Friday, July 6, 2007

Is state government mismanaged? Part 2

About 5 weeks ago, I sent a letter about mismanagement in state government.  For those of you who missed it, an edited version is below.  Here is an update of the "ongoing investigation" by my office into how your money is being spent.  I hope to have further updates as this story unfolds.
Government Mismanagement, Part 2
One of the areas of state spending that I highlighted in my first article was regarding a contract between the Department of Information Technology (DIT) and a consulting firm called Policy Studies Inc. (PSI). We had a 40 month contract that ended in early 2004.  The original value of that contract was a little over $5 million, but we ended up spending over $200 million.  Documents I obtained from the Office of the Auditor General (OAG) sheds some light on the problems but not very much.  Of interest is a change order that was signed by a state worker for over $10 million, three weeks before the original expiration of the contract. The was NO EXPLANATION for the $10 million expenditure.  I find that somewhat unsettling.
I have been asking questions and will continue to do so.  I had a long conversation with the Executive Chairman of Policy Studies.  A couple of things he told me as justification for the $200 million the state spent:

  • PSI "saved" the state over $176 million in fines and penalties from the federal government, so we really only paid a "net" of around $25 million for their services. The federal government paid the rest for us.

  •  25% of the money we paid went to PSI, the other 75% flowed through PSI to several vendors who were doing much of the work.

  • Virtually all of the $200+ million paid for labor - hourly billings for work performed. (Just as a point of reference, assuming a high figure of $200,000 per year, per employee, the state paid PSI for 300 "highly trained" workers at $200,000 per year for 40 months.

What was not explained was exactly what the $200 million was really getting us, other than a "state of the art" computer software monitoring system.

I also had a very nice meeting with Lisa Webb Sharpe, the Director of the Office of Management and Budget in my office.  She has been director for almost two years. She assured me that the problems I was pointing out were in the past and have been addressed.  She told me that new policies and procedures have been put in place to ensure that these kinds of cost overruns will not happen in the future.
She promised to follow-up with solid data to verify that these new procedures are in place.  I look forward to receiving that information and sharing it with all of you.   It will be good to know that the state government has become efficient in its use of the people's money.

Government Mismanagement, Part 1
Over the past several months, there has been much posturing about how to balance this year's budget shortfall which as of mid-May had ballooned to over $800 million.  The assumption from the governor's office is that we have "cut to the bone" and there is no where else to find savings, therefore we must raise taxes to balance the shortfall.

What the governor seems unwilling or unable to deal with is a basic problem of mismanagement in state government, a problem that only the head of the executive branch can address. Governor Granholm herself was quoted as saying in December 2003 regarding cuts to higher education, "just like any other entity, if you can't cut 5 percent a year, you are not doing your job." (Booth Newspapers, December 17, 2003). But since 2003 state government has grown by $4 billion and hundreds of millions have been lost because of gross mismanagement by several departments of state.  Let me cite a few examples:

  • The Department of Information and Technology (DIT) signs a contract with Ameritech for voice and data communications worth $17 million, but after several "change orders" ends up paying $129 million.

  • The Department of Management and Budget signs a contract with EDS for computing hardware, software and services worth $58 million which explodes to $555 million after "changes".

  • DIT signs a 13-year contract with Oracle for software and support for "all state agencies" for $2 million, but somehow additions are approved to increase the contract to $144 million.

  • A forty-month contract with Policy Studies, Inc. for the Michigan Child Support Enforcement System to provide project management services worth $5.6 million is increased to $200 million, (over $1 million per week in overcharges!)

  • The Department of Community Health makes over $55 million in questionable or over-payments to its Pharmacy Benefits Manager.

Meanwhile, in 2006 the Department of Human services (Mary Ann Udow, Director) overspends its budget by $30 million, doesn't report it as required by law and goes on spending, even though they know two months before the end of the budget year that they are over-budget and in violation of the constitution.

All of these overpayments and many more like them were reported by the Auditor General of the State.  You can see this audit at:  The legislature responded when appropriate with new legislation to tighten controls.  But the only way to truly address these serious issues is for the Department heads to be held responsible by the "CEO" (the governor) for their incompetence.  This has not happened. To my knowledge, no department heads have been dismissed or even disciplined for their gross mismanagement.

The governor continues to ask for tax increases.  She has recommended an additional $1 billion in spending for next year.  She has recommended an additional 700 civil service positions, (while threatening to lay off 29 state troopers).  As a state representative responsible for sound fiscal policy, I cannot in good conscience even consider voting for tax increases when spending continues to spiral upward and hundreds of millions of dollars are mismanaged and misspent by government.  I am hopeful that the executive branch of government will get its house in order.

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