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The House Committee on Appropriations met on April 18 to discuss several interim charges related to usage of the Economic Stabilization Fund (ESF), budget funding deferral, contracting at state agencies, and use of cloud-based IT services. The report below details these discussions.

 

Opening Comments

  • Chair Zerwas – Will meet again on May 24 to hear an update from the Texas Rebuild Commission
  • Asks those speaking on ESF and structural deficit/deferral charges to speak on both together

 

ESF and deferral charges were taken up together

Continue to study strategies to use the Economic Stabilization Fund (ESF) to generate additional revenue for state obligations without compromising the fund’s intended purpose. Evaluate the current methodology used to set the ESF cap.

Examine the use of one-time funding and deferral measures employed by the Legislature in the state budget for the 2018-19 biennium, as well as any other factors that may contribute to a structural deficit. Explore strategies to ensure the state’s ability to meet its ongoing fiscal obligations

Ursula Parks, Legislative Budget Board

  • LBB ESF infographic link
  • ESF total deposits $21 billion, appropriations have totaled ~$11.6 billion
  • Legislature can appropriate ESF funds with a 2/3rds vote
  • Balance currently is largest amongst all stabilization funds
  • ESF primarily funded by O&G severance tax proceeds, interest; these taxes also flow into the State Highway Fund (SHF)
  • ESF can be appropriated directly into GR to make up projected GR shortfalls
  • Disaster relief is only about 3.3% of everything appropriated from it over time, historically disaster relief is not the largest appropriation
  • Recent development is the “sufficient balance” idea, controls degree at which transfers happen to the ESF and SHF, SHF transfers can be cut off until ESF reaches balance
  • Balance cannot exceed 10% of GR deposits in previous biennium, anything over remains in GR
  • Howard – The sufficient balance doesn’t preclude appropriating to the point that the ESF falls under the balance, correct?
    • Correct, but need to recognize that the additional transfer would not happen to the SHF in the future if this is done
    • Legislature also has authority to change the sufficient balance
  • Howard – In terms of the cap, it includes federal funds & there has been discussion on taking this out, have you spoken with the comptroller on this?
    • There were bills to exclude the federal funds from the cap
  • Howard – And it would drop to what if this is done
    • Would be $11.6 billion without federal funds instead of $16.9 billion with
  • Howard – So the spillover would then be dedicated to other things
    • Yes, one theory is to let this spillover into GR
  • Howard – 10% of biennial GR deposits is part of cap calculation, so this is a 2-year budget; rating houses tend to recommend an annual calculation, and we are really doubling
    • Right it is double what an annual calculation would be, most states set this on an annual budget calculation, but most states have an annual budget and we have
  • Simmons – Can you provide us with a list of other states do with funds like this?
    • Can send you the report
  • Chair Zerwas – References LBB chart, when you look at Pub Ed appropriations, part of this would be payback of deferral? Would fall into the General Deficit Reduction?
    • This is more when there is a GR deficit
    • Deferral Reversal would be for situations when things like Pub Ed deferral would be paid back
  • Chair Zerwas – We don’t have to pay deferrals back right away, but we’ve typically been pretty good about this, correct?
    • Yes, typically have done; i.e. Foundation School Program deferral was reversed very quickly
    • Not necessarily required to reverse these deferrals however

 

Glenn Hegar, Texas Comptroller

  • ESF was created during difficult economic times, specifically
  • This Summer, would be timely to take another look at revenue
  • Not a risky proposition, we have earned more from ESF than inflation has been over time, would be ~$70 million more in ESF than it would have had
  • If we were able to cover inflation on the entire fund, we would have earned another $120 million on the entirety, would be $3 billion over 20 years
  • Also, while this would be good practice, even if federal dollars are removed from cap, still run into issues with the Constitutional spending cap
  • Recommendation is to give us ability to earn on investment on the entire ESF, but also take a portion and set up an endowment for long-term liabilities; Would give legislature authority to appropriate dollars without running up against Constitutional spending cap
  • Could be used to cover issues like pension liability
  • Every state but 2 have moved to an endowment-type structure, those being Texas and Oklahoma
  • Dean – What would you recommend as a plan to cover pension liability
    • #1 – We didn’t put in enough on the front end, one of the reasons we are where we are
    • My strategy would allow us to offset a large portion of the pension liability, won’t cover the entire ~$200 million, but will help
    • Other issues to confront on this, like shifting new employees to defined contribution
  • Dean – So the roughly $111 million we would earn could go to this
    • Would recommend to put into statute that this would go towards long-term liability
  • Howard – Does this use the spillover or what?
    • Essentially, this takes what is in the ESF and utilizes it
    • Comptroller’s Office has model for investing increasing portions of the ESF and revenue projections
    • Even if we have a endowment model, part of it would be liquid still; would be able to still appropriate for disasters & unwind investment quickly
  • Howard – These other stats with endowment models look at this on an annual basis
    • Comptroller’s models look at annual basis as well
  • Howard – Part of us being good stewards of taxpayer dollars is looking at whether it is better to pay cash up front or take on debt; is there a hard numbers look at how we go about this?
    • We can provide an array options to look at cost/benefit on whichever path you go
  • Howard – Sop what your suggesting is investing a higher yield portion of the ESF and using this for the unfunded liabilities? It just makes so much sense
    • This is the point I make over and over, this idea has been working in other places
  • Rodriguez – As it relates to rating agencies and how they view the state, they rely on consistent dollar amounts; this solution would not solve this issue, correct? Would not solve systemic payment problems?
    • Correct, this doesn’t look at underfunding problems, but this is not an effort to solve all of the problems
  • Rodriguez – I think this is good step forward, but we still have issues as a legislative body solving the long-term issue
    • We get roughly 1,100 new people in Texas every day, puts pressure on the system
  • Regarding one-time funding deferral measures, we should not only look at funding deferrals themselves, but a deferral of budgeting decisions to a later legislative session
  • SHF is due a $1.6 billion in 2020 in sales and use tax transfer deferral, freed up $1.6 billion previously, possibility that this deferral will be less depending on sales and use tax revenue
  • $2 billion Medicaid deferral
  • HB 30 (85-1) deferral, HHSC will need to be whole in 2019 or 2020, cost is roughly $569 million
  • Sale of properties led to roughly $370 million in one-time funding, will not be available in the future
  • M Gonzalez – So we are talking roughly $4 billion deferral that needs to be addressed next session?
    • Medicaid, disaster funding, other discussed deferrals, roughly $3.6 billion
    • Economic gains could erode number somewhat, but will need to be appropriated

