Chancellor Vows Business Reforms for Cal State

California State University Chancellor Charles B. Reed promised the Legislature on Thursday that he will carry out reforms aimed at preventing a recurrence of the kind of cost overruns found in a $662-million computer modernization project.

But Reed defended the controversial computer enterprise at a Capitol hearing where he was verbally pummeled for almost four hours by legislators angry at what some called a drastic squandering of scarce public dollars during the worsening state budget shortage.

At one point, Sen. Tom McClintock (R-Thousand Oaks) deplored what he called a “culture of corruption” at Cal State. “I’m absolutely astonished by the mismanagement we are seeing at this university,” he said.

The state auditor has said that the project was $222 million over budget. In understated testimony to the Joint Legislative Audit Committee, Reed said he and the state auditor disagreed on the amount of the overrun and how it was calculated. He said the partly completed project is “within its originally planned budget, we are on schedule, and we will meet our delivery [commitments].”

Reed told the committee that he soon will submit documents that he said would reconcile the conflicts.

In a report on a yearlong investigation of the software modernization program for the 23 Cal State campuses, state Auditor Elaine Howle said last month that the enterprise had far overrun its original cost estimate of $440 million in 1999. She said it would hit the $662-million mark, a sum that stunned lawmakers who have become almost accustomed to past fiascos in state computer projects.

In some of her sharpest criticism, Howle testified Thursday that the project was undertaken in 1997 without a critically important business plan that documented the need for the modernization, a feasibility study or a cost-benefit analysis. The project was awarded without competitive bidding to the PeopleSoft software company.

Howle suggested that David J. Ernst, a Cal State vice president and chief information officer, may have had a conflict of interest because he was a paid consultant to PeopleSoft at the time that bidding procedures were being developed for the computer project. Cal State officials said that he did not participate in decision-making and that his consulting work was on behalf of other universities, not the Cal State system.

But Sen. Richard Alarcon (D-Sylmar) said he was unconvinced that Ernst did not participate in making decisions on the bidding process. He charged that Ernst “was inside the Trojan horse.”

Howle issued more than two dozen recommended reforms, ranging from preparation of a business plan and securing the safety of students’ confidential information to the tightening of bidding policies and requiring ethics training for Cal State employees.

Although Cal State may not agree with all the auditor’s findings, Reed testified, “We are going to implement all the audit recommendations.”

“It is a lesson well-learned,” he said.

Reed said that when he moved from Florida to accept the post as chancellor of Cal State in 1998, he was dumbfounded to learn that Cal State’s electronic information systems were crumbling and inadequate to process the millions of documents dealing with student records, employee payrolls, applications for financial aid, enrollment and other purposes.

He said that much of the project was underway when he accepted the post. Although key planning and development documents were never adopted, Reed said Cal State is scrambling to draft a business plan.

At the hearing, the committee’s second in a series, some lawmakers, echoing the sentiments of a faculty labor union, suggested that the project be halted and that its money be diverted to classroom instruction.

Alarcon voiced exasperation that Cal State invested so much money in a project for which it had never demonstrated a justification. “You went out and bought a Mercedes, but you still haven’t justified why you need a Mercedes,” he told Reed and other Cal State managers and campus presidents.