Analysis Item 65: Department of Revenue Property Valuation System

Transcription

1 Analysis Item 65: Department of Revenue Property Valuation System Analysts: John Borden and Sean McSpaden Request: Allocate $1.5 million from the Emergency Fund for an increase to the Property Valuation System information technology project. Recommendation: Defer the request, with instructions. Analysis: The Legislature in 2015 conditionally approved a Department of Revenue (DOR) project for the acquisition and deployment of a commercial-off-the-shelf (COTS) property valuation or integrated appraisal system (PVS) with some configuration and customization. The business rationale for the PVS project is strong. DOR has the statutory responsibility for developing real market values for approximately 4,450 industrial and 500 central assessment companies across the state, whose value is in excess of $1 million. The state undertakes this work on behalf of counties, which are the taxing authority and through DOR s appraisal efforts collect $600 million in property tax revenue on over $50 billion in taxable value, according to the agency. DOR s current property tax administration relies on a roughly 15 year old legacy system comprised of non integrated applications, and internally developed databases, spreadsheets, and paper files to manage property valuations. The Legislature in 2015 provided $1.9 million Other Funds expenditure limitation to be financed with Article XI-Q bond proceeds, $71,843 in General Fund debt service, and one permanent full-time Project Manager 3 position. This was to cover the entire estimated cost of the project, including $330,000 for project management and a quality assurance contract and $1.6 million for a vendor solution contract. Ongoing operation and maintenance costs for PVS need to be re-estimated upon the completion of the project s planning phase. The PVS project was conditionally approved based upon an initial business case, a request for proposals (RFI), and an initial risk assessment completed by the agency. The agency recommended COTS solution was for a computer assisted mass appraisal system (CAMA). Commercially available CAMA systems have been used for over 15 years in all Oregon counties. PVS was initially proposed, and approved, as a separate application from the agency s Core Systems Replacement project ( GenTax ); however, the revised PVS business case now shows that the scope of PVS is linked to the fall 2017 rollout of GenTax. The GenTax application will provide PVS with features such as correspondence, taxpayer accounts, and interfaces with other governments. The original project schedule was to hire an internal project manager position and develop a request for proposals by the summer of 2015; select a vendor and purchase software by the spring of 2016; implement the software and convert data in the fall of 2016; and complete implementation by the spring of Legislative Fiscal Office Emergency Board May 2016

2 Early in the biennium, the project began to fall behind schedule with the departure from the agency of the Property Tax Division program director, Property Valuation Section manager, and other key management staff, which had prepared the original business case and RFI solicitation. Additionally, the agency was unable to hire the budgeted Project Manager 3 position because of an overclassification issue. The project was not initiated until late in The PVS budget, and Emergency Board request, are outlined in the below table: Property Valuation System Legislatively Adopted Budget Emergency Board Request Revised Budget % Chg. % Total Costs Software (COTS CAMA $1,500,000 $600,000 $2,100, % 62% solution) Project Manager Position/ Project Management Firm $175,260 $225, , % 12% Quality Assurance $150,000 $250,000 $400, % 12% Hardware $50,000 $50, % Services and Supplies $4,740 $4, % Contingency Reserve -- $425,000 $425, % 13% $1,880,000 $1,500,000 $3,380, % 100% Positions FTE *DOR assumes that an unfilled project manager position s funding will be available to fund a project management firm contract. The agency s Emergency Board request reflects tentative figures. There has been no update to the five year old RFI solicitation. Instead, after consultation with several Oregon counties that have implemented CAMA solutions, the agency used the most costly vendor RFI response adjusted by an inflation factor. The project manager vendor costs are based upon a signed contract and the quality assurance vendor figure is an estimate as is the contingency reserve amount. The revised schedule for the project is to hire a project management firm in May of 2016; release a request for proposals in June; hire an independent quality assurance vendor; award a contract in September; and implement the project between October 2016 and September Actual implementation efforts must be between September and January or outside the property tax processing season. DOR is pre-funding PVS project expenses using General Fund appropriated for other purposes. Prefunded expenses of up to $1.9 million will be repaid through the issuance of previously authorized Article XI-Q bonds, whose proceeds will become available in the spring of A decision was made by the Department of Administrative Services (DAS) and the agency to not participate in a spring 2016 bond sale that would have provided the project with $330,000 of project planning dollars. The General Fund debt service appropriated to support this sale is no longer needed and can be disappropriated by the Legislature in In June of 2015, the Joint Committee on Ways and Means, Subcommittee on Information Technology provided the following direction to DOR on the PVS project, among other instructions. Since the Legislative Fiscal Office Emergency Board May 2016

