1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JUNE 23, 2015 10 11 12 13 14 ITEM P 15 OTHER ADMINISTRATIVE MATTERS 16 ITEM P1 17 EXECUTIVE DIRECTOR'S REPORT 18 2. CROS PROJECT UPDATE AND ACTIONS 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Sen. George Runner (Ret.) Vice Chair 6 7 Fiona Ma, CPA Member 8 9 Diane L. Harkey Member 10 11 Yvette Stowers Appearing for Betty T. 12 Yee, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief, Board Proceedings Division 16 17 For Staff: Eric Steen Director, CROS Project 18 David Gau 19 Chief Deputy Director 20 21 ---oOo--- 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 JUNE 23, 2015 4 ---oOo--- 5 MR. HORTON: Ms. Richmond. 6 MS. RICHMOND: Our next item is item P1.2, 7 CROS Project Update and Actions. 8 MR. HORTON: Welcome to the Board, Mr. 9 Steen. 10 MR. STEEN: Thank you. Good afternoon, 11 Members. 12 MR. HORTON: Glad you made the trip, man. 13 MR. STEEN: Thank you. 14 MR. HORTON: You're okay. 15 MR. STEEN: Good afternoon, Members. Eric 16 Steen, CROS Project Director. 17 Last month I reported that the Department 18 of Technology CalTech postponed the receipt of 19 proposals from mid-June to mid-July, until they had 20 received an approved integrated master schedule from 21 us that spans the next six to seven years. 22 Since then, we have furnished two separate 23 integrated master schedules to the Department of 24 Technology. However, as of June 18th, the 25 Department of Technology has postponed receipt of 26 final proposals until mid-October. And their 27 rationale is that they believe that BOE will benefit 28 from having this detailed schedule, that we will use 3 1 it for the implementation. 2 They're concerned that the 34 pages of our 3 integrated master schedule is not as long as 4 Franchise Tax Board's schedule for EDR. And they 5 believe that the evaluators could use it for the 6 evaluation, but the evaluators cannot use it for the 7 evaluation. They say it's for us, but realistically 8 it's for them. We are going to replace it once we 9 get proposals and schedules from the -- from the 10 bidders. 11 This four-month delay increases the 12 procurement by approximately $2.8 million and it 13 also delays the solution development and delays 14 further revenue that the solution would bring into 15 the State of California. 16 Now, I want to say that we fully agree with 17 the need for an integrated schedule. We just feel 18 that putting one together now is premature. It's 19 just not -- now is not the time and we've always 20 agreed that we would give one to them and we've made 21 every effort to diligently comply with CalTech's 22 request. In fact, we gave them an integrated master 23 schedule in September of 2014, another one in 24 October of 2014. We gave them one in November of 25 2014, to which they responded in email saying this 26 is very helpful information, good stuff. 27 We didn't hear anything on the schedule 28 until the February Steering Committee, Executive 4 1 Steering Committee, at which point they said you can 2 wait -- we can wait until after the Intent to Award 3 before we put together a finalized integrated master 4 schedule. However, the very next month, at the 5 March Executive Steering Committee, they said we're 6 going to put the procurement on hold until you give 7 us this schedule and we approve it. 8 So we immediately took what we had done in 9 the past, updated it, furnished it to them in March. 10 I requested a meeting with the Director of the 11 Department of Technology at that point. It took a 12 month to get that meeting together. At that point 13 they essentially doubled down and said we want this 14 schedule and we -- it needs to be approved by us, 15 otherwise we're going to put the whole procurement 16 on hold. 17 We gave them another one in May. And, as I 18 already stated, we gave them two more revisions in 19 June. And, quite frankly, the evolving 20 requirements, the delayed responses, and the lack of 21 meaningful feedback on the schedules that we 22 furnished really make it very difficult for us to 23 provide something that's useful, that is something 24 that they're going to approve. 25 And I will say, I'll go on the record for 26 saying that neither this delay, nor this schedule, 27 are going to ensure successful outcome. In fact, we 28 are going to replace this. We're going to spend 5 1 millions of dollars on a calendar, on a schedule 2 that we're never going to use. 3 The reality is that the imposition of 4 unwarranted and costly delays, if this is a 5 harbinger of what will come during the 6 implementation, then likely CROS is going to cost a 7 lot more and take a lot more time than it ought to 8 and it may not yield the best in class solution that 9 we desire. 10 At best, this is a distraction. At worst, 11 this -- we go down the road of yet another failed 12 state IT project. 