the
actual clients of the centralizedcomputer departments. These clients want
their computer services departments to stop trying to control them and to quit
purchasing technology that is past its prime.
A good term to describe this syndrome is "leganomics," the syndrome of

spending money on legacy systems that no longer effectively serve users. Since
the computer services departments refuse to give up leganomics, the clients are
moving forward by implementing newer technologies on their own. It doesn't take
an Einstein to see how expensive this scenario can get.
Timothy Hoy
Elk Grove
Re "Bad computer epidemic hits Student Aid Commission," June 28: Suffice it to
say that during these times of austerity there is a lack of revenue to go around. I
suggest the commission and theDepartment of Motor Vehicles scrap their
respective computers and use pencils and note pads.
Eric M. Rounds
Sacramento
The real delinquents

Rather than paddling our kids for expressing their creativity, let's give them some
washable chalk and have graffiti art contests for them. Then let's cane the
politicians for giving themselves pay raises while the state is struggling with a
huge deficit and for not addressing the really serious problems all around us.
Frances Carter
Sacramento
Don't just do it
Re "Jury convicts last 2 in Capitol sting," June 17: Upon his conviction for
extortion, ex-lobbyist Terry Frost stated, "I don't like it, I don't know what you do
to be found not guilty in this process." Well, unlike Bo Jackson's quote, "Just do
it," I think Frost should "just not do it"; then he wouldn't have any problems with
"this process."
Ruben L. Guerrero
Woodland
Justice reform
As a constant critic of our legal system, I found some interesting reading in the
paper June 12. Retired Supreme Court Justice Lewis Powell, who helped
reinstate the death penalty in the 1970s, now opposes it, noting that the vast
majority of death sentences are never carried out due to complex appeals and
that "brings discredit on the whole legal system" ("Change of heart on death
penalty?").
Next was the Business section article headlined, "Stress, morale take a toll in law
offices." One disillusioned law school grad left practice, saying, "I didn't want to
be a part of a system that often causes more problems than it cures."
Why are we not demanding wholesale legal reform such as President Clinton is
now proposing for the medical system? When the president cannot even afford to
pay his own legal services in defending himself on a sexual harassment charge,
that should be his/our wake-up call.
Gary S. Holm
Sacramento
Presidential options
Regarding President Clinton's plan to pass the hat to establish a legal defense
fund: Why not just give Hillary Rodham Clinton $1,000 and let her get back into
commodities?
Jeanne Kammerer
Fair Oaks
Section: EDITORIALS
Page: B7
Record Number: 154
LETTERS
taction=doc&p_docid=0EB0DAD20A1507F8&p_docnum=255&p_queryname=8
BAD COMPUTER EPIDEMIC HITS STUDENT AID COMMISSION

SACRAMENTO BEE - Tuesday, June 28, 1994
Author: Mary Lynne Vellinga Bee Staff Writer
A $51 million computer system developed by the California Student Aid
Commission to process loans and grants for college students is so flawed it
already needs to be replaced just a year after becoming fully operational, a
consultant hired by the commission said Monday.
"In our view, FAPS (the Financial Aid Processing System) is not and will not be
the foundation for providing services to students and lending institutions in the
future," Allen Koehn, a senior manager at accounting firm Deloitte & Touche, told
the commission at a special meeting.
Samuel Kipp, executive director of the Student Aid Commission, did not
disagree. "I don't think there's a quarrel on the part of staff with the basic
findings" of Deloitte & Touche, he said.
Kipp, however, disputed the state Office of Information Technology's recent

assertion that the total FAPS budget is now $50.9 million. He said the system
cost only $14 million to develop, with the rest of that money representing
operating costs through the next fiscal year. He also said part of the problem with
FAPS has stemmed from tremendous growth in loan and grant volume and from
constant changes in federal law.
Deloitte & Touche has been reviewing FAPS, one of many problem-plagued
state computer projects, since last July at the behest of the commission. A
summary of its report said FAPS' design "is muddled, convoluted, does not follow
industry-accepted design methods and techniques, is mostly undocumented and
is archaic."
"The financial data currently in FAPS is unreliable," Koehn said.
The system will be used to process about $1.7 billion in federally guaranteed
loans and $209 million in grants this year. When a student defaults on a federally
guaranteed loan, Student Aid also handles the case for the U.S. government.
Student Aid currently faces $49 million in proposed penalties from the U.S.
Department of Education because of FAPS deficiencies. It is protesting the
penalties.
Complaints about FAPS have ranged from incorrect loan balances for some
students to processing delays for loan and grant applications, commission
staffers said. Starla Harris, former head of financial aid at California State
University, Sacramento, said the system once lost 120 loan applications that had
been sent to be guaranteed, meaning CSUS had to do them all over again.
At Monday's meeting, commission members directed Student Aid staff to

evaluate long-term alternatives to FAPS, which could include building a new
system or entering a joint venture with another entity that already runs a
successful system. The staff is scheduled to report back in July.
The commission also intends to pursue short-term strategies identified by

Deloitte & Touche to make the system work better.
The Student Aid debacle comes shortly after the Department of Motor
Vehicles disclosed it had spent $44.3 million on a computer system that will be
abandoned.
In addition, a report released earlier this month by Legislative Analyst Elizabeth

Hill said billions of dollars are being spent on computer systems for state
government that don't work as intended and are rarely installed on time. Hill cited
a lack of statewide leadership for computer projects.
Kipp said he thinks Student Aid wound up with a faulty system because its staff
didn't have the technical expertise to know whether the contractors it hired were
doing an adequate job and couldn't find help elsewhere. FAPS was designed by
SHL Systemhouse. Since 1992 it has been run by Electronic Data Systems
Corp., which was hired, without competition, through an amendment to an
existing EDS contract.
Systemhouse officials could not be reached for comment Monday. An EDS

spokeswoman said the system's problems stemmed from its original design.
"You've got your in-house people arrayed against the technical people from the
consulting (firms) who have much more technical expertise," Kipp said.
He also cast blame on the state's unwieldy bidding process. "The state process
is so slow and cumbersome that rather than pull the plug on (a project) you try to
make it work, because if you pull the plug it will be three years before you can
start again."
But in a June 1 letter to Kipp, officials from the Office of Information Technology -
itself under fire for not adequately supervising computer projects - laid some of
the blame for the system's problems at Student Aid's door.
"No one individual is responsible for the FAPS and there are no clear delegations
of responsibility, and processes for providing information to the contractor are
weak" the letter stated.
The letter said OIT will ask the Office of State Audits and Evaluations to audit the
FAPS project.
Section: MAIN NEWS
Page: A1
Index Terms: TECHNOLOGY EDUCATION
Record Number: 199
BAD COMPUTER EPIDEMIC HITS STUDENT AID COMMISSION
COMPUTERS ON THE LOOSE

SACRAMENTO BEE - Wednesday, June 22, 1994
The rationale behind the state's effort to equip its agencies with more
sophisticated computer systems was always to increase efficiency and, by
making employees more productive and maybe even reducing the work force,
save money. But due to lax oversight, a dearth of expertise and possibly some
sweetheart deals with contractors, many of the conversion efforts are failing to
fulfill that promise.
According to a recent report by the legislative analyst's office, such projects are
devouring scarce resources and providing little or no return. The report lists 11
troubled computer projects with a budgeted value of nearly $1.3 billion that have
suffered significant delays and cost overruns. Among them:
The Department of Motor Vehicles has spent $44.3 million to redesign its
database; seven years later the project is $18 million over budget, a year behind
schedule and still doesn't work.
* The Student Aid Commission has spent $37 million on a financial aid
processing system, but after many delays and disruptions, the system may be
scrapped.
The Board of Equalization and the departments of Corrections, Social Services

and Transportation have suffered lesser difficulties, but face delays and/or cost
overruns because the staffs managing these large, complex projects generally
don't have the necessary expertise to oversee them or the consultants they've
hired.
California has no centralized leadership to provide that oversight, or to chart a

course and set standards for its growing reliance on information technology.
Redundant data continue to be maintained in separate systems; noncompatible
systems continue to proliferate. In spite of all the money spent, few programs
have been developed to translate the state's mountains of data into useful
information for policy-makers, state agencies and the public.
The legislative analyst recommends the formation of an interagency advisory

group from all departments with computer projects; certification of departments
as to their ability to implement a proposed project, with training of project
managers; coordinated procurement of hardware, software and services to
maximize the state's purchasing power; documentation of contractor
performance so that departments can compare notes on the firms they're hiring;
and independent, qualified review of big projects, bid proposals and contractor
selection.
The analyst's recommendations are directed to the Legislature. But they're just
as relevant to the administration - especially one that claims to be committed to
good business practices.
Section: EDITORIALS
Page: B6
Index Terms: BEE EDITORIAL
Record Number: 283
COMPUTERS ON THE LOOSE
taction=doc&p_docid=0EB0DACFF796A277&p_docnum=257&p_queryname=8
CALTRANS CONTRACT UNDER FIRE IN CAPITOL COMMITTEE

