1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JULY 28, 2015 10 11 12 13 14 SPECIAL PRESENTATION 15 CALIFORNIA DEPARTMENT OF TECHNOLOGY OVERSIGHT 16 CENTRALIZED REVENUE OPPORTUNITY PROJECT 17 18 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: Cynthia Bridges Executive Director 18 David Gau 19 Chief Deputy Director 20 Speakers: Carlos Ramos 21 Dirctor/State CIO CalTech 22 Rebecca Stilling 23 Deputy Director IT Project Oversight Division 24 CalTech 25 ---oOo--- 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 JULY 28, 2015 4 ---oOo--- 5 MR. HORTON: Good morning, Members and 6 guests. Let us reconvene the meeting of the Board 7 of Equalization. 8 Ms. Richmond, what is our next matter? 9 MS. RICHMOND: Our next matter is a special 10 presentation for the California Department of 11 Technology Oversight, the Centralized Revenue 12 Opportunity Project. 13 MR. HORTON: Thank you, Members. 14 Members, let us welcome Mr. Ramos and 15 Mrs. Stilling to -- to the Board. Thank you so very 16 much for accommodating our request for an update 17 report from you. 18 We'll now turn it over to Ms. Bridges. 19 MS. BRIDGES: Good afternoon, Chairman 20 Horton and Members. My name is Cynthia Bridges, 21 Executive Director of the State Board of 22 Equalization. 23 Joining me here is Mr. David Gau, Chief 24 Deputy Director of the Board of Equalization, who 25 has worked from the very beginning to bring the 26 Centralized Revenue Opportunity System -- we 27 commonly refer to as CROS -- Project online. 28 In the interest of time, Mr. Gau will 3 1 provide a brief update on the status of the project, 2 and then I will proceed to introducing our guests. 3 MR. GAU: Good afternoon, Chairman and 4 Members. 5 I'm pleased to report that the project did 6 submit a new version of the Integrated Management 7 Schedule to CalTech on July 16th. The detailed 8 schedule accounts for the procurement, 9 pre-implementation and implementation phases of the 10 project. 11 Project staff has been working closely with 12 the CalTech oversight consultant to review it as we 13 speak. We will be making some updates and 14 submitting a revision to that already at the end of 15 this month. 16 In addition to finalizing the IMS with 17 CalTech's help, we are prioritizing enterprise 18 initiatives to ensure that CROS and other mandates 19 are successful and that we continue to deliver 20 excellent -- excellent customer service. 21 BOE has successfully delivered business 22 transformation projects in the past, such as our 23 modernization of our call center and our eServices, 24 and we're equally committed to and capable of 25 delivering CROS. 26 So, with the support of the Board and 27 CalTech, we look forward to completing the 28 procurement and embarking on a successful CROS 4 1 implementation. 2 That concludes my update at this time. 3 Thank you. 4 MR. HORTON: Thank you very much. 5 MS. BRIDGES: At the last Board meeting in 6 Culver City, it was reported by the Project Director 7 that the California Department of Technology, 8 commonly referred to as CalTech, has extended its 9 delay of receipt of vendor proposals from July to 10 mid-October 2015. 11 The BOE department teams, as Mr. Gau 12 mentioned, are working to address issues raised by 13 CalTech so that the project can proceed with vendor 14 selection. 15 All of us at the BOE are very aware that 16 the success of the CROS Project is essential to 17 fulfilling the Board's mission of fair and efficient 18 tax administration in the years to come. We are 19 committed to working closely with CalTech to address 20 their concerns, to build upon the years of hard, 21 disciplined work which has been the hallmark of the 22 CROS Project. We also remain open to exploring 23 options that will allow CROS to proceed 24 expeditiously and without disruption and will work 25 with the Board to implement your vision for CROS as 26 a successful business transformation project that 27 reflects the BOE's highest standard. 28 Joining us today are Mr. Carlos Ramos, 5 1 Director and State CIO for the California Department 2 of Technology, and Ms. Rebecca Stilling, Deputy 3 Director IT Project Oversight Division of the 4 California Department of Technology. They are here 5 to make their presentation regarding the CROS 6 project and to answer any questions which the Board 7 may have. 8 MR. HORTON: Thank you, and welcome 9 again. 