13 Now, that's the bad news. I know that's 14 not a very rosy picture. The good news is that I 15 would say that the CROS team and the BOE has 16 tremendous resolve. I've been very impressed with 17 their work ethic, their positivity. They continue 18 to work very hard on the pre-implementation, on the 19 procurement, and on this integrated master schedule. 20 Gentlemen like Kris Amir are doing a tremendous job 21 attempting to meet the requirements of the 22 Department of Technology. And so that's very 23 positive. 24 And I would say, the four months that we've 25 been given, we'll utilize that to get in front of 26 issues that could occur during the -- the 27 implementation. So we'll use that time to the best 28 of our abilities. 6 1 I don't have anything else to give you, 2 unfortunately, this afternoon. So if you have any 3 questions, I'd be happy to answer them. 4 MR. HORTON: Ms. -- Member Harkey. 5 MS. HARKEY: I asked for a report on the 6 delays and the costs and what was going on. And 7 there's sometimes in these -- in these IT projects, 8 or in other projects -- 9 First, I'd like to say that I think coming 10 to the State Board of Equalization has been a breath 11 of fresh air. The people that I work with here are 12 truly professionals, very good at what they do. And 13 they try very, very hard to do what they do and do 14 it right and with pride. I've been very, very 15 impressed with our staff. 16 I am really worried that we're going to 17 have more problems with the IT, with CalTech. I 18 don't -- I've not sat at the table with them, but we 19 had such a problem with CCMS, the Court Case 20 Management System, that was a $300 million project 21 that after ten years was over 1.3 billion, still 22 asking for money. It was antiquated, didn't work 23 anymore, and everybody lost faith, except for a few 24 counties that actually were on the CCMS because they 25 were too small to have their own systems. All the 26 large counties built their own and integrated 27 themselves on the court case issue. 28 So I am very, very concerned that we can't 7 1 get cooperation, maybe it is? It almost seems to me 2 like there becomes a butting of the heads when you 3 say you'd like to have something and they say -- you 4 say, well, you know, it's not really -- and they 5 just want to have it. 6 Is -- is that what's going on? I mean it's 7 costing us a lot of money if that's the case. 8 MR. STEEN: We're doing our best to furnish 9 them a schedule that they're satisfied with. It's 10 just not as detailed as they would like. I mean in 11 their defense, they -- they really seem to be -- 12 I've considered that maybe that they felt we were 13 just butting heads. But I really think they're true 14 believers that this schedule is going to be helpful. 15 I just don't see -- 16 MS. HARKEY: I'm not -- I'm not an IT 17 person, so I couldn't look at the schedule and tell 18 you. But the -- the problem is, is that you're 19 saying that if you do it, it's going to have to all 20 be replaced. And that seems like that's just going 21 to set us back and cost us more. 22 MR. STEEN: Yes. It's -- we'll spend 23 millions of dollars on this. I mean it delays the 24 procurement another four months. That's a big cost 25 and we're -- in my opinion, this schedule that we'll 26 put together will be completely revised, if not 27 replaced, based on the information that the vendor 28 is furnishing us. 8 1 I mean it's as if -- I mean if you were 2 going to replace a two bedroom/one bath with a 3 two-story four bedroom/three bath, would you sit 4 down and put together a detailed schedule of all the 5 activities before you hired a prime contractor or 6 before you even hired an architect to design the 7 system, design your house? You wouldn't do that, 8 and -- and we shouldn't be required to do that level 9 of detailed planning for the next six to seven 10 years. It just doesn't -- quite frankly, it doesn't 11 make sense. I've never seen this done. This -- now 12 maybe I'm wrong, but I just don't see this as the 13 panacea to fix State IT projects. 14 MS. HARKEY: Okay. I don't know really 15 what to do at this point, Mr. Chair, but I think -- 16 MR. HORTON: Couple ideas. 17 MS. HARKEY: Go ahead. Thank you. 18 MR. HORTON: Mr. Runner. 19 MR. RUNNER: I guess that's why they call 20 them control agencies and not assist agencies, huh? 21 MS. HARKEY: Control. 22 MR. RUNNER: Let me -- let me just say 23 that, you know, it is discouraging. And clearly, I 24 think, in terms of the -- I think in terms of the 25 view. And let me just kind of maybe step back a 26 little historically in terms of where we've got -- 27 where we've been. 28 And that is, we attempted in the very 9 1 beginning of this project to take on greater role 2 and greater authority, greater responsibility, to 3 basically try to avoid these situations. We were 4 not successful. And so we got wrapped up in what is 5 the normal process for IT projects and developments. 