HEARING
SACRAMENTO BEE - Tuesday, June 21, 1994
The state Department of Transportation has "broken, bent and stomped on" state
contracting rules to award a sole-source contract to a Virginia business systems
analyst, the chair of the Assembly Transportation Committee charged Monday.
Assemblyman Richard Katz, D-Panorama City, stressed that the contractor

apparently did good work and was well-qualified.
Nonetheless, the contract was amended seven times in a year and ballooned
from $21,850 to nearly $918,400, Katz said during a committee hearing.
The contracting process leaves the state open to charges of bias and unfairness,
he added.
Caltrans Director James van Loben Sels, a retired Army general, acknowledged
that the contractor worked with him while they were both in the Army at Fort
Monroe, Va. But van Loben Sels said he had no role in selecting the contractor
and "recused" himself from any dealings with the subsequent contract
amendments.
The contractor is retired Army Col. Michael J. Cox of Yorktown, Va., who owns a
company called Information Integration Innovation and Associates.
Judy Guerrero, Caltrans' deputy director for administration, said she met Cox
several years ago while being briefed on problems with information systems in
federal bureaucracies. He is a troubleshooter and has had considerable success
reforming systems, Guerrero said.
Cox said that after leaving the Army, he called Guerrero and inquired about
potential contracts. That conversation evolved in January 1993 into a sole-source
contract - one that can be awarded without competitive bidding under certain
state rules.
"I knew something was not right in our information services arena," Guerrero
said. "I wanted a peer review from an independent source. I expected him to get
in and get out. He was available, and we needed a quick turnaround."
Van Loben Sels called the chance to hire someone with unique expertise a
"target of opportunity." Cox's services proved to be so valuable that his contract
kept being expanded, he continued.
Eventually, however, the Department of General Services denied further contract

Cox ended up with the contract anyway.
Van Loben Sels told committee members he's satisfied that the taxpayers got
value for the money and that no laws were broken. "We did it right," he declared.
Katz, however, was unconvinced. "We're nearly $1 million down the road (to
developing a new information system at Caltrans) and they haven't even put
together a feasibility study yet," Katz said. "That's how we ended up with a $44
million computer system at the ( Department of Motor Vehicles ) that doesn't
work. It's a process that scares the hell out of me."
Section: MAIN NEWS
Page: A4
Index Terms: CALIF TRANSPORTATION
Record Number: 165
CALTRANS CONTRACT UNDER FIRE IN CAPITOL COMMITTEE HEARING
taction=doc&p_docid=0EB0DACF0D973D40&p_docnum=258&p_queryname=8
STATE COMPUTER PROJECTS IN DISARRAY, ANALYST SAYS

SACRAMENTO BEE - Saturday, June 18, 1994
Billions of dollars are being spent on computer systems for state government
that don't work as intended and are rarely installed within budget and on time,
according to a report by Legislative Analyst Elizabeth Hill.
About 40,000 bureaucrats have computer access, but most can't talk to each
other or exchange data because of incompatible systems, Hill found.
Some of the findings were detailed by The Bee in an article earlier this week,
which identified computer projects budgeted at more than $1.1 billion that have
had significant delays and cost overruns. Hill's report, which was released Friday
and is the most comprehensive survey available to date, lists 11
troubled computer projects with a budgeted value of nearly $1.3 billion.
In addition, the state is spending about $1 billion yearly on

new computer equipment without any careful overview of how money is spent,
she said.
For years, state government has had "no centralized, effective leadership to chart
and guide the state's course for its growing reliance on information technology,"
Hill said.
She laid most of the blame on the Office of Information Technology in the
Department of Finance. It has overall charge of approving and
overseeing computer projects and monitoring contract compliance, she said.
"It has essentially failed to carry out the statutory mission established for it by the
Legislature," Hill said.
H.D. Palmer, assistant director of the Department of Finance, disputed that. The
technology office has a role that is limited to project approval and review of major
changes in direction, he said.
The analyst has a "Stalinist" view of central control over information technology,
Palmer said.
"The day-to-day management and decisions are best left in the hands of the
department managers who have the direct responsibility," he said. The
technology office "can and has said "stop' " when a project is in trouble, he said,
but it is not responsible for making the project work.
That view was disputed by Assemblyman Richard Katz, D-Panorama City, who
agreed the technology office hasn't followed the Legislature's directions.
"At some point, the administration has got to explain why no one was paying
attention" to projects that were going bad, Katz said.
Steve Kolodney, who headed the technology office, was reassigned by the
Wilson administration last month after legislative hearings into the failure of
a computer system for the Department of Motor Vehicles - which was
scrapped after $44.3 million had been spent on it.
Kolodney headed the office in 1987 when the DMV project was approved. Two
years later, he resigned and started a consulting firm with financing from Michael
Franchetti, a lobbyist for TandemComputers Inc. of Cupertino. Tandem had the
hardware contract on the DMV job.
Kolodney returned to head the technology office in April 1991.
Beyond that, Hill said there has been a problem of statewide leadership,
oversight and coordination. That's left the state with information systems that
duplicate each other and kept the state from receiving a proper return on its
investment.
There have been fumbling attempts to provide leadership, she claimed.
In the 1980s, the technology office set up the California Forum on Information
Technology. Among its programs was a Data Processing Managers Training
Academy and an Executive Institute where high-level managers could exchange
ideas and learn about new technology. The Department of Finance shut down
the forum in 1993, claiming it wasn't needed.
About the same time, Gov. Pete Wilson ordered creation of the Multi-Agency
Information Management Authority to spearhead information and technology
exchange between departments. It included undersecretaries of stat agencies
and other top officials.
The authority was to make recommendations in October 1993. But no report has
been produced "and meetings have been infrequent," Hill said.
Palmer said Wilson's leadership was demonstrated May 12 when he announced

plans for a private sector group to advise the state on computer issues. The
panel is to be named next week.
Hill contended the need to go outside government for help was an

acknowledgment of the problem.
Meanwhile, Hill found, the state has been buying millions of dollars worth of
personal computers - small self-contained computers as opposed to
many computer terminals linked to one largecomputer .
"Incompatible systems have been installed over the years, often within the same
organization," she said. "This has tended to inhibit state departments from
developing an integrated approach to management of information. . . Lack of
standards has resulted in duplication (that) ends up not only costing more
money, but results in retraining staff."
Personal computers have technical support requirements with many hidden

costs, Hill noted.
Hill suggested a number of options for improving computer management,