10 MR. RAMOS: Thank you, Mr. Chairman and 11 Members of the Board. It's nice to be back before 12 you. I've had the chance to meet with some of you, 13 not all of you. So for those of you that I haven't 14 had a chance to meet, it's nice to meet you and nice 15 to be back before you. 16 I have with me today Becky Stilling. She 17 heads up our Project Oversight Division and she'll 18 be doing most of the presentation actually. I did 19 want to have -- make a couple of opening comments, 20 to share with you just our perspective, and maybe 21 just for the benefit of the public, to share a 22 little bit about the role that CalTech plays in 23 State government because I think it's -- it's very 24 relevant to -- to where we are with the CROS 25 Project. 26 As -- as Ms. Bridges mentioned, I'm the CIO 27 for the State of California. And so as CIO, I have 28 a couple of statutory responsibilities. First and 6 1 foremost, I'm responsible for IT policy and strategy 2 for the State of California, promulgating the 3 policies and -- and strategies that help government 4 to acquire and implement and deploy the tools, the 5 technology tools it needs to connect with its 6 citizens and to be able to serve the needs of its 7 citizens. 8 In that role there's a couple of -- of 9 responsibilities that we have. One of them is to 10 review and approve IT project proposals and 11 initiatives as they're going through the approval 12 process. As departments, you know, find themselves 13 with the need to bring technology to bear, to invest 14 in technology, they come through our agency. 15 So our job in reviewing and approving the 16 initiatives is to ensure that there's effective 17 planning for the project and that the -- that a 18 department does a very thorough job of documenting 19 the business case that supports an investment in 20 technology. 21 Another very critical role that we have is 22 to manage the procurement process, the process by 23 which we actually go out and acquire a contractor, 24 usually, to come in and develop or deploy a system 25 for an individual department in support of a 26 project. 27 In that role, we manage the process, and 28 then we also work in terms of developing the 7 1 contracts and the terms and conditions that are 2 going to govern an engagement between the State 3 agency and a, uh -- and a contractor. 4 And then finally, also in the role of 5 oversight, is actual oversight of the project, of 6 the process that a department uses in managing a 7 project and monitoring performance as the project is 8 developed and deployed, once a contractor is 9 on-board, and generally keeping projects from 10 falling off the rails; or if they're off the rails, 11 getting them back on track. 12 We -- we take that responsibility very 13 seriously and we work very diligently and very 14 directly with departments all the way through the 15 process, from beginning to end, in discharging those 16 oversight duties. 17 As I said, we try to work with departments 18 to coach them and guide them and provide them the 19 benefit of experience of our view of across the 20 entire State's project portfolio. When necessary, 21 we do intercede. We have the authority to come in 22 and suspend or terminate projects. It's not what 23 we've done here in CROS, just to -- just to set 24 everybody's mind at ease. 25 I will say this, from my perspective, I'm a 26 big supporter of the CROS Project. I think the 27 project is necessary. I think the Board's efforts 28 to modernize its technology infrastructure is a very 8 1 important undertaking and a very important 2 initiative. Not only will it modernize the Board's 3 technology infrastructure, but it's also going to 4 update and change fundamentally the way that the 5 Board does business, the way that individual 6 divisions and programs that the Board administers 7 work and function; and I think that's long overdue. 8 So, from where I sit, I think CROS is a 9 very necessary and important undertaking that the 10 Board has chosen to take on. I think once it's up 11 and running and successful, I think it's going to 12 fundamentally change the Board's operations and make 13 it more effective and efficient in administering its 14 tax programs; and for us in California, that's very, 15 very important because you guys bring in a lot of 16 revenue to the General Fund. And so the rest of the 17 government is reliant on the BOE being effective as 18 well. 19 Having said that, I will say that, you 20 know, where we -- from where we sit, we do have a 21 pretty cross-cutting view and perspective of what 22 goes on in the IT project portfolio. I'm very proud 23 to say that California, despite what you hear, 24 despite what you hear in the media and other places, 25 has actually a very good track record on technology. 