"Our basic focus here was to stop being the people, at least in recent times, who seem to always say the sky is falling, whether it's about the year 2000 or something else," said Flynn. "In other words, we are always going back to the budget folks for money for one reason or another. I thought it was incumbent upon the information technology managers, particularly in the public sector, to start being responsible for true return-on-investment type initiatives. Return on investments can be measured in pocketbook terms, either as increasing revenues or significantly decreasing cost to such an extent that the cost can not only be monitored and identified, but could be set up through the Legislature or through other means into some kind of revolving investment fund for future work."
MASSACHUSETTS
"Our revenue maximization initiative stemmed from the realization that if we were to offer agencies incentives for generating revenues, they would be likely to do a better job of generating and collecting those revenues," explained Ray Campbell, general counsel of the Information Technology Division for the Commonwealth of Massachusetts. "The reason for that was that agencies receive a fixed appropriation from the Legislature and they are typically of the mind-set to devote their appropriation to service delivery. Revenue management and revenue collection is not something that a lot of agencies see themselves in the business of doing. Instead, they see themselves in the business of delivering certain services.
"Also, any revenue they raise goes into the general fund, so it doesn't do them any good anyway," Campbell said. "So we felt that if we were to offer incentives to agencies and if we had a high-level task force working with agencies to identify and pursue revenue maximization projects, we might be able to raise a fair amount of revenue."
"They came in and worked with a lot of agencies and came up with a lot of ideas. But because of the timing -- this was in 1994 when the Republicans had just taken over Congress -- we were concerned that if federal financial participation for social programs was switched over to block grants, that we would no longer be able to maximize these revenues. So we focused a lot of our initial attention on helping human service programs that receive federal financial support, and we raised $46 million dollars in the first year of the program. That was mostly working with the Department of Social Services on federal reimbursement for foster care expenditures or working with the Department of Mental Retardation for federal reimbursement of Medicaid-eligible recipients in state hospitals, things like that. So it had very much a health and human service flavor to it."
"However, the opportunity evaluations themselves actually covered a lot more territory than that. We also chose to emphasize the federal projects because the dollar amounts there are so large. They were the most likely ones to generate big results. And also we were concerned that if the federal programs went to a block grant formula, that would no longer be possible. So that was our initial emphasis."
NEGLECTED BILLINGS
Many revenue maximization projects involve using information technology to better track information from disparate sources. For example, a child in school might require speech therapy. His mother is receiving AFDC. The school, not knowing that the child's mother is on welfare, pays for the speech therapy even though the federal government would pay for this if it were billed. There are thousands of children in this or similar situations, but no information infrastructure previously existed to track such services delivered.
One solution is to simply hire an outside firm to come in and identify the neglected billings on a profit-sharing basis. The private firm gets a small percentage of the extra money collected with the bulk of it going to state coffers.
While the theory is simple, in actual practice this often requires a "buy-in" from the departments concerned before the needed cooperation is obtained. And this buy-in rarely happens if the extra money collected simply goes into the general fund.
"Revenue maximization sounds easy in theory," said Flynn. "The difficult part is going after the money because there are many, many obstacles in the path. There are organization obstacles that are set in place just because of the nature of the public sector. It is not a profit-oriented organization. So you have to get around those obstacles by really implementing some capitalistic incentives such as bonuses or profit-sharing among the agencies. You have to get over that bureaucratic obstacle that just says, 'what's in it for me? Why should I get involved in doing this?' Those are very, very significant obstacles to overcome.
"At this point, certainly we all know there are vast opportunities to identify cases, whether it is fraud or just poor collection techniques or insufficient documentation for collecting federal revenues," explained Flynn. "We know all these situations exist. We just have to have the wherewithal and the guiding light, if you will, from the top, to say 'go get them,' because a lot of times, people will say, 'why are you going after this? That's not your agency program. Why do you want to go after third-party Medicaid payments, for example?'