including certification of departments to insure that they have a staff that is
capable of planning and implementing a project.
Caption: 1 CHART
Bee graphic / R.L. Rebach Computer troubles Money budgeted for ocmputer
projects in several state departments: Department of Corrections $63.1 million
Corrections Management Information System - delays and cost increases. Board
of Equalization $37.3 million Database redesign and shift to another mainframe -
delays and cost increases. Department of Health Services $44.1 million Vital
records improvement project - delays, due partly to cost overruns. Department
of Motor Vehicles $44.3 million Database redesign - terminated because, after
seven years, the system couldn't be made to work. Department of Housing and
Community Development No budget set Mobile home registration and titling -
efforts over several years to make the system work. Secretary of State $00.0
million Database for liens against commercial properlty - project terminated after
it failed to work. Testing of a second system is almost finished. Department of
Social Services (3 projects) $1.03 billion *Automation of welfare system - delays,
cost increases. *Automation of child suport system - delays and cost increases.
*Child welfare system database - delays, cost increases and change in scope of
project. Student Aid Commission $37 million Financial Aid Processing System -
after numerous delays and disruption sof payments to students, the system may
be scrapped. Department of Transportation $38.3 million New database - delays
and difficlties making database usale. Total: $1.296 billion Source: Legislative
analyst's office, Bee research
Memo: ******SETTING IT STRAIGHT PUBLISHED JUNE 21, 1994
FOLLOWS:********** A chart on page A10 Saturday detailing the problems with
10 state computer projects omitted the amount budgeted for a database for the
secretary of state. Its cost is set at $2.3 million - down from the $4.1 million the
agency recovered from an earlier failed project. The chart also should have said
that the Department of Housing and Community Development has been working
for several years to develop a new system.
Section: MAIN NEWS
Page: A1
Index Terms: TECHNOLOGY CALIF COST
Record Number: 001
STATE COMPUTER PROJECTS IN DISARRAY, ANALYST SAYS
taction=doc&p_docid=0EB0DACEC32E7CF2&p_docnum=259&p_queryname=8
STATE FEARS A COMPUTER NIGHTMARE - COSTLY "SCREW-UPS'

FOUND IN MANY GOVERNMENT PROJECTS
SACRAMENTO BEE - Thursday, June 16, 1994
Author: Stephen Green and Mary Lynne Vellinga Bee Staff Writers
The $44.3 million spent on a state Department of Motor
Vehicles ' computer system that doesn't work could be dwarfed by
potential computer disasters lurking in other state departments, according to
numerous legislative and government analysts.
"Nobody ever wants to admit it, but it's generally known that there have been
some real screw-ups," said Bob Dell'Agostino of the legislative analyst's office.
He and others identified computerprojects budgeted at more than $1.1 billion
that have experienced significant cost overruns or delays.
The most worrisome projects, perhaps as many as 10, are to be listed in a report
the legislative analyst's office is expected to issue today.
In one of the worst recent examples, the California Student Aid Commission has
already spent an estimated $37 million on a financial aid processing system that
was so poorly designed it may have to be scrapped.
"It's very questionable whether it's salvageable," said Arthur Lee Hardwick of the
U.S. Department of Education, which provides most of the aid money.
Legislators have been expressing concern for months that there may be dozens
more computer projects in trouble because of the fragmented way that the state
plans, purchases and brings major technology projects on line.
"The more I learn, the scarier this gets," said Assemblyman Richard Katz, D-
Panorama City, who chairs the Assembly Transportation Committee. "There
aren't checks and balances on procurement. Oversight is nonexistent."
The state Department of Finance approves spending of between $300 million

and $400 million for computer systems each year, plus another $600 million
annually for personnel and operating costs. But H.D. Palmer of the Finance
Department said no one in his agency is responsible for keeping track
of computer projects that are in trouble.
"Despite the expenditure of billions of dollars to implement information

technology, neither the executive, judicial or legislative branches of government
can easily access the mountain of data stored in the state's computer files and
convert it to useful information," according to a report issued last month by
Legislative Analyst Elizabeth Hill.
"This situation is likely to worsen as departments attempt to improve their

operations through the increased use of information technology," the report
concluded.
Other critics said state managers often lack the expertise to manage large
technology contracts themselves and rely too much on contractors. Independent,
objective reviews are rarely done, they claim.
The growing concern about computer problems - and the potential political
fallout - hasn't escaped notice in the Governor's Office. Last month, Gov. Pete
Wilson announced creation of the Governor's Task Force on Information Policy
and Technology Procurement.
"The task force will be composed of private-sector business leaders pecialists in

technology procurement and application - who will help us craft policies and
procurement processes that will ensure we get the best high-tech bang for your
hard-earned tax dollars," Wilson promised.
The task force report is due Aug. 15, but the panel hasn't yet been named.
There should be an announcement of "extremely high quality" panelists next

week, a Wilson spokesman said Wednesday.
Two of the major projects in trouble are in the Department of Social Services,
which has vast computer needs to keep track of welfare clients and children at
risk for abuse or neglect. Other agencies include the Board of Equalization and
the Department of Corrections.
The project that tops everyone's list as the biggest potential disaster is the State
Automated Welfare System (SAWS), an effort by the Social Services Department
to link county welfare offices statewide.
In January 1993, SAWS was projected to cost $711 million. But by early this
year, the budget had risen to $798 million, even though Los Angeles County had
bowed out and decided to provide its own system, said Bill Lucia, an analyst in
Hill's office.
"Now it's going to cost us (almost) $100 million more, but we're not even going to
do a third of the state with this project," Lucia said.
There are also significant concerns about whether the state is picking an
outdated system, and whether it is locking itself into a situation where Unisys
Corp. - the company supplying equipment for a $78 million, 14-county pilot
project - will be the only company that can compete for the statewide system.
In response to those concerns, the Wilson administration has asked for another
$43 million to conduct demonstration projects that will try to translate the Unisys
software to other computing environments - just to avoid doing a sole-source
contract later.
Another Social Services project, a computer system to keep track of at-risk

children, is also expected to experience significant increases in its $80 million
budget.
The project was supposed to be implemented in July 1993, but hasn't even made
it out of the design stage yet. It also has been expanded because of changes in
federal law, but not enough to account for the expected cost increases from the
IBM unit doing the job, said Agnes Lee of the legislative analyst's office.
"It seems they just mis-estimated from the beginning," she said.
While many of the problem computer projects are still in the early stages, the
Student Aid Commission is already having deep problems with its new Financial
Aid Processing System, or FAPS. In fact, the problems are such that
the computer system that's supposed to keep track of the grants and loans for
California college students may have to be scrapped. Employees of the
commission must do numerous tasks by hand because the computer software
doesn't do what it's supposed to.
In addition, the system often miscalculates loan balances and interest paid,
according to sources familiar with the project.
The U.S. Department of Education recently slapped the commission with $49
million in proposed penalties because of problems linked to the new system. The
commission is appealing.
At the Board of Equalization, a $30 million project was launched in 1991-92 to

redesign its data processing system and shift it from the board's computer to a
main-frame system at the Teale Data Center. But the five-year project soon ran
into trouble.
The cost is now projected to be $37.3 million and the completion date is
unknown. The legislative analyst recommended that the board seek an outside
consultant to manage the effort. Board officials agreed to hire outside advisers,
but will continue to manage the project in-house.
The Corrections Department is planning a multiyear project estimated at $63.1

million to update its rapidly expanding prisoner data base. The 2-year-old effort
stalled last month when only two companies bid on the project and neither bid
was deemed acceptable.
A spokesman for another potential bidder that dropped out of the competition
said its analysts concluded the project as designed by the state was
unnecessarily complex and "may not be deliverable."
Meanwhile, passage of the "three strikes" sentencing law is expected to

dramatically increase prison populations and boost project costs to nearly $114
million. Hill also has urged an outside manager be hired for that project.
Section: MAIN NEWS
Page: A1
Index Terms: CALIF TECHNOLOGY
Record Number: 260
STATE FEARS A COMPUTER NIGHTMARE - COSTLY "SCREW-UPS' FOUND
IN MANY GOVERNMENT PROJECTS
-----
• DECEMBER 18, 2008
Calpers Losses Add to a City's Stress

