Fiscal Analysis - LSG2
Fiscal projections for technology-related costs are very difficult in the current rapidly changing technological environment. This problem is exacerbated by the fact that manufacturers and vendors are reluctant, at best, to provide cost information to the state on these items unless they have a formal purchase request, such as an RFP.
The next generation of electronic service delivery recommended is the LSG2 stage. In LSG2, all services resident on the Lone Star Card in LSG1 would be migrated to a multiple technology card. This card would be imbedded with a fully functional microprocessor chip. This added functionality would allow enhancements to the existing services, as well as new applications. One major enhancement could be the inclusion of biometric functionality. The card owner's fingerprint image would be electronically recorded on the card. This added functionality would come with added cost. Currently, the cost of a multiple technology card like the one recommended for LSG2 is about $5.00 each. 78
The LSG2 card would still include a magnetic stripe, as that technology may still be the best (simplest and cheapest) platform for certain services. Magnetic stripe usage is widespread and highly accepted by the public, with swipe card readers present almost everywhere. Microprocessor card readers are growing in usage, but are much less common, and it may be several years before their presence is as widespread as swipe card readers. By then, however, the total cost of the migration to the LSG2 technical infrastructure is projected to decline in costs and will be more economical.
A cost benefit analysis of most of the applications included in LSG2 is beyond the scope of this research, both because that level of analysis would be at a considerably greater detail, and, perhaps more importantly, because the technology is changing so rapidly. A cost analysis done today would have little relevance even four years from now. The technology for equipment and software is being upgraded almost daily, and the costs of existing technological options are decreasing almost as rapidly. As an example, industry experts speculate that the multiple technology card that currently sells for about $5.00 apiece will be no more than about $2.00 each (perhaps considerably less) by the date for LSG2 implementation in fiscal 2006. 79
The administrative tasks described in the recommendations would increase the workload at DIR. These tasks could be accomplished by assigning one or two additional persons whose primary function would be to research issues, coordinate activities across effected agencies, and manage the decision-making process within the agency. Significant research and design could be done with existing staff across agencies, working in ad hoc task groups, or could be contracted out. In their advisory role, the ESD Task Force members and resources from their respective agencies would also lend support to DIR. While the function would shift across agencies, the operational tasks should not change significantly from the current situation, and therefore, the cost for this function should not increase. Staff currently involved in the related applications should follow the movement of responsibilities.
There are approximately 155,011 active state employees in Texas. 80 If all employees were issued a State Employee Card, at an anticipated $2.00 per card, the cost of initial issuance would be $310,022. Given the current 17.58 percent turnover rate in state employment, the annual new and replacement cost would be $54,502. 81
The exhibit below shows the major cost categories for implementation of the State Employees Card. The exact budget location for these infrastructure costs would need to be determined by agreement of state agencies or by legislative decision. The allocation of costs could consider the application and volume of transactions by the different state agencies, as well as the number of employees in those agencies.
COSTS OF ISSUING THE STATE EMPLOYEES CARD
Cost Item Cost One Time Transition Cost Initial Card Issuance $ 310,022 Annual Recurring Cost Recurring Card Issuance $ 54,502
The card would have three broad statewide employee purposes. First, it would be used as statewide employee identification for a wide variety of functions such as building access, maintaining rosters, training/certification records, electronic forms submission, and purchasing. A higher level of security for computers and agency systems could be maintained with a photo and fingerprint embedded in the card. In addition, the card would be a vehicle to hold and verify selected personal health-related information. There would be a menu of health information options that employees could choose to have programmed to the card. A primary benefit of this portable health information would be convenience to the employee and efficiency for the health provider. Some benefit should also accrue to the state and its employees, in the form of decreased usage of health insurance benefits for duplicate medical tests and treatments since providers would have access to all available past health information at the time of treatment. That decreased usage should have a positive impact on health insurance premiums. The cost of programming the State Employees Card to accommodate these functions is impossible to calculate accurately at this time.
Other State Employee Card Functions
Several other functions were recommended to be added to the State Employee Card, for certain segments of the state employee population, or for certain applications selected by the employee's agency. The cost of implementing these additional functions would vary, depending on the application; and most, like the transition of the FLEXcard function to the State Employees Card, would incur one-time conversion costs that cannot be estimated at this time.