3 project has not yet produced any written status reports, the following serves as a proxy for the project s status: Status In Process In Process Completed May 2016 In Process In Process In Process Completed February 2016 Legislative Direction June 2015 Provide regular status reports Follow the Joint State CIO (OSCIO)/Legislative Fiscal Office (LFO) Stage Gate Review Process Hire/retain or contract for qualified project management services [Note: the Legislature in 2015 only authorized a position and not a project management contract] Update the business case and foundational project management documents Acquire independent quality management services Submit an updated business case, project management documents, and initial risk assessment, and quality control reviews to the OSCIO and LFO Report back to the Legislature in the 2016 session Status May 2016 Verbal status reporting during regularly scheduled project meetings; no written status reporting on scope, schedule, budget, or actual expenditures. Written status reports are expected only after the project management firm contract is executed. The agency has received OSCIO stage gate #1 conditional approval and submitted documentation for stage gate #2, which has yet to be approved. Project management contract has been executed. The project management firm will begin in late May of A revised business case has been completed. Other foundational project documents are to be completed by the contracted project management firm. None have received quality control reviews from an independent quality assurance vendor, which will occur following QA contract execution. A quality management services statement of work in progress, but a contract has yet to be signed. The agency has submitted a revised business case, an initial risk assessment, and a few other foundational project documents. None have received quality control reviews, which will occur following QA contract execution. Joint Committee on Information Management and Technology informational report. In addition, the governance structure established for the PVS project includes no external agency stakeholders, such as a county representation experienced with implementing a CAMA application. With that said, DOR has sought and received input from counties on the PVS project. Legislative Fiscal Office Emergency Board May 2016

4 With the project management firm now onboard, it is expected that the agency will soon execute a contract for independent quality management or assurance firm services (QA), and complete the instructions given to the agency by the Joint Committee on Ways and Means, Subcommittee on Information Technology, as well as any requirements of the OSCIO and LFO throughout the stage gate review process. In the absence of a signed vendor contract for a CAMA application by September 2016, the PVS program will likely miss the 2016 implementation window, which could delay the project by a year. Given the current status of the project, the ability of the agency to issue a RFP and sign a CAMA solution vendor contract by September appears difficult since the agency needs to complete foundational project documentation, hire a QA to perform quality control reviews on those documents and conduct an initial QA risk assessment, and request and receive Joint State OSCIO/LFO Stage Gate 3 approval prior to the CAMA solution vendor contract execution. The project is still in the planning phase and has made insufficient progress to warrant additional funding at this time; however, the project remains important enough that continued progress needs to be made. DOR should continue self-funding project costs, but must remain within the current $1.9 million of bonding authority until such time the agency satisfies the direction received by the Legislature in 2015 and receives any necessary additional funding from the Emergency Board or bonding authority from the Legislature in the future. The Legislative Fiscal Office recommends deferral of the request, with direction that the agency report back to the Emergency Board in September 2016 on the status of the project. Legislative Fiscal Office Emergency Board May 2016

5 65 Department of Revenue Heath Request: Allocate $1.5 million General Purpose Emergency Funds for the Property Valuation System (PVS) project. Recommendation: Allocate $94,285 General Purpose Emergency Funds to hire a project management contractor for the PVS project. Require the department to report back to the September meeting of the Emergency Board on the results of the Request for Proposals with exact price information and a plan for moving forward with the project. Discussion: The Department of Revenue (DOR) received approval to spend $1.88 million Other Funds expenditure limitation for the PVS project as part of its Legislatively Adopted Budget. Through engagement in the Stage Gate process with the Office of the State Chief Information Officer (OSCIO), the department has determined the original project budget is insufficient to complete the project. The additional amount needed is broken down in the table below: Category Original Additional Total Amount Amount Software and Implementation $1,500,000 $600,000 $2,100,000 Quality Assurance $150,000 $250,000 $400,000 Project Management $175,260 $225,000 $400,260 IT Equipment $54,740 $0 $54,740 Contingency $0 $425,000 $425,000 Total $1,880,000 $1,500,000 $3,380,000 Of the additional $1.5 million, the largest amount is a $600,000 increase in the amount for software and implementation. During the initial planning stages of the project, DOR reviewed the results of a 2011 Request for Information (RFI) from system vendors and concluded their original estimates were not enough to complete the project, as the lowest cost vendor had exited the market. Applying a more conservative estimate, the results of the RFI suggests a system would have cost $2.0 million in 2011, with inflation accounting for the increase to $2.1 million. Conversations with governments that recently completed projects of similar scope, including the states of Montana and Utah, supported this conclusion. Based in part on these projected higher costs and the insufficiency of the original estimate, the department increased the amount planned for quality assurance by $250,000. The original project did not have a contingency amount planned. The amount requested represents roughly 15 percent of the project costs. The additional $225,000 for projected management is the result of contracting the work out to a vendor, due to difficulty in directly hiring for the position. There is still considerable uncertainty about the range of costs that a COTS system could run. Results from a five year old RFI with three responses are not likely to be precise to the degree necessary for a successful implementation. The cost of the systems purchased by other governments might not be the best guide for the system DOR will end up purchasing. On the one hand, the department has identified the complexity of Oregon s property tax system, specifically the tax limits associated with Measures 5 and 50, which may result in higher costs due to configuration and/or customization needs. On the other hand, the department has pointed to the Department of Revenue 65-i May 25, 2016