By RHONDA L. RUNDLE
Pacific Grove, a coastal town south of San Francisco, already faces a budget crisis.
Now losses by California's giant pension fund could make the pain worse.
"Calpers could bankrupt us faster than anything else," says Mayor Dan Cort. City
officials say other towns face financial stress unless the California Public Employees'
Retirement System is able to quickly recover from its investment losses. Says Dan
Davis, a former city councilman who has crunched the numbers for Pacific Grove:
Other municipalities "are trying to live in denial."
View Slideshow
Sarah Regnier for The Wall Street Journal
A welcome sign greets motorists as they arrive in Pacific Grove, Calif., by way of Holman Highway.
In recent years, Pacific Grove has seen its annual pension costs soar, largely
because of increased contributions to make up for losses caused by the last market
downturn. Last month, residents voted to consider ditching Calpers as the town's
pension provider and look into possible alternatives. But the window of opportunity
may have shut. With the market's plunge this fall, the city would have to spend $10
million or more to pay off its widening obligations to vested retirees were it to pull out
of Calpers.
Calpers says Pacific Grove isn't representative of other California cities.
When Jim Colangelo was hired as Pacific Grove's city manager in July 2005, it was
clear there were financial problems, but they weren't understood. The city of 15,000
had been spending its savings to pay its bills. Basically, it was running out of money.
Mr. Colangelo, now 50 years old, drilled into the budgets. The fastest-growing
expense: contributions to Calpers.
In fiscal 2002, Pacific Grove paid less than $100,000 to Calpers, an amount equal to
less than 1% of its general-fund revenue. By fiscal 2006, those costs had surged to
$2.2 million, or 15% of revenue. Two-thirds of the costs went to fund retirements for
police officers and firefighters.
Pacific Grove didn't see a bump in its Calpers contributions for police and firefighters
from 1999 through 2001. But Calpers started jacking up rates in 2003, partly reflecting
improved benefits that Pacific Grove and other municipalities adopted in hopes of
attracting the best safety workers.
Bad Bets
View Interactive
See more details on some of Calpers's real-estate investments.

Previously on Page One
• Risky, Ill-Timed Land Deals Hit Calpers
12/17/08
By late last year, Pacific Grove put through budget cuts. The recreation-department
staff was pared to one job from seven; budgets for the library and natural-history
museum were cut by half.
Joanne Nolan-Stewart, a 48-year-old with two children, laments the loss of after-
school and school-break programs. "The people who used to run the rec programs
grew up here and sheltered the kids like they were their own," she says.
Like many residents who work for private employers, Ms. Nolan-Stewart, an AT&T
account manager, says she is astounded at the generosity of public-employee
pensions. "If I were to retire, my retirement would be one-quarter of what I make today
for the rest of my life," she says. By contrast, city firefighters and police who retire at
age 50 with 30 years of service may retire with 90% or more of their final year's salary.
"Two years ago, I didn't know boo about Calpers," says Lori Mannel, directing
manager of the Pacific Grove Museum of Natural History, a 125-year-old institution
that might have been forced to close this year if it hadn't received temporary funding
from a nonprofit. Now, says Ms. Mannel, "everyone in town is aware of Calpers and
has an opinion about it," she says.
Eventually, after protests from cities around the state, Calpers in 2005 adopted a
"smoothing" formula for contributions that attempts to spread pain from a market
decline over several years. But it maintained high contributions in case of severe
downturns, like the current one.
The formula worried Mr. Davis, the former city council member, who has a doctorate
in mathematics. He began analyzing the Calpers rate increases and persuaded the
council and the mayor that the city's long-term health was in serious jeopardy if it
remained in Calpers.
This summer, he and another city representative met with Calpers's chief actuary,
Ron Seeling. "Ron was very professional and well prepared, but he didn't dispute the
analysis," says Mr. Davis.
Mr. Seeling notes that ultimately individual cities select retiree benefits, not Calpers,
and that the new smoothing formula means localities like Pacific Grove won't see any
increase until 2011.
Write to Rhonda L. Rundle at rhonda.rundle@wsj.com
Printed in The Wall Street Journal, page A4

MORE IN ECONOMY
http://mortgagedfuture.com/calpers-pleads-stupidity-on-subprime-mortgage-losses/
CALPERS Pleads Stupidity On Subprime

Mortgage Losses
By Bill Zielinski on July 20th, 2009
Calpers Blames Rating Agencies For Losses
Fallout from the financial world’s past love affair with subprime mortgages continues as
the California Public Employees’ Retirement System (Calpers) announced it is suing the
rating agencies.
NEW YORK (Reuters) - Calpers, the biggest U.S. public pension fund, has sued the three
largest credit rating agencies for giving perfect grades to securities that later suffered
huge subprime mortgage losses.
The California Public Employees’ Retirement System said in a lawsuit filed last week in
California Superior Court in San Francisco that it might lose more than $1 billion from
structured investment vehicles, or SIVs, that received top grades from Moody’s Investors
Service Inc, Standard & Poor’s and Fitch Inc.
By giving these securities their highest ratings, the agencies “made negligent
misrepresentations” to the pension fund, Calpers said. Such ratings, which typically
accompany investments with almost no risk of loss, “proved to be wildly inaccurate and
unreasonably high.
Calpers results for the fiscal year to date as of April 30, 2009 show a loss of 26% and assets
of $176 billion. Calpers assets have declined by a massive $77 billion from $253 billion at
12/31/07.
Calpers return for the 10 year period ended 4/30/2009 was 2.4%, actually a respectable
showing compared to the passively managed Vanguard S&P 500 index fund (VFINX) which
has declined 2.3% over the past 10 years.
Despite huge losses for the past several years, Calpers has paid out large bonuses.
Calpers, Calstrs award big bonuses despite losses: California’s two biggest public employee
pension funds handed out millions of dollars in bonuses last year to their top executives
and investment managers, despite losing billions of dollars.
Ailman’s counterpart at the California Public Employees’ Retirement System, Russell

Read, received a $208,677 bonus to his $555,360 base pay in August, more than a month
after he had resigned from the fund’s top investment job.
Despite continued losses in the market, both funds expect to cut more bonus checks,
which they call “incentive awards,” this summer.
Calper’s does not mention that their 10 year investment results could have been higher
had Calpers simply invested in bank CDs. Going forward, Joe Dear, head of Calpers, is
predicting robust future investment returns. In a recent interview with Barrons, Mr. Dear
stated that “So as a long-term investor, we think the markets are going to produce good
returns that will enable us to make our assumed rate of return of 7.75%”.
Apparently Mr. Dear is very confident that the highly paid investment managers at Calpers
can achieve investment returns going forward that will be over 3 times better than the
past decade. To achieve returns of almost 8% per year will be remarkable indeed for an
economy that many view as being on the verge of a depression.
Fooled by Rating Agencies?
For Calpers to blame the rating agencies for losses suffered on subprime loans seems
disingenuous. The Calpers lawsuit implies that Calpers management did not understand
what they were investing in or did not complete the due diligence required of them as
stewards of public pension funds.
Calpers money managers have been amply rewarded for outperforming investment
benchmarks. Considering the expertise and experience of Calpers investment managers,
none of them came to the conclusion that subprime mortgages were risky? No one thought
that mortgages made to subprime zombies with 550 credit scores and “stated” income
would default? Calpers really thought that subprime mortgages were safe triple A
investments just because the rating agencies said so?
Instead of pursuing dubious claims, Calpers management would be better off spending
their time figuring out how to increase investment returns from 2.4% to the lofty 7.75%
that is needed to meet future pension obligations.
Disclosures: Position in VFINX
http://www.altassets.com/private-equity-news/by-region/north-
america/unitedstates/article/nz16323.html
CalSTRS and CalPERS suffer big losses on private equity investments

22 Jul 2009. Source: AltAssets
Two of the largest public pension funds, the California State Teachers’ Retirement System
(CalSTRS) and the California Public Employees’ Retirement System (CalPERS), have announced
huge writedowns in their preliminary figures for 2008/2009.
With the global markets down a massive 30.8 per cent over the one-year period ending 30 June (according
to Standard & Poor’s Global Equity Indices), the two funds saw overall losses of 25 per cent and 23.4 per
cent, respectively.
The pension funds suffered with private equity losses, too. CalSTRS recorded a loss of 27.6 per cent on
such investments, whilst the market value of CalPERS’ investments in the asset class dropped by 31.4 per
cent.
Commenting on the results, CalSTRS CIO Christopher J Ailman acknowledged that, “These extreme
economic conditions challenge even the most sophisticated investor.”
The market value of CalSTRS’ total assets is estimated to be $118.8bn in the preliminary results. In
contrast, CalPERS calculates that its total assets are now worth $180.9bn.
Joe Dear, CIO at CalPERS, said of the writedowns, “This result is not a surprise; it is about what we
expected given the collapse of markets across the globe.”
http://www.housingchronicles.com/2008/11/calpers-realizes-huge-land-investment.html
WEDNESDAY, NOVEMBER 12, 2008