 

Sarah Keyton, Legislative Budget Board

  • Prop 7 directed two new revenue streams be deposited to SHF
  • First $2.5 billion in sales tax exceeding $28 billion, first 35% of motor vehicle sales tax that exceeds $5 billion each year
  • Sales tax transfers were deferred to 2019 @$.18 billion and 2020 @$2.5 billion, combining all deferrals with future 2021 deferral @$2.5 billion, we are looking at an appropriation amount of $6.8 billion to the SHF in 2021
  • 2018-19 GAA also includes $300 million from Available School Fund, distribution is at discretion of School Land Board at GLO
  • Chair Zerwas – Have heard discussion that this process is “smoke and mirrors,” but it’s clear to me that this is a legitimate budgeting tool
  • Chair Zerwas – Is this something other states use to pay for things?
    • Can certainly look into this, would imagine other states do something similar
  • Howard – Do we have to pay deferrals back within a particular time?
    • SHF deferral anticipates 3 years of collections in 2021
  • Howard – So it has to be within the biennium?
    • Conceptually, it works like paying a deferral back
  • Chair Zerwas – So if this is a transfer, it doesn’t require a specific act by the legislature?
    • Correct, this will be less revenue in GR and more in the SHF, anticipate it will happen without specific act, just an issue of timing

 

Dale Craymer, Texas Taxpayers & Research Association

  • ESF was an effort to smooth out the volatility of the O&G industry, state was much more vulnerable to this when O&G was a larger portion of our revenue
  • Wasn’t originally designed for disaster or one-time purposes, ultimately designed to be used and thus funds are kept liquid and invested in lower yield/low risk
  • Recent years have seen efforts to increase the returns,
  • Right now sufficient balance is $7.5 billion; cautions that artificially high sufficient balance can reduce earning potential, can result in less transfer to SHF, and can result in harm to economy due to lack of use (e.g. private sector could use this money and reinvest)
  • Federal funds used to be deposited in a separate clearing house account outside GR, was brought into GR and artificially raised cap; was not an issue at the time, but now it is a multi-billion dollar issue
  • Suggests taking federal revenue and putting it back in a separate clearing house account to bring ESF cap back where it historically was intended to be
  • Texas has a long history of relying on one-time funding measures, most other states operating on a cash basis can utilize revenue deferrals
  • Cautions that these timing measures can hurt you and artificially add to the next budgeting cycle (e.g. typical payment schedule at 23 months can be 25 months and create compounding budgeting problems)
  • Initially timing measures were used to avoid cuts or higher taxes, today we have the ESF and it is likely better to use the ESF instead of timing measures
  • TTRA anticipated an $8 billion structural gap between the current budget and the next budget, sales tax performance might offset this issue
  • However, this is not necessarily a deficit, state revenue growth could mitigate
  • Howard – Do deferrals also impact our constitutional spending limit?
    • Ultimately it is an obligation to the state that does not count against the limit in the current budget, but counts against the spending limit in the next budgetary cycle
  • Howard – All of these decisions make it difficult to make year-to-year comparisons and educate the public on Texas budgeting
    • Correct, a big challenge in creating a historical database for Texas is netting out one-time expenditures
  • Chair Zerwas – Can you speak to the credit-worthiness of the state?
    • Existence of a stabilization fund is always viewed as a positive, however if the balances will not be used, then rating agencies discount value of the ESF
    • An stabilization fund that will not be used is similar to not having a fund
  • Chair Zerwas – Does not investing the full ESF have an impact on the credit-worthiness of Texas?
    • Rating agencies do look at where the state spends money, if they feel specific needs are not addressed (i.e. pensions) it can be a negative factor
  • Chair Zerwas – If I recall, these issues didn’t affect our rating in the past, but it was a note of concern

 

Monitor the ongoing implementation of Article IX, Sec. 9.13 of the General Appropriations Act and determine if state agencies are realizing cost savings and/or security enhancements in state operations related to cybersecurity, information technology, and cloud computing. Study trends in cloud computing and IT delivery services, and identify whether additional cost efficiencies, economies of scale, or IT modernization could be achieved

Richard Corbell, Legislative Budget Board

  • Link to LBB presentation
  • GAA required state agencies to look at cloud computing services and cost savings, with a DIR report on this by Nov 15 of this year
  • DIR also is working with state agencies to introduce an Application Development Decision Framework, designed to guide agencies toward best practices in IT areas
  • Current major IT projects include QAT contract oversight, SB 533 (85-R) which requires state agency assessment of proposed architecture to ensure agency is using industry standard
  • DIR was appropriated $21.5 million in GAA to provide security policy, assurance, education, and awareness; other agencies received $24 million for new cybersecurity projects and initiatives
  • Other cybersecurity strategies in GAA: State Agency Staff (FTEs), Data Center Services (DCS), Centralized Accounting and Payroll/Personnel System (CAPPS), Capital Budgets, Ongoing Maintenance (Daily Operations), etc.
  • 76% of DCS servers use private or public cloud services, Amazon Web Services and Microsoft Azure are two new major cloud services vendors
  • Cloud services use can mean cost savings, DSHS estimated a cost savings of 40% over 3 years for using Amazon’s cloud system; other agencies have seen reduced maintenance costs
  • SB 532 (85 R) requires DIR to submit a report on cloud services use by Nov 15

 