"A couple of years back while I was still in Massachusetts," said Flynn, "we actually had a vendor come in and conduct phone audits, reviewing bills totally on a contingency. For every dollar they collected or they identified as an erroneous billing that you could get a credit for, they received a dime. In Massachusetts we got something like an additional $6 million out of that program. But when we tried to expand it to a number of other agencies, none of them were interested. They said, 'why should I do this? This company is going to come in and they are going to find out where we made a mistake in paying a bill we shouldn't have. And when you get the money, where is it going to go? It's going to go into the general fund. So what's in it for me? Why should I cooperate?' That is a big burden to address.
"I think you address it by pointing out that you are not trying to catch people doing something wrong," explained Flynn, "but to fix something out there and also to put some sort of financial incentive in for the agency itself. Ideally, all the additional funds collected don't go back to the general fund. Some of the funds will be used for putting in a new local area network or better furniture or whatever for the agency concerned. We've got to start thinking like a private company here. We can't be putting on our public-sector bureaucrat hat all the time."
HIGH-LEVEL INITIATIVE
Part of the success of Massachusetts' revenue maximization projects stems from the fact that such initiatives come from a high level of state government. "I think this is essential," said Campbell. "We have the chief of staff for Administration and Finance on the working group. The state comptroller is on the working group, and we didn't just talk it up and then let [it] die. We have been meeting every single Tuesday for two hours for the past two years. And this is with people at the highest levels of the administration. So when we become aware of an opportunity, rather than just leaving it up to agencies -- which because they are busy, they may or may not pursue it -- we have people that are high enough ranking so that we can contact agencies at the highest levels and discuss what they might be able to do to pursue a revenue project.
"The other thing that this group does is provide a lot of technical assistance," adds Campbell. "We have RFP templates for people who need to procure vendor services. We can provide them with assistance on that, we can provide them with assistance on contracting with vendors and contracting with other agencies, because, frequently, the more difficult dollars to get at are the ones that require the cooperation of multiple agencies. In the health and human services world, for example, revenue maximization has typically required the participation of multiple departments. And having a high-level steering committee that is overseeing the effort, you have the ability to bring agencies together rather than just leaving it up to staff-to-staff contacts, which can take some time to make anything happen."
MANY EXAMPLES
Enough work has now been done on revenue maximization in various states that selling the concept or identifying many of the potential projects is no longer such a difficult task.
"I don't think there is any question that there is a gold mine out there," said Flynn. "We estimated in California it could be half a billion dollars a year just from the social service side of life. I happen to think Massachusetts took the most comprehensive focus on this because they actually put out an RFP to identify all the different areas in the state, and I don't think too many states have done that. I think that is one way to do it. In California, we have not adopted that approach because we think there are so many revenue maximization projects that have been identified already that we are ready to begin the process of mining that ore.
"And frankly, as these new projects come along, we have an informal network throughout the country where we are able to tap into what some of the other states are doing and what other vendors are doing in other states. The list is pretty large and it is still growing. There are all kinds of different ways to come up with ideas. I just think there is an opportunity to brainstorm with these things. They tend to feed off one another, particularly when you are talking about a state budget of $65 billion. If you could just do one percent in revenue maximization, that is $600 million."
While the list of possible revenue maximization projects is still growing, key projects which are being investigated or pursued in various states include:
Pursuing and collecting uncollected money owed to the state which had not been previously identified, particularly in the health and social services arenas.
Increasing child support enforcement.
Collecting delinquent vehicle registration fees.
Identifying erroneous billings (such as phone billings) to the state and collecting credit for these.
BILLING AND RECEIVABLES CROSS-MATCH
In Massachusetts, perhaps the most significant information technology- related revenue maximization project is the new billing and accounts receivable system -- BARS. Previously, Massachusetts had no statewide accounts receivable system. So when people were sent a bill but didn't pay, very often the state had a limited ability to identify those people and pursue the revenue. In addition, the state was cutting checks to a lot of people -- for such things as tax refunds or payments to vendors -- who actually owed the state money.