CalPers realizes huge land investment losses
The pension fund for California public employees, commonly known as CalPers, made some
huge bets on land investments in multiple states and was a primary source of funding for land
developers. But as values for residential land has cratered, it looks like the fund will lose more
than 100% of its investment as well as a steady exodus of top executives. From a Wall Street
Journal story:
The nation's largest public pension fund, known as Calpers, is paying dearly for its ill-fated
decision to become one of the most aggressive real-estate investors among public pensions.
Amid the rapid decline in the housing market, the value of Calpers's investments in land and
housing projects across the country had fallen 35%, to about $6 billion, as of June 30,
according to recent performance results released Wednesday by the California Public
Employees' Retirement System.
The losses are likely to be larger now because the values were based on appraisals completed
at the end of March. Since then, land values have cratered nationwide, as evidenced by the
bankruptcy-protection filing of one high-profile Calpers undertaking, the LandSource land
venture in California. An investment vehicle funded by Calpers sank $970 million in that
venture, which holds 15,000 acres outside Los Angeles.
For the quarter ended June 30, Calpers says it expects a loss even greater than 100% for its
once high-yielding land and housing investments, thanks to its use of borrowed money on
deals. The losses also dragged into negative territory the quarterly returns on its overall $22
billion real-estate portfolio, typically one of the pension fund's most profitable...
Calpers has been operating with interim officials in its two highest positions, as former Chief
Executive Fred Buenrostro and former Chief Investment Officer Russell Read left midyear.
Including them, seven of Calpers's 50 senior officials have left or intend to leave by year-end.
http://www.istockanalyst.com/article/viewiStockNews/articleid/3199413#
CalPERS, CalSTRS Award Big Bonuses Despite Losses

Sunday, April 19, 2009 6:52 AM
(Source: The Sacramento Bee)By Jon Ortiz, The Sacramento Bee, Calif.
Apr. 19--California's two biggest public employee pension funds handed out millions of
dollars in bonuses last year to their top executives and investment managers, despite
losing billions of dollars.
The biggest bonus check, $322,953, went to Christopher Ailman, chief investment
officer of the California State Teachers' Retirement System. It nearly doubled his base
pay of $330,000 for fiscal 2007-08.
Ailman's counterpart at the California Public Employees' Retirement System, Russell
Read, received a $208,677 bonus to his $555,360 base pay in August, more than a
month after he had resigned from the fund's top investment job.
Despite continued losses in the market , both funds expect to cut more bonus checks,
which they call "incentive awards," this summer.
Retirement fund officials say bonuses like those paid to Ailman and Read help attract and
retain top talent. It's also cheaper than hiring outside help to manage investments, they
say.
Still, the practice has its critics.
"Paying bonuses -- especially right now -- it just doesn't look good," said James
McRitchie, a retired state worker and publisher of the Elk Grove-based PERSwatch.net. "It
just doesn't go over well with the public."
Assemblyman Anthony Portantino, D-Pasadena, is pushing legislation to freeze pay for

state workers who make more than $150,000 annually until 2012.
The bill, AB 53, initially included a freeze on bonuses, but those provisions were removed
"over concerns of breaking existing contracts," said Portantino spokesman Michael
Tamariz.
CalPERS has opposed the bill, saying that the mere whiff of limiting state employee pay
has already hobbled its ability to compete for the best talent.
"(We've) lost two potential investment candidates in recruitments lately due to the
uncertainty of pending legislation that would affect incentives," said CalPERS
spokeswoman Pat Macht.
Nationwide, funds losing
The CalPERS and CalSTRS boards approve their respective funds' bonus plans, which
reward employees depending on how investments fare compared to other portfolios or
market benchmarks.
So when the losses pile up -- and both funds have lost billions of dollars since late 2007 -
- employees can still win bonuses if they lose less money than their benchmarks.
Over the past 18 months, public pension plans nationwide have lost a combined $1.3
trillion, according to the Center for Retirement Research. A recent study of state pension
funds found that obligations outpace assets by $237 billion.
CalPERS has estimated its assets as of June 2008 would cover 92 percent of its
obligations.
CalSTRS was 88 percent funded as of June 2007, the last date for which the figure
is available. Experts generally agree that healthy funds are at least 80 percent
funded.
Those figures don't take into account the beating both funds have taken in the last
year from bets that have gone sour.
CalPERS, the nation's biggest public pension fund, lost 2.4 percent on
its investment s for the fiscal year that ended June 30, ending a four-year run of
double-digit returns. CalPERS paid about $4 million in incentive bonuses to 58
employees involved with investments. The checks went out in August.
The biggest award, $224,171, went to Senior Investment Officer Leon Shahinian.
The second-biggest went to Read, who resigned as chief investment officer in June.
Anne Stausboll became the fund's chief executive after receiving a $106,633 bonus
for her interim work as Read's replacement.
Meanwhile, CalSTRS, the nation's second-largest public pension fund, lost 3.7
percent on its investments in 2007-08, then awarded $2.9 million in bonuses to 35
employees including Ailman, CEO Jack Ehnes ($205,000) and Real Estate Investment
Director Mike DiRe ($164,731).
Since closing their books last year, both funds have lost dramatically more money
with the stock markets' meltdown. CalPERS' holdings have fallen from $239 billion to
$175 billion, a loss of more than 25 percent. CalSTRS' assets have dropped nearly 30
percent, from $162 billion to about $114 billion.
Despite that, both will pay out bonuses again this year.
"Today's tough economic climate demands the best and brightest making investment
decisions to salvage the best returns in a bad environment," said CalSTRS
spokeswoman Sherry Reser. "Incentive pay is a valuable tool in attracting and
keeping the best and the brightest."
Cheaper than consultants
Both funds are run by boards comprising political appointees, elected state officials,
state department representatives and members elected to the panel by pension
stakeholders.
The boards set a broad agenda for where the funds' money goes. Within those
guidelines, investment officials have latitude to put the money where they see fit.
While some of that work goes to outside firms, both CalPERS and CalSTRS say it's
less expensive to keep the work in-house, even with the bonuses.
In 2007-08, CalPERS paid $8.5 million in costs to manage $152 billion in assets in-
house and $104 million to outside firms that managed $57 billion in assets.
Put another way, the fund spent $56,000 per billion of assets managed by its own
people and $1.8 million per billion in assets under outside management.
CalSTRS said managing investments in-house costs about one-tenth what it spends
on external management. Last year it spent $15 million for its people to shepherd
investments vs. $164 million paid to outside firms.
"Bottom line, CalSTRS investment staff are far more cost-effective than outside
managers," Reser said.
Both CalPERS and CalSTRS employ consultants to compare what they pay to industry
trends. Public pension funds historically have paid a fraction of the seven-figure
salaries that private investment firms paid.
Watson Wyatt, an employee-benefit-plan consulting firm, noted recently that