Stacey Napier, Department of Information Resources

  • DIR assists in contracts through Cooperative Contracts Program by negotiating IT commodities for governmental/education entities with minimum discounts, DIR encourages participants to negotiate additional discounts
  • Bulk services can also be contracted for when multiple agencies are purchasing similar IT goods
  • DIR also acts as oversight in Managed Shared Services program, coordinates with 3rd parties providers to develop & implement shared services in governmental entities
  • Managed Application Services program is designed to help agencies modernize legacy applications
  • DIR also provides various direct services to agencies

 

Todd Kimbriel, Department of Information Resources

  • Reviews differing types of cloud computing services, mostly differentiated on maintenance/infrastructure responsibility and platform choice
  • Distinguishing factors typically come down to contract terms and conditions
  • Cloud computing can be offered through public internet, private portal, or a hybrid model
  • Cloud computing services are becoming more prevalent in private business, public sector slow to adopt
  • DIR has reviewed cloud computing services used by Texas and found them to be secure
  • Also important to consider that not all state functions are appropriate for cloud computing, some functions require quick access to data or might require more control on security (i.e. personal data)
  • Cloud services are not necessarily financially effective, sometimes more appropriate for entities without capital, organizations need to be careful and mature on how they adopt these practices
  • DIR has policies for regulated data being placed into cloud services, some regulated data is allowed to be placed in these environments
  • Main benefit of cloud services is allowing organizations to focus IT efforts on other specialized IT projects and offload data storage functions
  • 2017 agency adoption for could services is up to $1.4 million, higher education in $963k, other metrics show increasing utilization over the last biennium
  • Agencies are about 75% in cloud services, including Microsoft 365 and others
  • DIR surveyed on cloud use in January, responses have been gathered and on track for reporting by Nov
  • 78% of agencies utilize cloud for email, 48% use for business continuity, 43% use storage, 39% for office productivity, 13% did not want to use cloud services
  • Chair Zerwas – Why would the 13% not want to use these services?
    • Unclear, part of vetting the data
  • Hesitation generally stems from security concerns and data migration costs
  • Agencies are definitely using cloud services, but doing so with deliberate caution; expecting more adoption as regular IT refresh process hits agencies & when legacy programs are updated
  • Capriglione – Have been hearing of security issues more and more, would like to talk about costs associated and cloud issues; how many attacks are we getting hit with?
    • Has increased quite a bit since December, in the billions per month
    • Most are blocked from the systems that we have in place without human intervention
  • Capriglione – can you give us some examples of attacks?
    • Most consistent threats are ransom-ware, using computers for crypto-currency mining
    • See a lot of attacks from China and Russia, sometimes computers within the US are compromised and used to launch more attacks
  • Capriglione – Legacy modernization has been an IT priority, do we have an idea of what the modernization need is?
    • DIR was required to build a legacy modernization guide, in process of rolling out workshops to educate agencies on how to best update legacy systems
    • Previous report identified 60% of state systems as “legacy,” highest risk portions of this were funded last session
  • Capriglione – Have seen instances where agencies in DCS wanting outside cloud services would need an exemption & instances where shared services are more expensive
    • Napier, DIR – Exemption is needed to ensure security controls are similar to our systems
    • Agencies not in DCS can purchase 3rd party cloud services under $5 million through DIR Contracting Program, over $5 million would be validated through QAT
  • Capriglione – How does DIR determine what is needed for each contract?
    • Depends on the size of a given project, different thresholds will trigger different review
    • Kimbriel, DIR – Ultimately DIR evaluates these exemptions on whether they are in the best interest of the state, challenge is that higher volume means unit price is reduced
  • Capriglione – How are costs determined for agencies wishing to use DCS or 3rd party services?
    • Amazon has pre-determined price sheet, Amazon charges Atos, Atos charges DIR, DIR charges the agency
    • Down 2% on cost from when DIR met original consolidation target
  • Capriglione – So there are a couple of middlemen between agencies and the service, where is the biggest cost growth?
    • Contract prices are generally coming down, currently evaluating how the cost model will work with the next data center update
    • DIR cost recovery is 2.5% and hasn’t changed, MSI fee is about 12%, Atos is the lion’s share of the current appropriation
  • Giddings – Do you have education material for agencies on lifespan on these IT projects?
    • DIR does, it is called currency & we do not allow software in DCS if it is older than two generations before current, also refresh 20% of hardware each year
  • Giddings – If an agency wants to issue an IT RFO, they consult with you?
    • Up to agency to seek DIR input on an RFO, but we do review SOWs for maintained contracts
    • RFOs are reviewed by QAT if above $5 million
  • L Gonzales – Where are we in contemplating whether legacy costs should be on us or on private vendors’ books?
    • This can be part of our next-gen research to see what makes sense for the next iteration of program
  • Howard – Who owns the data center?
    • A leasing agent owns the building in Austin, lease is held by Atos
  • Howard – Asks after cloud computing and if state operations could be improved through increased use
    • Cloud services are able to build new features faster than we are able to, hybrid solution concept theoretically leverages the best of private and public data centers
  • Howard – Trying to understand cost/benefit of agencies hesitant to switch to cloud services, could we build something in to make it more of an incentive for agencies?
    • Could be part of the next-gen service, incentive could be useful
    • Migration cost includes cost of duplicative infrastructure while the new solution is built, cost can increase in the early phases while both are running
  • Howard – Asks after shared services contracts
    • Currently the model allows for providers to recoup costs and gives opportunity for DIR to redraft contract portions, can get the info to you
  • Capriglione – Where does DIR get involved in IT projects for agencies in DCS?
    • Agencies should include concerns in RFO, DIR discusses upcoming IT projects concepts daily with DCS customers
  • Capriglione – What is Atos’ cut in this process?
    • Generally included in core price, somewhere between 8-10%

 

Monitor the ongoing implementation of S.B. 20 (84R), S.B. 533 (85R), and S.B. 255 (85R). Study the processes by which state agencies award, execute, manage, and monitor state contracts, and make recommendations on whether any changes are necessary to safeguard the best interest of the public and state. Evaluate measures utilized to determine vendor performance, and make recommendations on how to improve vendor selection and performance. When reviewing the Health and Human Services Commission’s (HHSC) managed care contracts, determine if HHSC has adequate data, staff, and processes to provide appropriately rigorous contract oversight, including but not limited to the use of outcome metrics. Consider whether HHSC properly enforces contractual sanctions when managed care organizations (MCOs) are out of compliance, as well as how HHSC uses Medicaid participants’ complaints regarding access to care to improve quality