6 potential for a reduced need for functionality resulting from the fact that local governments handle the majority of the valuation and assessment work in the state. DOR has identified several reasons for urgency with this request: upcoming retirements in key staff positions in the Property Tax division, the closing of the annual window of downtime where Property Tax does most of their valuation and reporting work, and the desire to fit PVS into the Core System Replacement project as part of Rollout 4 to handle correspondence, taxpayer accounts, interfacing with other governments, and other administrative tasks. But given the uncertainty of the cost of the solution, and the amount of time available in the department s planned schedule, the Chief Financial Office believes the department should continue their planning work and go forward with issuing the RFP before a decision is made on the remainder of this request. The $94,285 provides enough funding for the department to contract with a project manager, one of the conditions associated with the department s Stage Gate 2 approval from the Office of the State Chief Information Officer (OSCIO), to keep the project work on track during the planning stages. The project manager will work on developing a detailed project plan and schedule, validating project budgets and business plan assumptions, and reporting out to OSCIO and LFO. The project manager contract is ready to be executed. While the department has sufficient Other Funds expenditure limitation to float the project manager, the manager is not a bondable expense if no project goes forward, meaning that DOR would have to absorb the cost from somewhere else in their budget. The timeline proposed has DOR awarding a contract in late September or early October. Assuming the solution is selected and the contract is negotiated, the department can return to the September Emergency Board meeting with a final request that has a much higher degree of certainty about the costs. Legal References: Allocation of $94,285 from the State Emergency Fund for the Department of Revenue, Property Valuation System project for the biennium. Department of Revenue 65-ii May 25, 2016

7 Department of Revenue 955 Center St NE Salem, OR April 25, 2016 The Honorable Senator Peter Courtney, Co-Chair The Honorable Representative Tina Kotek, Co-Chair State Emergency Board 900 Court Street NE H-178 State Capitol Salem, OR Dear Co-Chairpersons: Nature of the Request The Department of Revenue requests the opportunity to provide an update on the Property Tax Division s Property Valuation System (PVS) project to the State Emergency Board, and to request an additional $1.5 million in General Fund appropriation for the project. Agency Action We re seeking a computer-assisted mass appraisal software solution to replace our current industrial property valuation systems and consolidate many of our existing processes. In July 2015, the Legislature approved $1.88 million in bond financing to pursue the purchase of a new software system. During the analysis required for the Stage Gate process, we identified a need for an additional $1.5 million for the project. Project timeline July Nov. Jan. Feb. May June Aug. Sept. Oct. Jan. Feb. June Sept. Oct. Feb Planning and procurement BA hire PM contracted RFP Contract awarded MPP developed/ baselined Oversight 2016 Session report DAS/LFO approval 2017 Session 2018 Session Valuation Program seasonal activities IPR/CA season IPR/CA season IPR/CA season Independent quality assurance Independent quality assurance services System implementation PVS implementation