CalPERS' incentive plan now lags behind those offered by some other public pension
funds.
But Wall Street's historic collapse has put many investment highfliers on the street.
McLagan Partners Inc., a compensation consulting firm, this month reported to the
CalSTRS compensation committee that "the financial market meltdown will have a
significant impact on (investment industry) pay."
Many shell-shocked investment managers may now be willing to trade less money
for better quality of life, said Susan Mangerio, a pension fund consultant based in
Trumbull, Conn.
"If working for a public pension plan comes with greater benefits and a less stressful
work schedule, some people may be willing to take less money."
However, Mangerio said, many recruiters say that getting top-flight talent is
becoming more expensive.
"Good people with jobs don't want to leave the security of what they have unless
there are guaranteed payments," she said.
Lockyer: More transparency
Still, not all public pension systems pay bonuses. Missouri's Public School Retirement
System, with a relatively tiny $4 billion in assets last year, doesn't. Neither does the
$6.1 billion Wyoming Retirement System.
The $81 billion Teacher Retirement System of Texas recently decided to defer $2.5
million in staff bonuses. The fund lost 27 percent of its value last year.
California State Treasurer Bill Lockyer, who sits on both the CalPERS and CalSTRS
boards, said bonuses have benefited the funds' investments and their members and
are "a heck of a lot cheaper" than paying for outside investors.
He's not in favor of changing the award policy, but given the extraordinarily difficult
economic times, Lockyer wants "the top-paid executives at both PERS and STRS to
forgo increases in their base salaries."
The funds should also be more transparent and more clear about how they pay their
people, Lockyer said, and the pay should be enough to pull in and keep top-notch
staff, "keeping in mind this is a public-service job."
CalSTRS is in the midst of its biennial staff compensation review. CalPERS, which
reset its policy last year, will look at its pay and bonus policies in 2010.
Call The Bee's Jon Ortiz, (916) 321-1043.
-----
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Calpers Bought Shares in 112 REITs Prior to Market Collapse
By Miles Weiss
Nov. 13 (Bloomberg) -- The California Public Employees' Retirement System, already hit with
multibillion-dollar real estate losses, invested in more than 100 property companies before
their value collapsed in the weeks after Oct. 1.
The largest U.S. public pension fund bought shares of 112 real estate investment trusts in the
third quarter with a combined value of about $482 million as of Sept. 30, according to a
regulatory filing. The holdings are now valued at about $245 million.
Calpers also faces potential losses on its $970 million investment in LandSource Communities
Development LLC, a 15,000- acre housing project north of Los Angeles that filed for
bankruptcy protection in June. REITs, which had outperformed stocks for most of the year,
were at the vanguard of the market collapse that began last month.
``Volatility in REITs has been increasing over the years as they become more of a mainstay
food group for investing,'' said Mark Brugger, chief executive officer of DiamondRock
Hospitality Co., a Bethesda, Maryland, real estate trust that owns 20 hotels with almost
10,000 rooms. ``People are nervous about real estate in consumer segments that support the
income stream for the REITs.'' Calpers owns stock in DiamondRock.
The MSCI US REIT Index rose 1.9 percent including dividends during the first nine months
of this year, compared with a 19 percent decline by the Standard & Poor's 500 Index. The S&P
500 has fallen 22 percent since, while the REIT index has plunged 42 percent.
More Real Estate
Calpers raised its target allocation for real estate to 10 percent from 8 percent last December,
according to spokesman Clark McKinley, who declined to comment on the holdings reported
in today's filing. Calpers reported yesterday that the market value of its housing assets had
fallen 34 percent to $6.1 billion at June 30.
REITs comprised six of the 10 largest new investments that Calpers made during the third
quarter, according to a filing yesterday with the U.S. Securities and Exchange Commission.
These holdings included shares of Simon Property Group Inc., Public Storage, Vornado Realty
Trust, Equity Residential, ProLogis and Boston Properties Inc.
Calpers slashed its equity holdings during the third quarter, according to the filing. The report
shows that the number of stocks it sold off entirely rose more than ninefold to about 800 in
the third quarter, including Berkshire Hathaway Inc., Apple Inc. and Bank of America Corp.
The stock sales, along with market declines, left Calpers holding $39.9 billion of stocks traded
in the U.S. as of Sept. 30, down from $53.4 billion at June 30. The number of securities listed
in the pension fund's quarterly filing fell to 4,003 from 4,742.
Calpers purchased new stakes in 341 companies during the third quarter, including the 112
REITs. Many of these REITs own malls or hotels, and are subject to declining retail sales and
travel budgets, in addition to the fall-off in real estate prices.
``You worry about the consumer demand underpinning your cash flows,'' Brugger said. ``On
the flip side, you are a real estate company, so you are subject to liquidity concerns as well.''
To contact the reporters on this story: Miles Weiss in Washington

atmweiss@bloomberg.net;
Last Updated: November 13, 2008 16:50 EST
http://www.bloomberg.com/apps/news?pid=20601087&sid=acm0ciQMV.WY
California Credit Rating Cut Close to Junk After IOUs (Update2)

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By William Selway
July 6 (Bloomberg) -- California’s credit rating was cut for the second time in as many weeks
by Fitch Ratings after a stalemate over how to close a $26 billion budget deficit forced the
most-populous U.S. state to pay some bills with IOUs.
Fitch lowered its rating of California’s general obligation bonds by two steps to BBB from A-,
placing the debt two ranks above so-called high-yield, high-risk junk ratings, and said the
state may be cut further. The credit-rating company last lowered its assessment of California
on June 25.
California, the largest issuer of municipal bonds, last week began issuing IOUs for the second
time since the Great Depression as Governor Arnold Schwarzenegger and lawmakers
remained deadlocked over the budget cuts needed to make up for revenue lost because of the
recession. California Controller John Chiang said the step was needed to conserve cash.
“The downgrade to ‘BBB’ is based on the state’s continued inability to achieve timely
agreement on budgetary and cash flow solutions to its severe fiscal crisis,” Fitch said in a
statement.
California, with the world’s eighth-largest economy, was already the lowest-rated U.S. state.
Standard & Poor’s gives the state it’s A grade, the sixth-highest of 10 investment levels. The
firm reaffirmed that assessment on July 1. Moody’s Investors Service rates the debt A2 and
placed it on watch on June 19.
The Fitch action affects $79 billion of debt -- $69.3 billion of general obligation bonds, rated
BBB, and $9.7 billion of appropriations credits, rated BBB-.
Budget ‘Urgency’
“This underscores the urgency to solve our entire deficit with the necessary cuts instead of
kicking the can down the alley,” Schwarzenegger said of the Fitch decision. “This is not the
time for boycotting budget meetings -- all sides must come to the table and balance the
budget immediately.”
The latest impasse comes less than five months after California’s politicians enacted tax
increases and spending cuts, only to see deficits re-emerge as the economy shed more jobs
and voters in May rejected a package of measures that would have narrowed the gap.
Schwarzenegger, a Republican, and Democratic leaders of the Legislature remained divided
over how to fix the budget after a meeting in the governor’s office late yesterday. Assembly
Speaker Karen Bass, a Los Angeles Democrat, said she was “discouraged” and criticized
Schwarzenegger for seeking to link government reforms to a budget deal.
“I don’t think the governor wants to close,” Bass told reporters after leaving Schwarzenegger’s
office. “What we need to do now is deal with the deficit.”
Real Estate Bust
California, where the high cost of real estate fueled demand for adjustable-rate mortgages
that helped trigger the recession, has been especially affected by the slump. Six of the state’s
cities are among the 10 with the highest foreclosure rates in the U.S., according to RealtyTrac,
an Irvine, California, company that keeps data on repossessed homes. The
state’s unemployment rate of 11.5 percent in May was the fifth- highest in the U.S.
The disappearance of jobs and spending cutbacks by consumers has sapped the sales and
income taxes that fund state government. Revenue collections dropped by $13 billion to $73
billion in the 11 months through May from a year earlier, according to Democratic
Controller John Chiang’s office.
Fitch said its rating reflects that there is little risk of a default by California. Officials including
Treasurer Bill Lockyer have repeatedly said the state won’t default.
“The ‘BBB’ rating indicates that expectations of default risk remain low, although the rating is
well below that of most other tax supported issuers,” Fitch said.
To contact the reporters on this story: William Selway in Sacramento
atwselway@bloomberg.net;
Last Updated: July 6, 2009 17:25 EDT
•
FEBRUARY 4, 2009
California Credit Rating Lowest in U.S.