Ben Cross, Legislative Budget Board

  • Link to LBB presentation on general contract reporting & oversight
  • Required agencies to report contract metrics after close-out for contracts >$25k, concept is to track vendor performance
  • Vendor Performance Tracking System usage has been low however, 14.8% of contracts that meet threshold have review in system
  • LBB is monitoring usage and intends to survey to determine why usage is low
  • SB 20 (84) also required agencies to publicly post contract, SB 533 (85-R) amended these requirements by exempting posting if the contract is submitted to LBB database
  • SB 255 (85-R) requires a state agency that spends more than $5,000 in a state fiscal year for a training or education program for any individual administrator or employee to submit an annual report to the LBB, due Aug 31, 2018
  • GAA requires a letter, signed by the executive commissioner or designee, for each procurement over $10.0 million and noncompetitive procurement over $1.0 million
  • New rider requires reporting of amendments altering value by 10% or more, Between September and November of 2017, 61 agencies and institutions of higher education reported 1,424 amendments to the Contracts Database that met the value threshold
  • LBB is also involved in contract oversight to ensure compliance with best practices
  • GAA also contained a cost containment rider requiring $34 million in savings, report due on Aug 31 of this year
  • Agencies are required to submit Major Information Resource Project contracts valued over $10 million to QAT for review and approval
  • Capriglione – 172 out of 233 agencies are complying with SB 533?
    • Correct
    • Parks, LBB – Some agencies not reporting might not have contracts to report
  • Walle – Why would agencies not be complying?
    • Many agencies who have not reported, when informed, are surprised/unaware of requirements; deficiencies are typically corrected quickly
  • Walle – There have been a series of laws on this
    • Most agencies are now aware of this, requirements are new
    • Suspect that most agencies not reporting now do not have applicable contracts
  • Perez – What percentage of contracts are over $10 million?
    • Cross, LBB – Can look into this and get back to you
  • Perez – Do all state contracts have small business participation goal?
    • All agencies are required to adhere to HUD, Comptroller looks at this

 

Robert Wood, Comptroller’s Office

  • Comptroller Hegar has charged us with working with agencies on contract compliance
  • State has a number of agencies that do procurement, but largely consolidated
  • There is a need for basic-level procurement training for agencies, however; procurement and contracting training has been moved in-house into the Comptroller’s Office, has reduced cost for this program & allows training to be more adaptable to contracting issues
  • Vendor Performance Tracking System has been updated over the last several years, but need to get agencies more up-to-date on requirements and improve compliance
  • DIR, SAO, and Comptroller’s Office are collaborating extensively, working on QAT; interagency cooperation has improved and will set foundation for process improvements
  • Ongoing challenge to educate new and older crop of procurement personnel
  • Also many overlapping rules, agencies are focused on process, but not necessarily best value for the state
  • Simmons – Do you think that the Comptroller has enough authority to pursue this?
    • Question is how much of a threshold the legislature wants, Comptroller’s Office is not the subject matter expert
  • Simmons – Do you believe we can have a framework that all agencies can operate under, despite subject matter?
    • Yes, I believe we do have this, framework exists and agencies are getting better at this
  • Simmons – Does the Comptroller have the oversight on contracting processes
    • We have the responsibility to provide processes, ultimately SAO function to decide if agencies have followed the process
  • Simmons – Would like to essentially have a scorecard for agency performance, does anyone do this?
    • Unless the agency does it themselves, not aware
    • Comptroller has a risk matrix that builds in some of the factors of concern, agency risk could be incorporated
  • Capriglione – Asks after progress of Contract Management Guide update
    • Have been working on this, anticipates the guide being available June 1
  • Howard – What do we use now to educate agencies on contract management?
    • Guts of Contract Management Guide has been rolled out in contract training courses
    • Rewrite incorporates cites back to law, incorporates recommended clauses, etc.
    • Training currently is a 3-day course with a UT system administered test, refreshed every 3 years
  • Simmons – How has HHSC been doing in following contract procurement guidelines?
    • Comptroller’s Office has looked back at where we interfaced with HHSC contracts
    • We have a lot of challenges with HHSC, would be good to bake in struggles in future risk matrix
  • Chair Zerwas – Do you ever get into specific procurement software?
    • We look at solicitation itself, don’t typically look into software
  • Raymond – How many contracts does the Comptroller’s Office procure itself? Do you think you do a perfect job?
    • Around 1,500, cannot do a perfect job
  • Raymond – Was wondering how close to gold standard the Comptroller’s Office is
    • Have been improving significantly in the last 3 years

 

Benjamin Cross, Legislative Budget Board

  • Link to LBB presentation on HHSC contract reporting & oversight
  • 5% of contracts over $10 million
  • TxEVER contract was originally $7 million, but was amended to $17 million; HHSC contracted with Genesis Systems to build and host system, but did not obtain the proper DCS exemption
  • Hidalgo and RSA CHIP services contracts were awarded to Molina (@$121 million) and Superior (@ $614 million), contract scheduled to end Sept. 1, 2018
  • HHSC began a new procurement for a bridge contract between 2018 and 2020 for the region, however errors were found and HHSC cancelled the bridge
  • HHSC released new solicitation for CHIP providers in these regions, with contracts expected to begin in 2020
  • HHSC currently maintains 48 active managed care contracts @ $91.7 billion, top 10 MCOs have contracts worth $79.3 billion of that total

 