At today's equipment and technology rates, the buildings access and systems security applications could be costly. A number of difficult factors are involved in attempting to estimate those costs. Several state agency buildings already have security systems, usually using a magnetic card system - either a proximity card or one that must be in contact with a scanner. Some of these systems might be able to convert to use the State Employee Card as the access tool, but some probably cannot make such a conversion. These systems are not likely to need replacing for a number of years.
Other agencies could choose to implement secure access systems for entire buildings, or only for areas in a building that require additional precautions. These systems could be designed to use the State Employees Card. Costs will vary depending on the size of the building area that would be secured. Currently, hardware for new systems would cost approximately $1,200 for each door where electronic access is used, which includes the software costs.
Similarly, the costs for computer and other systems security would vary widely, depending on the number and type of systems secured. The current cost of a device that could read the biometric as well as the magnetic stripe feature of the State Employee Card is about $120 per computer. Costs for installation and linkages to networks and databases cannot be estimated at this time.
The credit card function for state employees' travel expenses would function similarly to the commercial cards issued to employees now. The existing contracts for such services would be modified to continue the current processes, simply substituting the State Employee Card for the card issued by the current banking service. The state could also choose to convert the system so that charges would go directly to the employee's agency (or CPA) for payment. In either case, there would be a one-time conversion cost and no additional card issuance cost. The amount of the conversion expense cannot be estimated at this time.
State Employee Payroll
One of the other uses of the State Employee Card outlined in the recommendation is for payment of state employee payroll for those employees not choosing direct deposit. The electronic system and the conversion to it are almost identical to that described in LSG1 for child support payments. In lieu of those paper warrants, the State Employee Card would provide access to payroll funds via ATMs. The conversion would occur at the point the file is currently sent to the printer to produce paper warrants, and the system would use the existing EBT processor to establish the appropriate accounts to be accessed via ATMs. The process flow for both the current and the proposed systems can be found in Exhibit 17.
CURRENT AND PROPOSED PROCESSES FOR STATE PAYROLL WARRANTS
In addition to the conversion cost of $13,800 (an estimated 138 hours @ $100 per hour), there would be a software licensure cost to add this non-TDHS program to the EBT2 system, if the $2.5 million ceiling for that cost has not already been met by implementation of prior recommendations. It may be possible that the $1.0 million fee could be negotiated lower.
As with the child support payments, the estimated nine-cent processing fee that the EBT2 host vendor would charge for each transaction would apply to the state payroll payments. 82 Based on the information that about 930,000 state payroll warrants are produced each year, the transaction cost is estimated to be about $84,000 per year. There is also a per transaction fee of 2.7 cents charged to the state by retail grocers each time a Lone Star Card is used in the store. 83 Assuming that each state employee used the card once a month, those fees would reach about $25,000 a year.
Currently, payroll warrants are produced at an estimated cost of about 2 cents each. 84 This is the cost of the electronic processing only, as distribution is accomplished by interagency mail and hand delivery. There would also be the EBT licensure fee of up to $1.0 million. The following exhibit summarizes the costs and savings for this recommendation.
TRANSITIONAL COSTS AND RECURRING SAVINGS FOR THE
STATE EMPLOYEE PAYROLL RECOMMENDATION
Transitional Cost Item One Time Cost Software Conversion $13,800 EBT Licensure Fee $1,000,000 Total Transitional Costs $1,013,800 Recurring Costs Annual Cost Transaction Fees to Host $84,188 Transaction Fees to Retailers $25,256 Total Recurring Costs $ 109,444
Savings Item Annual Savings Warrant Production Costs $18,708
This application would produce a small cost reduction through elimination of the current paper warrant production costs. However, the transaction fees payable to the EBT2 host vendor are greater than the savings. The net recurring cost to general revenue would be less than $100,000 per year, and other factors, such as convenience and lowered risk of theft may justify that expenditure. It is also felt that with this change, more state employees would choose the direct deposit option, which is a more economical process for the state.
