Wednesday, June 20, 2018

Does the Transit Authority Know About the $66M Charge from NYCERS?

Introduction

On April 12, 2018 the NYCERS Board of Trustees adopted the agency’s FY-2019 administrative budget with an increase in the total PS(personnel services) & OTPS(other than personnel services) budget from $53,534,128 to $75,940,621. That is a $22,406,493 increase, a 42% jump from FY-2018. What was also embedded in the budget document was a five year projected increase in the OTPS budget of $289M to pay for the “Legacy” project.

On April 13, 2018, I made a FOIL request for the budget document and the associated Q&A between the NYCERS staff and OMB/Trustees. On May 25, 2018, I received part of the budget document. NYCERS, however, refused to send me copies of the written Q&A’s quoting the usual nonsense excuses that government agencies use to hide information from the public.

On May 30, I sent a text to John Adler. I told him that, in addition to the $22M increase in the FY-2019 budget, he had just committed the agency to a total additional $290M OTPS expenses over the next five years. I asked him if he was crazy. He didn’t write back.

This is the new executive director’s first administrative budget.

Unfortunately, in her executive statement she only provided an update on the schedule for the “Legacy” project. That project now includes the

  1. legacy replacement project,
  2. the customer relationship management program,
  3. the contact center modernization project, and
  4. an increase in the agency’s training program.

She made no mention of the three year delay in the “Legacy” project or the massive increase in its five year price tag from $132M to $289M. This was her opportunity to critically analyze the project and hopefully impose some corrections on this fiasco. She chose not to.

Bump in the Road

In a bizarre twist, at the June 14, 2018 NYCERS Board meeting, the executive director, out of the blue, notified the trustees that she was trashing the current RFP for the legacy replacement project.

NYCERS had released that RFP on December 28, 2017.

She said that there were cost issues and insufficient responses to the current RFP. She provided no other substantive details. The chair thanked her for her courage for taking the action. She provided the trustees with no financial details about the impact of her decision on the upcoming budget. The trustees asked no questions about her decision. They asked no questions about its impact on the five year $289M cost.

Since 2015, I have posted multiple warnings about the fatal flaws in this project. It is not like this mess sneaked up on anyone. $289M is serious fraud risk.

On the dark side, the executive director is still going forward with the customer relationship management program, the contract center modernization program and the training increase.

These projects should also be held up until basic agency wide IT decisions are settled. The legacy replacement project is the primary building block of the “Legacy” project and should be settled first. I am quite sure NYCERS is still going to still spend the added $22.1M in FY-2019.

Budget Background

Outlined below are the budget items which were significantly increased in the FY-2019 budget.

PS Items

The PS budget was increased by $700,000 with 12 new hires. This brings the regular full time staff to 427 and part-time staff to 35. The Loan program has another 14 full time staff.

Last year, despite the Chair’s objection, the Board approved an increase of 10 new hires in the FY-2018 budget. Four more full time staff were approved in mid-year. This year the Chair had no objection to the 12 added staff.

Two of these staff will to support the effort to improve the WTC disability delays. The remaining ten will support the never ending delays with the computing retirement benefits because of the labor contract settlements which started in 2014.

On a side issue: I suspect these staff increases are going to create workspace problems for the Long Island City business recovery site.

OTPS Items

The remaining increase in the FY-2019 budget, $21.7M, was in the OTPS portion of the budget, primarily to support the “Legacy” project. In FY-2015, NYCERS started cooking up the “Legacy” replacement project spending $800,000 on a contract with Gartner. Over the 2016-2018 period NYCERS has averaged about $1.5M a year on this project, mostly paid to Gartner.

Now after three years NYCERS is ready to open the fire hose on this project. The original completion date was June 2020. The target date is now at least June 2023 and maybe even later. The original five year cost was projected to be $132M. It is now $289M. There never was a public cost/benefit analysis for this massive IT upgrade project.

Note: Part of the OTPS increase is a $500,000 allocation for a new NYS Dept. Financial Services audit. Oh yeah, NYCERS is still waiting the last audit to be published.

Five Year Overview – Actually Eight

Cost Details

Listed below are the OTPS budgets for FY-2015 to FY-2023:

  1. 2105 $18.2M
  2. 2016 $19.4M
  3. 2017 $20.9M
  4. 2018 $21.8M
  5. 2019 $43.5M
  6. 2020 $87.5M(projected by NYCERS)
  7. 2021 $89.4M(projected by NYCERS)
  8. 2022 $91.3M(projected by NYCERS)
  9. 2023 $93.2M(projected by NYCERS)
These figures are taken directly from the NYCERS budget document.

The sum of the OTPS amounts for the five years from 2019 to 2023 is $404.9.