Mike Diehl, Legislative Budget Board

  • Appropriated $1.3 billion in all funds for Medicaid and CHIP contracts and administration
    • Rider 195 – requires HHSC to obtain written approval from the LBB and the Governor to transfer funding, FTEs, or capital budget authority into or out of the Medicaid and CHIP Contracts and Administration strategies and has not sought such approval.
  • Appropriated $960 million in All Funds for HHS System Oversight and program support functions
    • Rider 181 allows transfers between HHS System Oversight and Program Support strategies, but requires HHSC to obtain written approval from the LBB and the Governor to transfer funding, and has not sought such approval.
  • Rep. S. Davis – testified that the AG can be involved in contract negotiations over a certain amount, how does the AG get involved?
    • Agency would have to request AG help
  • Rep. Capriglione – who provides reasons for amendments over a certain amount
    • Many on the first round were enrollment contracts that started at $0 and grow from there
    • Many were Medicare related, by third quarter we will be able to do more robust comparisons agency by agency
  • Rep. Giddings – Managed Care Oversight Post Award has oversight if requested or “shall” provide oversight?
    • Varies between internal and external oversight and management
    • External oversight, LBB has certain oversight abilities on a case by case basis
    • Federal agencies have ongoing oversight
    • Depends on the entity

 

Charles Smith, Health and Human Services Commission

  • Link to HHSC presentation
  • SB 200 and other contracting bill sought to address HHSC contracting problems, HHSC has implemented bills, changed processes and implemented training
  • However, HHSC has “failed” and is committed to doing better, previously focused on fraud and data challenges, but did not continue to monitor procurement appropriately
  • Apologizes to committee for needing to discuss these issues, will continue to review staff actions and look to needed steps to correct issues
  • HHSC will not be awarding new contracts until a rigorous process is put into place, met with MCOs to commit to fixing issues
  • Process improvements for contract oversight and additional staff postings will help address contracting issues
  • Conducting audit of procurement and contracting services within the agency, developing an RFP for a consulting firm

 