The recommendation is that the state employee pay the ATM transaction fee of $1.25 (or less, if the state negotiates a lower rate) to withdraw the payroll. Only one transaction would be necessary to match the circumstance of cashing a paper warrant, and the $1.25 is less than the check cashing fee charged by most businesses. It is considerably less than the monthly service charge that is often paid by direct deposit employees for their checking accounts.
FISCAL IMPACT SUMMARY
FOR THE STATE EMPLOYEE PAYROLL RECOMMENDATION
Fiscal Year Savings to General Revenue Fund Savings to Federal Funds Cost to the General Revenue Fund Cost to
Net Savings to
the General Revenue Fund
to Federal Funds
2002 0 0 0 0 0 0 2003 0 0 0 0 0 0 2004 0 0 0 0 0 0 2005 $( 13,800) 0 $(1,000,000) 0 $(1,013,800) 0 2006 $ 18,708 0 $( 109,444) 0 $( 90,736) 0
Employee ID and Facilities Access Pilot
It is recommended that the Comptroller of Public Accounts pilot the use of the State Employees Card as a security tool. CPA staff proposes a pilot with 50 participants. The pilot would require the LSG2 multiple function card, card reader devices, a programming device and a software system. These costs are estimated to total $32,250 and are detailed in the following exhibit. 85 Should DIR choose to pilot in other agencies, a similar analysis should be done.
COST OF CPA EMPLOYEE ID AND FACILITIES ACCESS PILOT
Cost Item Pilot Cost Cards (50 @ $5) $250 Readers (50 @$500) 25,000 Programming Device (1 @$2000) 2,000 Software (1 @$5000) 5,000 Total Pilot Cost $ 32,250
A major addition to the LSG2 Benefits Transfer card would be the WIC program after a successful pilot. When this occurs, the technological design for WIC and the other Benefits Transfer applications should have been developed in tandem, thereby minimizing the development costs. The actual costs cannot be determined until design decisions are made for all the related applications.
Another significant enhancement at the LSG2 level is the incorporation of health information on the Benefit Transfer Card. This application would mirror that described for the State Employee Card and would be available to the entire population using the Benefit Transfer Card. That would include TANF and Food Stamp recipients, Medicaid eligible clients, CHIP insured clients, and recipients of child support payments. There would be a menu of health information options that employees could choose to have programmed to the card. One benefit of this portable health information would be convenience to the client and increased administrativeefficiency for the health provider. However, the major benefit should be to the state because by knowing the patient's diagnosis and other medical information, expensive duplicate medical tests and treatments would be eliminated. The savings from this initiative cannot be quantified at this time. The cost of programming the Benefits Transfer Card to accommodate these functions is impossible to calculate accurately at this time. Development for this application would be done simultaneously with the State Employees Card so costs would be shared.
When the LSG1 applications transition to LSG2, the magnetic stripe card would be replaced with the multiple function LSG2 card. It is anticipated that the cost per card will have decreased to about $2.00 by 2005, so that figure has been used in calculating estimated card replacement costs. The Exhibit below estimates that cost, using current client populations for each program. The actual cost for card re-issuance would be lower than that however, because some clients are recipients of more than one of these programs. An estimate has been made of the number of Medicaid eligibles that do not receive either TANF or food stamps, however, there is no information available regarding the degree of duplication among all four programs. The overlap could be significant. Another factor to consider would be the cost of LSG1 cards that would have had to be issued anyway-for new recipients, loss, or damage. The cost of issuing the new LSG2 cards would be reduced accordingly. WIC is not included in this cost table, as a contracting process is currently underway for that program which would include the card costs. This information is summarized in Exhibit 20.
It is recommended that the LSG2 Benefits Transfer card replacement process be phased in across two years. Roughly half the recipients would receive the new card in fiscal 2006 and the other half in fiscal 2007.
Exhibit 21* Figure may be high, due to duplication of clients among programs.
COST OF LSG2 CARD REPLACEMENT
Program Current Population
(duplicated across programs)
Medicaid Eligible (excluding TANF/food stamps clients) 1,270,000 $2,540,000 TANF/Food Stamps 630,000 1,260,000 CHIP 400,000 800,000 Child Support Payments 381,000 762,000 TOTAL $5,362,000 *