Another Virginia Public-Private Deal Misses Target

The idea was that fees paid to CGI for the monitoring would repay an advance the state made to start work on the software and related systems, but a recent audit shows the partnership fell flat.

by Dave Ress, McClatchy News Service / May 13, 2014

Unwanted costs to the state from yet another public-private partnership are leading the Tax Department to seek competitive bids for the job of monitoring the work of its outside collection agencies.

That monitoring work was meant to generate revenue to fund a 2006 partnership under which the IT giant CGI was to develop financial management software that could be used by all state agencies.

The idea was that fees paid to CGI for the monitoring would repay an advance the state made to start work on the software and related systems.

But a recent Auditor of Public Accounts review found that the deal hadn't generated much money for the software and systems – a grand total of less than $395,000.

On top of that, it found that the fees paid to CGI for the monitoring work were higher than the costs the Tax Department itself incurred when it did that work.

"We estimate the commonwealth may save more than $1 million annually by returning management of the outside collection services to Tax, or competitively procuring these collection services," the auditor's report found.

Brian Coy, spokesman for Gov. Terry McAuliffe, said it was another case of disappointing results from a public-private partnership deal.

"But we are taking steps to address it, by putting it out for competitive bidding," he said.

Coy said McAuliffe remains concerned about how past public-private deals were put together, citing the $1.4 billion program to build a toll road alongside U.S. 460 and the high tolls promised under the Elizabeth River Crossings agreement as examples.

The basic idea of joining forces with private firms to tackle tasks that the state can't get to right away still makes sense, Coy said.

But, he added: "We want to pay attention negotiating these and to be aggressive keeping an eye on them."

The auditor's office, which had issued a critical report about the CGI agreement in 2008, reported in its latest review that CGI consistently missed the agreement baseline for increased tax collections, missing the $39.8 million goal, averaging just $22.7 million over the past three fiscal years.

Under the agreement, any sums above the baseline were to be deposited in a fund that was to repay a $27 million working capital advance from the state to CGI for its work on software and systems.

So far, that advance is being repaid through fees charged state agencies for using new accounting and budgeting systems, the auditor's review found.

The state also appropriated $26.4 million between fiscal year 2007 and fiscal year 2010 for the partnership.

The agreement, meanwhile, increasesd the cost of collections by about 5.6 percent a year, the auditor's review found.

Fees to outside collection agencies and internal costs incurred by the department itself for the 10 years through fiscal year 2007 averaged 15.3 percent of the amount collected, but the average since the agreement with CGI has been about 20.9 percent, it reported.

Asked if the Tax Department was disappointed by the results, spokesman Joel Davison said "traditional goal setting is not possible in such an arrangement," noting that CGI's services were an option to be used when needed. CGI handled about 7 percent of collections of delinquent taxes, focusing mainly on out of state and other difficult-to-collect accounts.

CGI vice president Linda Odorisio, said that under the agreement, the company had helped the state ollect more than $230 million of additional revenue by improving tax processing and collections.

"CGI is committed to its ongoing business and IT services partnerships with the Commonwealth of Virginia, where it continues to create jobs and support local economies as an active corporate citizen, she said.

CGI has been a major donor to Virginia politicians, giving more than $483,000 since 2001.

The partnership agreement was signed in 2006 under then Gov. Tim Kaine. In 2012, then Gov. Bob McDonnell's office agreed to extend the partnership through Dec. 21, 2015.

©2014 the Daily Press (Newport News, Va.)