Ron Pigott, Health and Human Services Commission

  • SAO audit of TxEVER contract
    • Final valuation of vendor proposals was not correctly calculated, personnel responsible for this contract was also responsible for errors in CHIP RSA RFP
    • HHSC did not verify vendors’ reported qualifications as specified in the solicitation
    • Did not correctly get a data center exemption and was not reported correctly to LBB database
  • HHSC agrees with SAO finding and working to ensure problems are eliminated
  • Surprised at reference check language in the contract suggesting HHSC would review references for every applicant, did not make sense and unsure why language was in
  • Working to ensure there are no more issues with DCS waiver
  • HHSC has moved to CAPS, has modules built out to help view actual expenditures, these improvements were not rolled out at the time of this contract and cause legacy data to be sent to LBB regarding contract value
  • Charles Smith, HHSC discusses previous problems with staff not following procedure, describes how HHSC terminated staff and put into place new processes for review of IT procurement, particularly regarding DCS review
  • CHIP RFP
    • Posted on Jan 5, 2017 for the Hidalgo and Rural Service Areas
    • Bridge Contract to get from Sept 2018 to Dec 2019
    • New statewide RFP was posted on April 6, 2018 and will take effect on January 1, 2020
  • Walle – Once this contract ends, you will reopen a new contract for children covered under this, they will be dropped by the current provider and then need to go through eligibility review again
    • Smith, HHSC – Individuals who are with a managed care organization today will remain with that MCO under the newly promulgated contract, bridge CHIP RSA contract is no longer being implemented & new solution will not switch providers
  • Simmons – Asks after the ranking of the contract given that we were intending to select other service providers
    • Pigott, HHSC – Can’t tell you what the actual ranking would be
  • Simmons – Just trying to understand as if we had different providers selected, surely there would have been rational
    • Smith, HHSC – Competitive market means that while providers may be adequate, an entity can appear that is better in a given time
    • MCO and provider oversight functions are separate from procurement and did not experience the same issues the procurement functions did
  • Perez and Smith, HHSC discuss the difficulties of staff not following guidelines, HHSC is bringing in a quality control team to oversee contract assurance personnel
  • Perez – Asks after the TxEVER contract value misreporting
    • Pigott, HHSC – Data leading to $7 million value was legacy data and reported to LBB initially, contract value was adjust to $17 million after LBB validation
    • HHSC
  • CHIP RSA scoring tool had two large problems – keying in scores initially and outlier data, had issues with staff not performing due diligence in evaluating purchasing data
  • Also had issues where certain numbers were being zeroed out and resulting in low evaluation scores
  • HHSC began the deep dive when they received complaints from Superior, halted contract before CMS approval
  • Scores were tabulated on December 20, 2017 & awards were made beginning this year, issues were found after scoring documents were released
  • Current timeline expects submissions by July 2, 2018 and expects start date of Jan 1, 2020
  • Typically, oversight is supposed to ensure there are no keying errors or tabulation errors
  • Chair Zerwas – How many vacancies do you have for these staff?
    • Difficult work, purchasing work sees few responses
    • Evaluators are typically drafted by managers, so easier to fill vacancies
    • Smith, HHSC – Reallocated some positions to PCS and oversight staff during transformation, in the process of filling some slots
  • Zerwas – Perhaps consolidation may have been component, trying to do things the same old way and not sure that is the answer, have you taken a step back
    • Smith, HHSC – Request for deep dive on policies and procedures, ask them to look at other efficiencies at other state agencies, 100% confident that internal audit, SAO and IG will come back to make recommendations to make sure they reinvent themselves
  • M Gonzalez – Asks after vendor participation, if HHSC is concerned about solving issues for vendors within the system
    • Smith, HHSC – Yes, vendors want a reliable system and focused on maintaining this
  • M Gonzalez – Not what trying to imply, seems like other things feel through the cracks and if she were vendor would be very concerned on something that messed up on multiple steps
    • Smith – Will make sure they meet with any vendor, no shortage of vendors who want to work but will assure them their processes are sound
  • Chair Zerwas – Asked about Chief Operating officer leaving
    • Pigott, HHSC – process for procurement has QAT heavily involved in scoring process
    • Next steps – told MCOs will be extending certain contracts, internal audit deeply engaged and working closely with SAO and Inspector General Office and will add processes as they go
    • Working on how to handle outliers and vendor meetings
    • Need to go back to basics, they are professional purchasers but they are not assuming anything
  • Rep. S. Davis – Want to publicly thank Commissioner for work regarding land in Harris County for mental health and thanks him for being there to acknowledge some systemic failures, feels there has had to been a huge meltdown to get attention on this
  • Rep. S. Davis – asked more about quality assurance team being brought in?
    • Will post positions and bring people in who double check the work
    • Temporary positions for next 5-6 months until they get audit reports back
    • Heightened level of oversight and vigilance and will make sure they will get contracting right
  • Rep. S. Davis – Why didn’t do this 18 months ago and why not permanent?  You have problems in every area and recent audit makes that clear? Would Quality Control Team be doing anything else?
    • This team is for procurement only
  • Rep. S. Davis – What is Tommy Williams role?
    • Still with Governor’s office but he will provide oversight and guidance and make sure they are dotting Is and crossing Ts – make sure changes are being made and changes are comprehensive
  • Rep. S. Davis – What does that mean, what is day to day?
    • Meetings, asking for documents on processes until he gains knowledge of what they are doing so he will be another set of eyes in addition to staff but ultimately decisions made will be Smith’s
  • Rep. S. Davis – Did you seek AG help in contact negotiations
    • No, they were not involved
  •  Rep. S. Davis – since June 1, 2106?
    • Pigott- Yes required to involved them for certain contracts
  • Rep. S. Davis – any of the contracts by state auditor
    • Pigott – Not sure off top off head
  • Rep. S. Davis – Unallowable expenses mentioned in audit?
    • Will be addressing by May
  • Rep. S. Davis – Are we endangering federal dollars by having sloppy process? Would be devastating to lose federal dollars?
    • Not aware of any thing on that, federal does not get involved in these types of issues unless it was found something was being done criminal
  • Rep. Dean – If I ran my business the way the agency ran contracts, would be out of business. Strong suggestion is to get act together quickly and do it the right way efficiently, but need results and resolutions sooner rather than later
  • Rep. Capriglione – Thanks Commissioner for coming “once again” to apologize and saying “one again” they will have to fix things, it is contract and procurement team that has failed
  • Rep. Capriglione – Notes the different value of contracts require differing steps, noted attestation letters they spoke about last year which meant vendor would not get check unless everything was right but based on timeline he looks at – April 3rd an attestation letter was signed which allowed payment to be made and on April 6th the contract canceled
    • Smith & Pigott, HHSC – differ with his account on timeline and on what contract was canceled, believe they are talking about differing contracts
  • Capriglione – you don’t know what attestation letter you signed?
    • Pigott, HHSC – don’t recall
  • Capriglione – and contract was canceled on April 6th? What happened?
    • It was April 9th, then canceled based on deep dive as a result of protest letter from Superior
  •  Capriglione – asked about protest letter and timeline
    • Asked Superior is they wanted to delay protest letter – argument was they were better than Molina but they had no facts to base it on
  • Rep. Capriglione– did you go back to check, your evaluators went back and said it was all go
    • They were comfortable with contract awards
    • Superior said we looked at scoring tools and here is where we find scoring errors
  • Rep. Capriglione– on April 2nd Superior said there was a problem, but you made payment on the 3rd that everything was right
    • The fact that there were math errors does not mean contract not right
    • Said payments should be going out at time of execution
  • Rep. Capriglione– Asked about attestation letters and if witness remembers their discussion
    • Yes, criminal penalty
  • Rep. Capriglione – Lets go to DIR in regards to Genesis product, it took 9 months to go from letter to DIR to first contract amendment, why does it take 9 months and what are reasons for substantial price increase and increase in the amount of time
    • Not over the project but will try to answer as best he can, he does not process amendments
    • Believes IT asked for waiver from DIR, knows it takes time and then someone go back to Genesis and work out process and cost element believes they extended it out and it took 9 months in this situation
  • Rep. Capriglione – In terms of awarding and scoring
    • Subject matter experts that work for HHSC
  • Rep. Capriglione – Putting this stuff inside excel, you said this is a one-off tool?
    • For TxEVER project yes
  • Rep. Capriglione – clarification on tool used for TxEVER and CHIP Hidalgo, why was one off tool created just for TxEVER
    • Don’t know why it was done, not efficient and not policy
  • Rep. Capriglione – who gives authority, who makes tool on their own
    • Based on his review, looking at document for people who are no longer here
    • Believes director told them not to use tool
  • Rep. Capriglione – Have you gone back through contracts to see if tools like this were used to see if any problem
  • Rep. Capriglione – Who did they work with?
    • Associate Commissioner for Procurement Operations
  • Rep. Capriglione – This is only team using this tool?
    • Explains goods look for lowest price, services team uses approved tool
  • Rep. Capriglione – How often do vendors complain about scoring tool
    • Don’t get this a lot, it was a new experience
    • First time seen one that said scoring tool was completely flawed
    • First letter was them not understanding how they could not have gotten as big of a contract as Molina
  • Rep. Capriglione – What are positions of oversight right now besides internal audit?
    • Smith, HHSC – Trying to understand what is meant with that question
    • If looking just from procurement perspective there is none, Quality Assurance team should provide oversight and these are things they are looking at going forward
  • Rep. Capriglione – believes part of fix needs to ensure closed loop system, how long do you think this complex group had created and worked on different type of tools?
    • Pigott, HHSC – With particular purchaser seems to be what she was using but rest of group is using the template
  • Rep. Raymond – Believes in Commissioner Smith’s integrity and concerned some of questions are questions of him and does not think that is fair, how much do we spend on Managed Care, will do everything he can to make it best Managed Care in the country and they have created the largest state agency in the country and there will be human errors
  • Rep. Raymond – 21CT was different, was a bad deal and thinks it good you can count on folks in private sector to check on math, but thinks its important committee be fair and thinks Commissioner does a great job and don’t need to scare people away from working for the agency
  • Rep. Giddings – Doesn’t know how many years ago it was when they decided to make one super agency, thought it was a mistake at the time but it caused her to believe that there would be opportunities for agency to make errors.  Appreciates Commissioner being forthright. Heard there is 108,000 contracts at $60 billion – we chose to create this, probably the biggest agency in state government anywhere
  • Rep. Giddings – Will have to get arms around this and get it fixed, has anyone thought about reorganization because that is what she is hearing in terms of who reports what and who does what
  • Chair Zerwas – Echoes appreciation to Commissioner and notes they talked yesterday ahead of time on what to expect during hearing, looks forward to following up on finding remedy