6 One of the issues that we did do in the 7 very beginning, too, is that we chose to bring on a, 8 uh -- a key individual who would have direct access 9 with EDD and with the Board in order for us to be 10 fully informed, what was going on and what the 11 processes were. 12 This was a significant issue for us in 13 terms of the Board. Plus, we know that indeed if 14 there's -- if there's problems and failures, that 15 these become interesting news fodder and, therefore, 16 we wanted to be engaged and aware; and I appreciate 17 that and we have been. 18 It is discouraging. I went to a meeting or 19 so, too, and there's staff dealing with some of the 20 issues with -- with CalTech, and it is -- it is 21 discouraging because I think we're just in the 22 normal, you know -- you know, hamster run of what it 23 is and how it is that they do IT projects, and 24 really without much really effective track record. 25 But we're in it. And I think we just have 26 to figure out, and I appreciate you trying to do 27 your best in trying to figure out how to make this 28 as effective as we can with this delay. 10 1 I know I met a couple weeks ago with the -- 2 with the whole team and thanked them for their work 3 because the last thing I want them to be is 4 discouraged for what they worked. The last thing we 5 need in these -- in these times of delay and these 6 challenges is for our -- our talented staff to feel 7 like they're not getting anywhere. And I think it's 8 always important to kind of look back, see where 9 you've been and know that you are making progress 10 even though it's -- you'd like to do it better and 11 have greater control and greater responsibility. 12 So, again, I think we just need -- I don't 13 think we should accept what they do just lying down. 14 My only problem is that I often times am short of 15 what our alternatives are. 16 And so I think it's important for us to try 17 to fully figure those out, see where those are, you 18 know, whether we -- how we can move forward. But 19 ultimately, we -- it's our responsibility to deliver 20 a good project, and I appreciate your help in 21 that. 22 MR. STEEN: Certainly. We will strive to 23 do our jobs excellently in spite of whatever sort of 24 challenges we face. And thank you for coming, by 25 the way, to the -- to the -- to the CROS team. They 26 really appreciated that. Thank you. 27 MR. HORTON: The -- 28 MS. MA: I just have some questions. 11 1 MR. HORTON: Yeah. Member Ma. 2 MS. MA: I just have some questions, since 3 you're here, and not to talk about the other control 4 agencies and, you know, our frustrations. I feel 5 your frustrations. You know, I've had my share in 6 my office with other control agencies. 7 But I have been meeting with the assessors 8 in my district and some of them have been asking, 9 due to technology and new developments, is there a 10 way for them to put certain information online, 11 submit it to the BOE, maybe so that we can, you 12 know, do some checks to see if anybody's out of line 13 versus the same old way we've been doing it for a 14 hundred years, sending auditors up to an assessor's 15 office, you know, camping out for a week, you know, 16 gathering all the papers and copying and bring it 17 down. I mean, I don't know if that's part of your 18 CROS system, but -- 19 MR. STEEN: Sure. 20 MS. MA: -- certainly I thought that that 21 would make sense and maybe simplify some of our 22 survey, you know, audit practices, you know, when 23 we're dealing with 58 counties, some of them very 24 remote. 25 MR. STEEN: Right. Well, before I make 26 commitments, write checks I can't be cashed here, I 27 want to sit down and find out some of the details 28 around what is being requested. It sounds -- it 12 1 sounds very doable technologically. So I just need 2 to find out in more detail what needs to be done and 3 I'm happy to do that and bring staff in and engage 4 TSD as well so that we can figure out what you want 5 to accomplish. 6 MS. MA: Okay. I'm just wondering whether 7 that was discussed in the past when we're talking 8 about technology and, you know, bringing everybody 9 online. 10 I think the assessors are also an essential 11 part. And, you know, part of -- one of the onerous 12 parts is -- is actually going out to do these audits 13 of these assessors, different assessors, you know, 14 every five years. And so, if there's a way to kind 15 of gather that and figure out whether there is, you 16 know, a problem perhaps, then sending out a team 17 versus every single year, you know, kind of doing 18 the same -- 19 MS. HARKEY: (Inaudible). 20 MS. MA: -- audits. 21 MR. GAU: I understand the issue. David 22 Gau. 23 The -- this issue is not a piece of the 24 CROS procurement, but it is something that I will go 25 back and work on with the Property Tax Department 26 and to see if there's -- how better to maybe 27 electronically transmit and share files so we don't 28 have to be so invasive or burn some other office 13 1 visits. 2 So we'll take that issue and look into 3 it. 4 MS. MA: Okay, thank you. 5 MR. HORTON: Well, I mean, part of the 6 procurement process is the data warehouse and data 7 matching? 