8 State Emergency Board April 25, 2016 Page 2 Readiness The following work is underway or has been completed: Assigned an information technology (IT) business analyst to provide support to the project. This position is not funded through the project and will provide ongoing support after implementation is complete. Established a project steering committee. Members meet regularly and have adopted a steering committee charter that was shared with the Legislative Fiscal Office (LFO) and Office of the State Chief Information Officer (OSCIO). Submitted a completed statement of work for project management services to DAS Procurement, and a contract is being finalized. Mapping of current business processes is complete. Reviewing and updating business requirements. Conducted site visits to three Oregon county assessors offices and one other state to discuss lessons learned in the procurement process and trends in how taxpayers file returns. Met with OSCIO to review the Stage Gate process and affirm our understanding of where we stand. Currently, we have Stage Gate 1 approval and have submitted Stage Gate 2 documentation. Developing the Request for Proposals (RFP). We anticipate the following project activity in the second quarter of 2016: Begin contracting process for a quality assurance (QA) vendor. Project management (PM) vendor on board. Finalize high-level project scope. Finalize business requirements. Draft stakeholder communication plan. Stage Gate 2 approval. Release RFP for software solution provider. Meet with county partners to address their needs and requirements for the project. We re completing the activities required for this phase of the project. We were authorized $330,000 in Other Funds to spend through June 2016 for project management and QA. In the Legislatively Adopted Budget Information Technology Summary, LFO recommended that we hire, retain, or contract for qualified project management services, with an emphasis on experience in planning and managing projects of this type, scope, and magnitude. Our attempt to hire personnel for project management services was unsuccessful, and we have decided to contract out for those services. The RFP is being developed and, after legislative approval for funding, the RFP solicitation will begin. Until a vendor is selected, we won t know vendor availability, so that information may impact our schedule.

9 State Emergency Board April 25, 2016 Page 3 In assigning staff to the project, we re mindful of the priority of the CSR project and their resource needs. The expertise we ve gained through the successes of the CSR project will assist in our efforts on the PVS project. Scope We are seeking a software solution to replace antiquated systems and manual processes. The full scope of the PVS project includes implementing systems and processes necessary to conduct industrial and centrally assessed valuation work and engaging with businesses and counties. To refine the scope of the project, the PVS project team is confirming the business needs and requirements of the department and its partners and gaining approval from key stakeholders. Data cleansing and conversion requirements will depend on the solution selected. A scope-change management process will be put in place and approved through the project s Change Control Board. Schedule Our current timeline has a go-live target of fall We understand there may be interest in a current biennium go-live date, but implementation by the end of the biennium isn t feasible. The last six months of this biennium, we ll be in our busiest time of year. During this time, we re placing values on industrial and centrally assessed properties for inclusion on county tax rolls. Converting to a new system for valuing these properties during this time period introduces significant risk for completing the project and getting values to counties by their deadlines. Additionally, in our discussions with counties who are in varying stages of procurement and implementation of similar systems, we ve routinely heard that their projects have taken more time to complete than they originally anticipated. Due to the complexity of Oregon s property tax system (Measures 5 and 50), vendors have to customize their existing computer-assisted mass appraisal product, which has caused delays. We ll carefully monitor our progress and we ll regularly report to the Legislature on the project s adherence to the established timeline. Risk/Issue Management The PVS project team has drafted an initial risk and issue management plan for the project. We ll work closely with the QA vendor to identify risks and issues, develop mitigation strategies, and initiate corrective action plans to resolve issues as quickly as possible. Quality Assurance Update A QA vendor will on board by the time the solution vendor contract is signed. Regular reports will be a required deliverable and will be shared with oversight groups and key stakeholders. The QA vendor will also perform quality control reviews of key foundational documents, conduct an initial risk assessment, and develop a quality management plan.

10 State Emergency Board April 25, 2016 Page 4 Budget Update In July 2015, the Legislature approved bond financing for our PVS project. The project s funding was authorized by SB 5507, and included a budget note requiring us to report on the project status to the Joint Interim Committee on Ways and Means. During the February 2016 session, an update was given to the Joint Committee on Information Management and Technology. HB 5005 authorized $1.96 million in bond sales for this project. The DAS Chief Financial Officer (CFO) determined that the bonds will be sold in March Due to the timing of the sale, $71,843 of General Funds in debt service costs will not be incurred. As we have proceeded through the Stage Gate process, we have updated the cost estimates for the three major services that will be needed for this project: project management, QA, and the software solution. The need to contract for a project manager results added $225,000 to the project. The revised estimate for QA increased by $250,000. The estimate for the software solution provider increased $600,000. With the exception of the project manager cost increase, these are all estimated amounts. We also identified a need for contingency in the amount of $425,000. These changes total $1.5 million. Action Requested We request approval of a $1.5 million General Fund appropriation for the PVS project. Legislation Affected Increases General Fund appropriation established by Section 1 (2), Chapter 596, Oregon Laws 2015 (enrolled House Bill 5035), for the biennium beginning July 1, 2015 in Section 7, Chapter 837, Oregon Laws 2015 (enrolled Senate Bill 5507) by $1.5 million. Respectfully submitted, Kristine Kautz, Interim Director Oregon Department of Revenue