 

Sylvia Hernandez Kauffman, Inspector General for HHSC

  • Provided main overview and focus of office
  • Focusing on 4 key activities: 1) retrospective with a focus on prevention, 2) strengthening oversight of Medicaid and contracts, 3) strengthening collaboration at all levels 4) continue to introduce rigor and professionalism in everything they do
  • Activities engaged in: 1) audits, 2) utilization reviews, 3) inspections
  • Before MCO audit is started, the topic is thoroughly researched
  • Briefly highlighted several audits (IT audits associated with security, etc.)
  • HHSC is the only entity assessing nursing home resource utilization in the state
  • Reviewed targeted examinations regarding managed care
  • Have received 115 referrals this year
  • Started Texas Fraud Prevention Partnership to identify high risk providers
    • Have partnered with OAG fraud prevention unit and Financial office at HHSC
  • Recommendations related to cost avoidance and SIU activities are listed in
  • Rep. S. Davis – Does OIG have contracts with outside vendors?
    • With DXC Technologies for Medicaid fraud abuse and prevention
    • There are others, but will provided a list
  • Rep. S. Davis – Is it allowable for the state investigator to audit OIG?
    • I believe so

 

Continue to evaluate the effectiveness of state agencies’ use of funds appropriated during the 85th Legislative Session for border security operations. Examine existing data and reporting on border security metrics. Monitor federal efforts to enhance security along the Texas-Mexico border to ensure that state resources are utilized optimally

 

Angela Isaack, Legislative Budget Board

  • Link to presentation
  • 2017 began collecting performance data and expenditure data on border security – in process of analyzing data
  • In process of getting interactive online system for public information regarding border security
  • Described FY 16-17 expenditures for border security by agency
    • Some items are statewide initiatives are outside of the border areas geographically
    • DPS 10-hour days, etc.
  • Reviewed line item expenditures
  • Texas soil and water conservation board and DMV will have border security initiatives this biennium
  • ~$80 million transferred to Texas guard from DPS for maintaining national guard deployment
  • President has directed Secretary of Defense to deploy National Guard to border, Governor has expressed interest in increasing deployment until reaching 1,400 personnel

 

Steve McCraw, Texas Department of Public Safety

  • Responsibility of federal government to secure the national border, Texas has dedicated billions to a federal mission
  • State government has wanted DPS and law enforcement to conduct “surge” operations to combat increased smuggling behavior this year
  • Border data collection primarily focuses on Uniform Crime Reporting (UCR) and National Incident-Based Reporting System (NIBRS), only some uniformity in reporting UCR data
  • Data collection and validity is important to border security operations, Sheriffs identified data problems in getting data from other involved entities, state legislature dedicated funds to solve these issues
  • Border Security Operations Center in Austin works closely with Texas Rangers
  • Data collection has been very controversial, considered law enforcement data and not necessarily publicly accessible
  • Summary reporting is still a challenge, we do not have accurate reporting on organized crime activity in a given area, for instance; NIBRS data could help
  • 178 of the 1,055 border involved agencies are reporting NIBRS data
  • Difficult to model actual border crime activity via using apprehension alone, do not see the incidents that are not reported & offenders not captured
  • Longoria – You mentioned the federal government will put increased resources, do you anticipate the state being able to reduce commitment and maybe save some money?
    • Right now, security threats are serious and there are not enough resources currently
  • Longoria – If the federal government increases amount of agents, can we scale back spending?
    • Absolutely, but we need more troopers and special agents & not necessarily recommending less money for the department
  • M Gonzalez – There has been an increase in federal commitment and state spending with a similar decrease in apprehension; are we always going to need to devote more and more resources despite need of local communities?
    • Personally, state should not spend any money on border security, should be federal government’s responsibility
  • M Gonzalez – Can you tell me the cost of border security aircraft and airtime, etc.?
    • Currently 8 helicopters and 3 aircraft, can get specifics to you
  • M Gonzalez – Can we use these resources elsewhere or for non-border purposes?
    • Yes, used during Austin bombing incidents
  • M Gonzalez – Takes issue with language used in DPS language, “illegal aliens” v. “undocumented immigrants”
    • Always use “illegal aliens” as it is a legal and statutory term
  • M Gonzalez – There are some in Texas communities that find this important, specifically in reference to children
    • Will go back and talk to staff and try a consistent approach
  • Dean – Should look at this issue from the perspective of how much the state can save if the federal government puts sufficient resources in
    • Wouldn’t need a lot of organizational services and continuous operations
  • Longoria – Is there a way we can get into a partnership with border security organizations using our infrastructure and obtain some kind of reimbursement?
    • We have been consistent in our desire for reimbursement, but have not had specific discussion about charging border patrol entities on the federal side
  • Longoria – Important to look at this as federal government might want us to continue operations and continue use of our equipment
    • Anticipating use of Operation Stonegarden funds, makes sense to at least reimburse maintenance of aircraft, etc.
  • Howard – So when we are justifying deployments on arrests or seizures versus deterrence, we don’t necessarily get the complete picture?
    • Important to look at incident reports to inform your view of the problem, arrests will not tell you if you have a handle on the problem

 

Bill Wilson, Texas Military Department

  • Have always supported other agencies border operation under direct command of the Governor
  • Have 115 soldiers in support of border operations, fairly steady & have federal funding for support measures
  • Did not receive any specific appropriations from the 85th for “Operation Secure Texas,” came from an interagency contract
  • M Gonzalez – Are you going to get federal funds to support National Guard deployment, can this be used for facilities
    • Received $19 million from Texas two sessions ago, matched with $26 million federal funds
    • Received $11 million this past year, budgeting is tight
  • M. Gonzalez – Do we need to have more troops on the border?
    • Not prepared to answer this question
  • Howard – Regarding compensation for current border deployment, is that being paid by the federal government?
    • Yes it is, we have 12 employees on our payroll will finish out this month, the other soldiers were converted to federal payroll in place
  • Howard – You’re still going to be available to support during hurricanes, etc.?
    • Absolutely