8 MR. STEEN: Yes. That will be -- that's 9 part of what we are procuring, yes. 10 MR. HORTON: Through that process, we might 11 be able to modify, to address those concerns by 12 warehousing the data, matching it up and so forth. 13 But I think it's -- I certainly rely on the experts 14 to figure it out. 15 MR. STEEN: Sure. 16 MR. HORTON: Because I know very little 17 about this. So, just wanted to put that on the 18 table, that it may be part of the procurement 19 process as far as a process concern. So I would 20 encourage, relative to Member Ma's inquiry, to look 21 at the processes -- 22 MR. STEEN: Right. 23 MR. HORTON: -- as opposed to the parties 24 that are involved. 25 MR. GAU: Will do. 26 MR. HORTON: We have to have some solution 27 here. Delays that cause two-point-some-million 28 dollars is not acceptable delays. 14 1 This is a massive project on our part in 2 comparison to the Franchise Tax Board. We -- they 3 saw to a similar effort and found that they had 4 to -- to break it down into segments and actually 5 just start with the EDR project. Ours is much 6 larger than that. 7 And so maybe there is a silver lining in 8 this process. And maybe what we have here is what 9 I've referred to in the past as a Cool Hand Luke 10 situation -- which I'm dating myself -- and that is 11 a failure to communicate. Which, in essence, means 12 an understanding of the roles of the parties, the 13 goals and the objectives and what they're trying to 14 accomplish. 15 We're giving them information, they're 16 saying it's not the appropriate information. And so 17 maybe we need to kind of take another visit at this. 18 Possibly, we could have the Directors of CalTech 19 come before the Board and articulate to the Members 20 what they're looking for and what they perceive as 21 the challenge, as a way of mitigating and bringing 22 this together. Or, at a minimum, demonstrating the 23 interest of the entire Board to try to bring some 24 resolution. 25 As you know, you know, I think CROS is 26 absolutely necessary. I don't necessarily believe 27 that it will generate the revenue that it proposes, 28 but do believe that it's necessary and, quite 15 1 frankly, would pay the cost for it irrespective of 2 whether or not it reaches the revenue levels 3 because -- and there may be some things that we can 4 do internally that is sort of unspoken relative to 5 their concerns about the schedule. 6 Maybe they're not necessarily looking for 7 something on paper to say what we're going to do. 8 Because, as it relates to the -- you know, to our 9 existing IT system, one of the issues that has been 10 somewhat concerning me for the last -- for a few 11 years here is the fact that we -- our IT system 12 somewhat operates in silos in that we have an IT 13 system for sales and use tax; we have an IT system 14 for property taxes; we have an IT system for 15 collection; we have different management over that; 16 we have the district administrator managing the IT 17 people in the district. 18 All of that is -- could be -- I would 19 speculate would be cause for concerns as far as our 20 capacity to be able to implement the requirements as 21 we go forward. There are a number of situations 22 dating back to Governor Gray Davis where we've -- 23 there has been issues in the -- in the capacity to 24 implement -- not only on the front end, but also on 25 the back end -- that has caused hundreds of millions 26 of dollars in delay and overrun. 27 So I somewhat disagree in the essence and 28 the importance of having extensive plan in the 16 1 beginning. I think it's important that we have a 2 plan that articulates our capacity or articulates 3 what we're going to do in order to build the 4 capacity, build the uniformity, the synergy as well, 5 in order to address the issues once the vendor does 6 come on board. And I think the best way for us to 7 accomplish that is just to -- let's just see if we 8 can get CalTech in here, before the Board, so that 9 they can tell us point blank what they think their 10 concern is. 11 The other thing that I think is important 12 is for us to understand this term "controlling 13 agencies." You know, they're there because of all 14 these problems that the State has had in the past. 15 And so their sole responsibility, they really don't 16 have a dog in the fight unless there's some 17 personality things going on. But certainly, I think 18 our team is very capable of getting beyond that. 19 And so their theoretic objective and charge 20 and responsibility is to protect the interest of the 21 State. So that would be my recommendation, is let's 22 get the facts in front of us and see what -- what 23 this is. 24 And the -- the other thing is I would 25 certainly encourage our team to address the 26 fragmentation that exists, the silos that exist. 