"The BARS program was an investment in technology systems that gave us the ability to cross-match our payee list against our receivables," explained Campbell. "This gave us the ability to identify people to whom we were about to cut checks that in fact owed us money for some other reason.
"There were a couple of isolated accounts receivable systems out there, but the state's main accounts receivable system operated by the Comptroller's Office was the main focus of BARS, and this has increased our receivables by $10 million to $20 million a year. This is not just a one-time boost. That is an ongoing $10 million to $20 million a year in additional receivables over what we had been collecting. This was very much a systems development effort."
ANTENNA SITES
However, under revenue maximization also fall projects that take existing resources and find innovative ways for these to generate new income. "We are now working on a proposal to make state towers and buildings available for communication antennas," explained Campbell. "And the thought here is that it is a real 'three-for.' First it is an economic development initiative because it is going to give us the telecommunications infrastructure we need to support a modern economy. Second, it is an environmental protection initiative because, to the extent that we can more fully utilize our towers and high-ground assets, there is less of a need for telcos to build similar towers along every road in the commonwealth. And third, it is a revenue-raising idea.
"We have not implemented this yet. I'm heading up that effort and we are still in the implementation phase of identifying the properties we have available and working out how we are going to do the competitive procurement and things like that. But our hope is to have money in on this before the end of this fiscal year."
LEGISLATIVE COOPERATION
One big obstacle in actually making revenue maximization projects work is the state legislature, which must start to think differently. Often legislatures are reluctant to allow moneys to be created where there are no strings attached and which bypass the traditional budget allocation process.
"We had requested the Massachusetts Legislature to authorize our state's chief financial and administrative officer, the secretary for Administration and Finance, to set aside up to 25 percent of any additional revenues generated to be used by the agencies that generated the revenues," explained Campbell. "In other words, this money would not be subject to appropriation, but could be used by the concerned agency as long as they had an approved spending plan. Instead, the Legislature appropriated a $7.5 million pool of incentive money out of which we have been making payments to participating agencies. The more you bring in, the more you get, of course, but there is no direct connection between how much is brought in and what an agency ends up with. The problem with this is that if lots of agencies bring in a lot of money, they will end up fighting over a limited pool of money. That is why we had wanted it to be a straight 25 percent rule."
DON'T OVERSELL
Flynn added that it is important to involve the chief executive and the legislature so they understand you are not trying to hide money. Allow information technology to take on a fair burden of the funding responsibilities. "I think it is also important that you don't oversell the concept," he advised. "Sell it but don' t oversell it, because so much is riding on those first audits or reviews. I think these two things -- involving the legislature and not overselling -- are critically important to the ultimate success of revenue maximization projects.
"And it almost goes without saying, that you also have to sell the concept to the state managers themselves so they understand that there is not going to be any recriminations for not having collected these uncollected revenues in the past.
"The whole issue of alternative financing has been around a while, but the idea that we would actually not only budget but also fund our IT initiatives through the successful performance of previous work, is relatively novel for IT. But I think IT managers, more and more, are going to have to play in that kind of arena. It is very difficult with shrinking budgets, where you are sitting there with an agency director or governor and on one hand they want to hire a thousand more cops and on the other hand you want a million dollars for an IT project.
"You are really going to have to make the case that you not only can pay for the IT project through revenue maximization, but that you might generate the extra money to hire those cops. And I think that is the reason our burden is so large, but we have to be aggressive about this. Otherwise we become the ones who are just another sinkhole for money.
"I think revenue maximization is an exciting opportunity, and not only for budgeting people. I also think it is an exciting opportunity for the state work force. We can start thinking out of the box and start thinking more entrepreneurially. So it's exciting times."
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SOLUTION SUMMARY
PROBLEM/SITUATION: Where to find the money for Y2K conversion.
SOLUTION: Use IT resources to maximize state revenues.
JURISDICTIONS: Massachusetts, California.
VENDORS: Andersen Consulting, Public Consulting Group.