Compare this amount to a normal expected OTPS cost for the same period. The 2018 OTPS amount is $21.8M. If you assume a rational 2% increase each year from 2019 to 2023, the sum of the five year would be $115.7M. See below:

  1. 2019: $22.2
  2. 2020: $22.7
  3. 2021: $23.1
  4. 2022: $23.6
  5. 2023: $24.1

It appears that NYCERS is going to spend $289.2M on the “Legacy” project over the next five years. This is without the inevitable cost overruns.

Who Pays

Over the next five years the pension costs for the City and the participating employers will increase for this dubious and discretionary project as follows. The numbers below are based on the FY-2017 NYCERS CAFR –Appendix A, Page 7d.

The City

The City will pay $155.0M - 53.6% of $289.2M

The Public Authorities

  1. The Transit Authority will pay $65.9M - 22.8% of $289.2M
  2. The Health & Hospitals Corp will pay $42.8M - 14.8% of $289.2
  3. The Housing Authority will pay $13.6M - 04.7% of $289.2

Budget Details

Listed below are some of the questionable items in this massive budget increase

23rd Floor

What may be the most bizarre item in the budget is a line item for a $2.5M expense recurring over the next five years. The item is labeled as the renovation of the 23rd floor at Adams Street for “Legacy” preparation space. The budget document that NYCERS sent me included no written description/justification for any line items in the budget.

Gartner

Gartner continues their NYCERS contract with an increase from $975,000 in FY-2018 to $2,520,000 for FY-2019. NYCERS has paid Gartner over $3.9M between 2015 and 2017. Gartner’s main business product is IT advice.

When I left NYCERS in FY-2005, NYCERS had 65 IT employees. My guess is that there are currently 80 IT employees on staff at NYCERS out a total of 406. Given this huge dependence on Gartner, either NYCERS’s IT management staff is incompetent or they are just plain lazy.

Training

The training budget was increased from $382,300 to $837,550, a 219% increase. The increase is projected through 2023. Training is generally a positive effort for an organization but there should be some strong justifications for such significant increase in spending in this area. I mean something like putting a dollar value or service measure on both the current expenses and the new added expenses. The obvious saving grace of this item is that it is less than $2.5M for the five years.

Equipment

  • Mainframe equipment from $148K to $555K thru FY-2023
  • PC/LAN equipment from $215k to $510K thru FY-2023

Contract Services

Mainframe

There is a line item increasing contract services from $115K to $560K in FY-2019 thru FY-2023

PC/LAN

This budget code contains the bulk of the “Legacy” expense for the next five years. There are two separate line items increasing contract services. One, which increases the 2018 charge from $1.297M to

  1. 2019: $2.167M
  2. 2020: $3.189M
  3. 2021: $4.221M
  4. 2022: $5.263M
  5. 2023: $6.316M
And a second, that increases the 2018 charge from $2.470M to
  1. 2019: $17.710M
  2. 2020: $59.553M
  3. 2021: $60.149M
  4. 2022: $60.750M
  5. 2023: $61.358M

Note: This is where the Gartner expenses are assigned ($850K in 2018 and $2.4M in 2019).

There are four new items being added in 2019. First, there is a charge of $1.8M for the implementation of Contact Center modernization. I think the contact center is another phrase for customer service center. Second, there is a charge of $9.35M for the CRM (customer relations management) implementation. Third, there is a charge of $250,000 for a CRM post implementation consultant. Fourth, there is a charge of $900,000 for COBOL programmers.

Also in this budget code there are currently 12 independent consultants being paid $1.620M in 2018 and at least 10 additional consultants for a total of $3.0M being paid 2019.

I wonder how many of these consultants are on H-1B visas? I also wonder why DC-37 isn’t pushing to have regular city workers, DC-37 members, do this work.

Software Licenses (recurring for five years)

  1. New item in 2019 of $950,000 for CRM software maintenance support
  2. A continuation of a $800,000 charge for contact center implementation
  3. A reduction from $8500,000 to $230,000 for the CRM software and implementation.

Conclusion

I have used the word lunacy before about the “Legacy” project. So now I am scrambling to find another word. Maybe just stupid will do.

For the record I am the person along with a lot of talented IT professionals who created the original “Legacy” systems at NYCERS. I realize the systems need to be modernized. But don’t you think that $10M would do the job?

The enormity of outlined costs of this projected should require an equivalent benefit justification. Modernization does not by itself justify the huge projected expenses. The risks embedded in this project remind me of the CityTime project. Some of the NYCERS trustees sit on the boards of the other four city pension funds. Is this process being replicated in those systems?

I am also stating with almost absolute certainty that this effort will fail. It will fail so badly that NYCERS will not know how to get out from under its collapse.

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