By STU W OO
Standard & Poor's Corp. cut California's credit rating Monday to the lowest level
among all 50 states because of a budget impasse between Gov. Arnold
Schwarzenegger and state lawmakers.
Mr. Schwarzenegger and state legislators have been deadlocked for three months
over ways to close a budget deficit expected to reach $42 billion by mid-2010.
ARNOLD SCHWARZENEGGER
The downgrade reflects the rating agency's view of "the lack of political progress
around the budget negotiations that we believe is serving to exacerbate the state's
current and projected cash position," said Gabriel Petek, an S&P analyst, adding that
"the state's cash position is rapidly eroding."
Because of the stalemate, California's controller on Monday began delaying more

than $3 billion in tax refunds, welfare checks and other payments to prevent a cash
shortfall. And starting Friday, most state offices will furlough tens of thousands of
employees for two days a month.
"The governor understands we need to solve this deficit as quickly as possible and is
meeting with legislative leaders to do so," said Aaron McLear, the governor's
spokesman.
Mr. Schwarzenegger continued to negotiate Tuesday with lawmakers behind closed

doors. People familiar with the budget talks said state leaders may have a budget deal
by the end of the week. The parties have already broken a self-imposed deadline of
Feb. 1.
S&P downgraded California's $46 billion of general obligation bonds to single-A from
single-A-plus, the rating agency's fifth-lowest of 10 investment grades.
A spokesman for state Treasurer Bill Lockyer blasted the rating cut, saying it was
unnecessary because California has never defaulted on its general-obligation bonds
payment "and never will," adding that "Standard and Poor's is punishing investors and
taxpayers of California."
Ratings company Moody's Corp. still has the Golden State tied with Louisiana, but it
threatened two weeks ago to cut California's rating if budget solutions aren't adopted
soon.
Write to Stu Woo at Stu.Woo@wsj.com
Printed in The Wall Street Journal, page A3
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PENSION FUND - CalPERS board rips delays in costly computer

project
Sacramento Bee, The (CA) - Thursday, December 17, 2009
Author: Dale Kasler ; dkasler@sacbee.com
A massive computer upgrade at CalPERS has run millions of dollars over its
original budget and missed its completion deadline -- and is in danger of falling
further behind schedule.
CalPERS officials' frustration over the delays exploded publicly Wednesday.
Furious board members scolded a representative from New York-based

consulting firm Accenture, the lead contractor on the project, after hearing
warnings of possible new setbacks to the project's timetable.
"You've put this board and this system's reputation at stake," CalPERS President
Rob Feckner told Accenture's Tom Hartman during the pension fund's regular
board meeting. "If our reputation is at risk, so is yours. ... What we have now is
totally unacceptable."
The computer overhaul, announced in late 2006, was supposed to cost the
California Public Employees' Retirement System about $278 million. The budget
has been increased to $361 million. Most of the cost increases are due to
additional features sought by CalPERS after the contract was signed, said
pension fund spokesman Brad Pacheco.
On Wednesday, fund officials were focused on project delays. Just last

month, CalPERS agreed to push the completion date to next September, a five-
month delay. Now that could be in peril.
Hartman, an Accenture managing director, told the board that Accenture has
"experienced serious problems with system tests" in the past few weeks.
He said Accenture won't know until April, after some additional testing, if the
September deadline is realistic. "It's very embarrassing," he said.
Pension fund officials seized on his statement. Priya Mathur, a CalPERS board
member, told him, "I have no faith that you'll be able to deliver this in
September."
Hartman told the board that 25 additional Accenture staffers have been put on
the job in order to catch up. And, in an interview, he said Accenture's chief
executive, William Green, has been alerted to the problems with
the CalPERS job. "We are putting every effort in," he said.
Hartman referred additional questions to a corporate spokesman, Peter Soh. Soh

issued a statement pledging Accenture's commitment to the project.
"This is a large, complex consolidation project and it is critical to complete

extensive system testing before rolling it out to California public employees," Soh
said. " CalPERS and Accenture are working together to make that happen."
The computer issue is the latest problem to hit CalPERS , which is wrestling with
huge investment losses from last year and a possible influence-peddling scandal
involving placement agents -- middlemen hired by private-equity firms to secure
investment dollars from public pension funds. One such agent,
former CalPERS board member Alfred Villalobos, has earned more than $60
million from CalPERS deals in the past decade.
Other computer snafus have popped up elsewhere in state government recently.
The Bee has reported that spending on an overhaul of the state's court system
has grown from $260 million to $394 million -- and could go much higher.
The tardiness of the CalPERS computer project has already created

organizational problems for the fund, and a further delay would be even more
harmful, said Teri Bennett, CalPERS ' chief information officer. For instance, the
project is causing some delays in open enrollment for health insurance, she
said.
Bennett said she's "shocked" at the prospect of further delays in finishing the
computer overhaul.
"We negotiated in good faith ... to come to a new schedule, a new plan," she
said.
She said CalPERS is insisting that Accenture get the job done by September.
"I think they have the wherewithal to fix it," she said.
The project is designed to enhance the pension fund's "My CalPERS " system,
which lets members access their accounts via the Internet. It would consolidate
dozens of outdated computer systems into one.
Accenture, as lead contractor, was originally to be paid $199 million. Its fee has
now grown to $250.9 million, mainly to cover enhancements that weren't in the
original contract but were subsequently requested by CalPERS , said pension
fund spokesman Pacheco.
He said "they're not getting any more money" because of the delays.
Call The Bee's Dale Kasler, (916) 321-1066. Read his blog on the economy,
Home Front, at sacbee.com/blogs.
Section: MAIN NEWS
Page: A1
PENSION FUND - CalPERS board rips delays in costly computer project
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num=53&p_queryname=2
At CalPERS , inside deals raise a stench

Sacramento Bee, The (CA) - Monday, October 26, 2009
Author: Dan Walters ; dwalters@sacbee.com
Remember the old saying, "Once burned, twice shy"?
It's supposed to mean that when one has a bad experience, one should be more
cautious in similarly dangerous circumstances.
California got burned in the early 1990s when Leon Black, fresh off a career with
the scandal-tainted Drexel Burnham Lambert junk bond shop, set up his own
investment firm and persuaded the state's new insurance commissioner, John
Garamendi, to seize a supposedly insolvent Executive Life.
Executive Life had a fat portfolio of junk bonds that Black had helped assemble,
and Garamendi allowed him to broker a deal with some French buyers who, it
turned out, had illegal backing from a French government bank.
Many of the company's annuitants got burned and many years of litigation and
investigations followed, but Black walked away with a reported billion-dollar profit
for moving some paper.
It was a nice grubstake as Black built his firm, Apollo Management, into a
financial powerhouse whose holdings, valued at around $40 billion, include AMC
Entertainment, Harrah's Entertainment, Norwegian Cruise Line, Coldwell Banker
and Century 21 Real Estate.
Black, it would seem, concluded that California's clueless officials were sources
of easy money and by and by, set his sights on the California Public Employees
Retirement System ( CalPERS ), the nation's largest pension trust fund.
CalPERS is run by a claque of politicians and directors who mostly come from
public employee unions. And it hasn't exactly posted a sterling investment record
lately, having lost about $100 billion in often speculative investments, such as a
$1 billion haircut on Southern California land.
It appears that many of CalPERS ' investments were arranged by middlemen,

including ex-politicians and ex-members of the CalPERS board, who had
developed relationships with those who made investment decisions.
Apollo had an especially well-connected middleman, Alfred Villalobos, a

former CalPERS board member who set up his shop, called Arvco, after leaving
the board. Apollo hired him, as did others seeking pieces of the huge trust
fund. CalPERS invested hundreds of millions dollars with Apollo -- and so far has
lost money on those investments. It even bought a significant share in the firm.
Several newspapers, including The Bee, reported recently that Villalobos was
paid a whopping $50 million by Apollo to pitch deals to the pension fund and later
hired Fred Buenrostro, CalPERS ' top executive.
It stinks like Fort Bragg's dead whale. And who will pick up the tab for CalPERS '
bad investments? Taxpayers, of course.
The pension fund, whose chief actuary has described its long-term income-outgo
situation as "unsustainable," will hit deficit-ridden state and local budgets for
billions of dollars next year to offset its losses.
Call The Bee's Dan Walters, (916) 321-1195. Back columns,

www.sacbee.com/walters.
Memo: OPINION
Section: MAIN NEWS
Page: A3
At CalPERS , inside deals raise a stench
taction=doc&p_docid=12B89FF35262B210&p_docnum=56&p_queryname=2
CalPERS dealt setback on N.Y. project