 

Nancy Carales, Office of the Governor

  • Presenting on the homeland security grant programs administered by Office of the Governor, which provide grant funding to border communities, incl. $2.9 million in Cameron, $5 million in El Paso, and $8.4 million in Hidalgo
  • Grant types include Border Prosecution Unit grants @$5.7 million, Local Border Security Program @$5.2 million, Border Helicopter grants to DPS @$3 million, Border Cameras grants to TMD @$2 million, NIBRS grants @$4.7 million in FY17-18, Anti-Gang center support grants @$5.2 million
  • OOG also has federal grant funding through Operation Stonegarden supporting border security operations, $19.8 million in FY18

 

Grahame Jones, Texas Parks and Wildlife

  • TPWD game wardens often lead in search & rescue operations, as well as border patrol along the Gulf of Mexico, Laguna Madre, Rio Grande, Falcon Lake, Amistad Reservoir, rural ranchlands in south and west Texas
  • Collaboration with other entities involved in border security is high
  • TPWD focuses on leveraging navigation expertise, community relationships, and prohibiting illegal game poaching activities; Vessels often cross the border in US waters illegally
  • TPWD has also been involved in drug seizures

 

Bentley Nettles, Texas Alcoholic Beverage Commission

  • 143 law enforcement agents were deployed to Victoria, Houston, etc. to secure distribution centers and support local law enforcement
  • Received $1.2 million in 16-17 for six FTEs in Special Investigation Unit, received $1.2 million in 18-19 GAA as well to continue
  • Also directed to repurpose portion of budget and focus on border security operations, TABC SIU has been active across the border and can leverage administrative authority

 

Public Testimony

 Luther Elmore, American Federation of State, Council, and Municipal Employees

  • State has been underfunding ERS, state attempted to fix by increasing state and member contributions, but lowered returns have exacerbated underfunding problems
  • Investing the ESF could help solve some of these issues
  • Howard – Idea makes sense, thanks AFSCME for its support

 

Josh Weatherly, Amazon Web Services

  • Many private and public entities have taken advantage of AWS, Texas can realize additional cost-savings by expedited move into cloud-based services
  • Private data centers are costly in terms of capital, difficult to maintain, and could be waste of resources if not utilized

 

David Meredith, Rackspace

  • There is a global trend towards IT modernization and use of cloud-based computing
  • Cloud computing can help alleviate some of the maintenance and administrative burden, Rackspace assists customers in taking advantage of this
  • Capriglione – Would like an idea of savings potential, efficiency, security, etc.
    • Weatherly, AWS – Security is paramount at Amazon, cloud is an agile and responsive product for customers
    • Meredith, Rackspace – Rackspace has access to tools that no one customer could leverage on their own, each approach needs to be personalized

 

Rachel Hammon, Texas Association for Homecare and Hospice

  • GAA Riders directed much-needed changes in HHSC process, EVV is the most pressing issue
  • SB 894 (85) required HHSC to review EVV system, report was submitted; Also required HHSC to form a workgroup to improve the system, has been formed and is working
  • New model has been developed, but will take ~15-19 months to implement and does not solve current issues
  • HHSC chose a “closed” EVV system in 2009, providers must pick a state-vetted vendor of EVV and cause several vendor change problems
  • HHSC is soon to cancel one of the EVV contracts due to data issues, very expensive and difficult to transition
  • Asking for HHSC to cease all recoupment activities, also asking for HHSC to cover delivery of SADs for EVV use; Could work similar to home telemonitoring program
  • Also asking that HHSC cover costs on system administration, etc., providers are overburdened on EVV implementation

 

Katie Naranjo, A Pineywoods Home Services

  • Serves a very rural population with limited access to care,
  • Care coordinators can wait anywhere from 30-45 minutes on the phone with MCOs to verify documentation, very difficult to do & only allowed to discuss 3 clients in each call
  • HHSC has had no response to wait times or access issues
  • Complaint process is also counterintuitive, often have to complain to MCOs about the MCO & complaints go nowhere

 

Jonathan Scepanski, Apex Primary Care

  • EVV contracts carry a large number of associated costs, basically an unfunded mandate
  • Have no issues with EVV, but system implementation is faulty
  • Longoria – Committed to helping providers with these issues

 

Julie Melton, Pediatric Physical Therapist

  • MCOs are not following federal definitions of “medical necessity” under EPSDT, have met with MCOs who believe that HHSC does not require them to follow this definition
  • Other MCOs, like BlueCross, have been made aware of law and recent court rulings and have complied
  • Have filed complaints, but no response yet

 

Kellie Barr, Herself

  • Care Options for Kids contract with Superior has caused issues, cannot change companies for some foster care clients
  • Evaluations have missed some very serious issues, have had continuous problems

 

Marilyn Schmiedel, Herself

  • Share personal experience of daughter with severe medical issues having access issues, MCO has been doing a good job, but the providers are not being paid

 

Hannah Mehta, Protect TX Fragile Kids

  • Proper care is based on accurate and good data, but HHSC seems to have issues collecting adequate data, parents and clients are not being taken care of
  • Complaints on all issues are frequently closed or forwarded to the MCO without HHSC investigation

 

Fatima Menendez, Mexican American Legal Defense and Educational Fund

  • MALDEF opposes extensive spending on border efforts and attempts to “militarize” the Texas border
  • Funds would better be spent on updating and supporting crucial state functions, like the school finance system
  • State agencies take credit for US operations, misrepresenting statistics
  • Rio Grande Valley needs economic support rather than border security activities, residents in this area do not feel safer due to border security efforts
  • Should invest in legislation incl. training for state law enforcement officers, proper metrics for success of border operations, creation of ombudsman, and support border area infrastructure

 

Closing Comments

  • Chair Zerwas – Will meet again on May 24