27 Because, quite frankly, what may have occurred, Mr. 28 Steen, is that you may have done an exceptional job. 17 1 The plans and the information that you've sent forth 2 to them may have been exceptional. They just may 3 not believe it, you know. 4 And so we need to figure out exactly what 5 it is, you know. And if that's the case, whatever 6 the real reason behind this is, the sooner we figure 7 that out, the sooner we minimize our exposure of 8 even a further delay or even a ultimate request for 9 us to downsize our project and break it off into 10 segments itself, which they have the authority to do 11 at the end of the day. So the sooner we solve this, 12 the better. 13 MR. STEEN: Mr. Chairman, if I may. 14 First of all, thank you for acknowledging 15 that we've done an exceptional job; I appreciate 16 that. 17 MR. HORTON: You have. 18 MR. STEEN: But -- but I would say there 19 are -- I completely agree with you that there could 20 be many challenges or many impediments to being 21 successful during the implementation. 22 I think -- and in reality we can use this 23 four months -- this four months to address those 24 issues related to being fragmented. Unfortunately, 25 the schedule's just -- it is a distraction, but 26 we -- and to be fair to CalTech, I think they 27 genuinely want to see a success. I just think 28 they're going about it the wrong way. But we can 18 1 use this time to our benefit, to make sure we 2 address the issues that -- some of the issues you've 3 described. 4 MR. HORTON: Here's what -- here's what I 5 would encourage us to view this. I mean we look at 6 controlling agencies, at their -- their statements 7 as requests. We might be better off looking at them 8 as demands that we have to meet or that we have to 9 challenge. And it sounds to me as if though I'm 10 certainly prepared to -- to challenge them if 11 there's something that we can challenge. And I'm 12 certainly prepared to provide the resources to meet 13 those challenges. But we need to -- we need to 14 figure out what it is, you know. 15 And so possibly we'll have them come before 16 us to share with the entire body, you know, what -- 17 what their issues are. 18 George. 19 MR. RUNNER: Mr. Chair, you know, I would 20 be reluctant to have them come before us. 21 Because -- I'll tell you, because I think what we 22 are -- we are a public forum and some of this stuff 23 sometimes just needs to be kind of roll up our 24 sleeves and let's see how to work through this. 25 And so I don't know, before we would do 26 that, I would encourage other Members to go and meet 27 with Carlos when our executives go meet with them, 28 to be in that -- in that setting. Because I'm 19 1 afraid then in a public setting you really can't get 2 down to kind of the things that really at times need 3 to talk through. 4 And I know that in the meetings that I've 5 gone to, those have been much more helpful to kind 6 of get the background and the detail in that 7 process. 8 So I get the idea of bringing people in and 9 having a meeting and having public discussions. I 10 just -- I just would -- I'm not sure we would 11 accomplish what we're wanting to do in that public 12 discussion versus really getting down and -- and -- 13 and talking through things that maybe people may not 14 even want to openly disclose in an open meeting; not 15 because they're bad or negative, but just because 16 they're not appropriate for that public setting. 17 MR. HORTON: Well, I -- 18 MR. RUNNER: So that would be -- I would 19 just encourage that, also, as an alternative in that 20 regard, too. 21 MR. HORTON: I think both are valuable 22 though, Mr. Runner, in that this is a very, very 23 public issue. 24 MS. MA: Mm-hmm. 25 MR. HORTON: This is not a private issue. 26 And the sooner you drag it out in the public and 27 begin to have these dialogues in the public, the 28 sooner -- the less probability that something sneaks 20 1 up and bites us down the road. 2 They can say whatever they want to say, 3 from my perspective. Open transparency, whatever 4 their opinion is and so forth. At the end of the 5 day, we're looking to solve this problem. We're not 6 looking to -- to -- to -- 7 I mean, if there are emotions involved, we 8 can control those emotions from the -- from the 9 dais. If there are personal issues that are brought 10 up, we can suppress -- we can deal with those 11 issues. Those are not issue that are germane here. 12 But to the extent that there are some facts, when 13 you drag it out in the public, that's when the real 14 issues become apparent and that's when you're in a 15 position to best resolve them. 16 So -- 17 MS. HARKEY: Thank you. 18 MR. HORTON: That would be my thoughts. 19 And I'm sure our team is more than capable 20 to deal with this issue, so let's do it. 21 Thank you very much. The Board will 22 receive and file your presentation, unless there's 23 other discussion, Members? 24 Hearing none -- 25 MR. STEEN: Thank you very much. 26 MR. HORTON: Appreciate it. 27 ---oOo--- 28 21 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on June 23, 2015 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 21 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: July 24, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL 22 Hearing Reporter 23 24 25 26 27 28 22