Sacramento Bee, The (CA) - Friday, October 23, 2009
Author: Dale Kasler ; dkasler@sacbee.com
CalPERS ' already shaky $500 million investment in a New York housing
complex suffered a setback Thursday when a court ruled the complex illegally
raised rents.
The New York Court of Appeals, the state's highest court, ruled that the
increases violated the city's strict rent-control laws.
A group of tenants had sued the landlords for $215 million.
The California Public Employees' Retirement System is among the major

investors in Manhattan's sprawling Stuyvesant Town and Peter Cooper Village
apartment complex, pouring $500 million into a deal to buy the project in 2006 for
$5.4 billion.
The partnership is dangerously low on cash and might soon go into default, the
Wall Street Journal reported last week.
That would likely wipe out the investments of CalPERS and others. The state's
other big public pension fund, the California State Teachers' Retirement System,
already wrote off its $100 million investment.
CalPERS won't say whether it's written off any of its investment.
The idea was to convert many of the rent-controlled units into market-rate
apartments. But the plan ran into a weakening real estate market and legal
opposition from tenants' groups. Stuyvesant Town and Peter Cooper Village, built
in the 1940s, have served as a middle class haven in pricey Manhattan.
The court ruled that the complex's original owner, MetLife, and the current
ownership group overcharged nearly 3,000 tenants by raising their rents illegally.
The owners had argued that the units were no longer subject to rent-control
laws.
The CalPERS and CalSTRS real estate portfolios have absorbed substantial
losses lately. In the most recent fiscal year, CalPERS ' holdings lost 35 percent
of their value. CalSTRS' holdings fell 43 percent.
Call The Bee's Dale Kasler, (916) 321-1066. Read his blog on the economy,
Home Front, at www.sacbee.com/blogs.
Section: BUSINESS
Page: B6
CalPERS dealt setback on N.Y. project
taction=doc&p_docid=12B84C0CD29581E0&p_docnum=61&p_queryname=2
CalPERS agents deserve scrutiny - MIDDLEMEN USED INFLUENCE
TO HELP STEER FUNDS TO THEIR CLIENTS
Sacramento Bee, The (CA) - Saturday, October 17, 2009
The California Public Employees' Retirement System's Board of Administration
approved a $100 million investment in 1997 over the objections of the pension
fund's professional investment staff. That investment in a Texas-based private
equity firm was pushed by Al Villalobos, a former member of the CalPERS board.
After leaving CalPERS in 1995, Villalobos set himself up as a placement agent, a
middleman who helps companies seeking opportunities to invest slices of the
public pension fund's vast assets.
Ten years later, when CalPERS finally bailed out of the Texas deal Villalobos
helped arrange, it had lost $30 million on its original investment, more if inflation
and lost opportunity is factored in. It is impossible to calculate the potential gains
the fund might have earned had it invested its $100 million in some other more
prudent investment opportunities.
This week CalPERS announced it was conducting a "special review" of the "fees
paid by its external managers to placement agents." Pension fund officials
launched the review after discovering Villalobos had collected $50 million in fees
from companies seeking opportunities to manage portions of CalPERS ' billions
of dollars in assets. Like the Texas equity deal, most of the 11 pension fund
investments involving Villalobos that CalPERS disclosed lost money.
Beyond the exorbitant fees Villalobos was paid, his firm hired
former CalPERS Chief Executive Officer Fred Buentrostro last year, just as the
giant pension fund's value plummeted. The hire raises important questions about
improper influence Villalobos may have had with top officials at CalPERS .
The review of CalPERS is the latest move in a widening national probe of

politically well-connected middlemen who help steer billions of public pension
fund dollars to their clients for a fee. New York Attorney General Andrew Cuomo,
who started the investigations in New York, already has obtained guilty pleas in
several cases involving placement agents and alleged bribes to New York public
pension fund officials. California Attorney General Jerry Brown is part of a task
force Cuomo has established to fight pension fund abuse nationwide.
Villalobos is not the only former CalPERS board member under scrutiny. Richard
Harrigan, who served on the board in 2003 and 2004, later joined the Los
Angeles Police and Fire Pension fund. He resigned last May, citing a Securities
and Exchange Commission probe into his ties with a firm that has become
embroiled in the New York state pension fund investigation.
All the investigations targeting pension fund abuse should raise alarms in
government circles throughout California. CalPERS , with current assets totaling
some $200 billion, manages retirement funds for 1.6 million government workers.
The fund lost 23 percent of its value last year. State and local governments that
rely on CalPERS to invest their pension funds are bracing for huge contribution
increases to backfill for those losses. As their costs have mounted, the state,
cities, counties and special districts have been forced to slash services, lay off
workers and impose furloughs.
If its review finds that any pension fund losses can be traced to improper
activities by influential former board members, CalPERS will owe the public an
explanation -- and an apology.
Memo: EDITORIALS / Views of the editorial board
Section: EDITORIALS
Page: A16
Correction: CORRECTION (10/20/09): An editorial Saturday, " CalPERS agents
deserve scrutiny," included an incorrect first name for Sean Harrigan, a former
member of the CalPERS board.
CalPERS agents deserve scrutiny - MIDDLEMEN USED INFLUENCE TO HELP
STEER FUNDS TO THEIR CLIENTS

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DEFICIENT ROADWAYS COST LOS ANGELES DRIVERS NEARLY $2,500

December 15, 2009Contact: Ioannis Kazanis

Jack O'Connell — State Superintendent of Public Instruction

U.S. local government pension costs exceeds

Wed Dec 23, 5:43 pm ET

California's Proposition 71 Failure

THURSDAY, DECEMBER 10, 2009

Torres Receives $225,000 Salary as CIRM Vice Chair

Directors of the California stem cell agency this afternoon unanimously

Responding to a query, he said,

Politics enters state's stem cell research program

SOURCE: Institutional Investor

Oct 15, 2009 11:10 ET

The public is getting a disheartening look at a once-mighty Sacramento

As if that weren’t bad enough, CalPERS has another humbling mistake to

To its minor credit, CalPERS has tried an after-the-fact housecleaning. It

This article appeared on page A - 11 of the San Francisco Chronicle

Read more: http://www.sfgate.com/cgi-

Middlemen got $125 million-plus from investors for

By Marc Lifsher, David Zahniser and Stuart Pfeifer

1:09 PM PST, January 14, 2010

FOR THE RECORD:

The California Public Employees' Retirement System has invested in private

London-based investment firm Governance for Owners paid former board

CalPERS declined to comment on Crist's relationship with the London firm,

CalPERS, the nation's largest public pension system, manages retirement

In response, CalPERS asked the funds in which it invests to disclose their

"Gathering information is not enough. We remain firmly committed to pursuing

Lobbying by former board members could put undue pressure on investment

Wetherly represented several investment funds, including Ares, CityView,

Copyright © 2010, The Los Angeles Times

State Government ($456 million)

The report is critical of the departments of General Services (which used an

According to newspaper reports, the state agencies involved declined comment

Meanwhile, at a Joint Legislative Audit Committee hearing on April 18, leaders

DOIT ISN’T DOING IT. The California Department of Information

"This is unprecedented, definitely," said Assemblyman Dean Florez, D-Shafter,

As a result of the closure, at least 66 employees were forced into a last-minute

The committee hearings that chronicled DOIT's missteps were prompted by a

Instead of letting DOIT, as it came to be known, hold its place in state

Its creation was in response to a string of state government technology disasters

Perhaps the best-known computer debacle involved the Department of Motor

A committee investigating the DMV contract "found problems with procurement,

Those elements resurfaced as ingredients of the Oracle scandal.

The Bee's Emily Bazar can be reached at (916) 326-5540 or

That system is coming under unprecedented scrutiny as the Legislature and

In another no-bid contract in 2000, the brother of Sen. Polanco's information

It had just been through several painful computer debacles, including

It was also a time of increased privatization of government services. One of the

Oracle was a variation on the strategy, a sole-source licensing agreement

Contracting traditionally had been handled by centralized departments such as

"Salespeople will tell you it's good old-fashioned salesmanship," said an

"There's potential for abuse in any procurement," Guarna said.

"Consultants inherently have different interests," Peace said. "They end up

"The truth is that we don't know what's happening in these environments," he

The Bee's John Hill can be reached at (916) 326-5543 or hill@sacbee.com.

After spending billions, state remains

November 22, 2009

FOR THE RECORD:

State courts can't hide behind robes - COMPUTER SNAFU REVEALS

In 1987, the California Department of Motor Vehicles (DMV) launched a major

Delayed system updates a drag on state