26 We -- we build and successfully deploy lots of 27 systems around -- around government. You just don't 28 ever hear about the ones that actually are 9 1 successful. 2 We do, on occasion, run into ones that are 3 not successful or ones that run into challenges. 4 And we have a very good view into what goes on with 5 those. 6 I wanted to share with you what we view as 7 some of the common -- you know, common threads or 8 common challenges that those projects face. And I 9 share those with you for a reason and with a 10 purpose. 11 Some of the most common project challenges 12 that we see when projects do go off the rails or 13 when they fail altogether, one is principally 14 inadequate planning. And that really means that 15 departments fail to do an adequate job of 16 identifying and taking on and accounting for the 17 responsibilities and activities that departments are 18 going to be responsible for once they bring a 19 contractor on-board. They fail to account for the 20 staff resources or the subject matter expertise that 21 will perform the activities that are the 22 responsibility of the State. 23 These include things such as making 24 decisions and changing the way business operations 25 are discharged in a department when the technology 26 system comes in. Decisions about what happens to 27 the old systems that are going to be replaced. In 28 the case of CROS, you're going to be replacing a 10 1 whole bunch of your old technology systems with a 2 new technology, one that's more integrated. 3 Whereas, currently you have a number of different 4 systems that are -- that each operate independently. 5 CROS is going to replace those and integrate them 6 into a single system. 7 Identifying the critical functions of what 8 the new system is going to do. Validating that the 9 design and the -- and the solution that a vendor 10 brings in is actually going to work for a 11 department. 12 And then things such as developing the -- 13 the models or the criteria that are going to be used 14 to test the system once it is developed, and then 15 actually participating in the testing of a system. 16 Those are all just a small example of some 17 of the activities and responsibilities that 18 departments take on when they take on a project. 19 Those are responsibilities that are responsibility 20 of the State staff and not the contractor. And so 21 it's im -- it's critically important to be able to 22 account for and plan for all of those activities. 23 It's particularly important when a 24 department has a number of other initiatives going 25 on that are going to draw on those same resources. 26 We've seen some of that here at the Board of 27 Equalization. You have another number of other 28 initiatives beyond just the CROS Project. 11 1 Another pretty common challenge that we see 2 is essentially departments trying to eat the whole 3 elephant at once, if you'll pardon the metaphor. 4 You know, that's a very big task to do. And 5 especially on a project of the size and scope of -- 6 of CROS, when it's cross-cutting and 7 cross-departmental. 8 What we've seen be more successful is for 9 folks to come in and be -- and eat the elephant at a 10 bite at a time, or start with the ears and then move 11 on to the -- to the trunk. But that is a challenge 12 for -- for -- it's a common challenge for projects 13 that have had problems or -- or failed. 14 And then finally, another pretty 15 significant challenge, which again is a common 16 thread among challenge projects, is organizational 17 misalignment. Really what we've seen is that 18 successful projects of this magnitude usually end up 19 reporting through a single thread through the 20 department, usually to a Director, usually -- or 21 sometimes a Chief Deputy Director, but with a very 22 tight alignment with the program or business 23 operations of a department, and usually through the 24 IT shop. 25 This is important for a couple of reasons: 26 One, it's important for the effective 27 engagement of the business side, not the technology 28 or even the project side of the house, but the folks 12 1 that actually are going to change their business 2 practices and business operations that are going to 3 have to live with the tools that the system 4 delivers. 5 Also, because those same folks are going to 6 be asked to commit their resources to make sure that 7 the system is effectively developed, designed, 8 tested and implemented. 9 And, once the system is in place, they're 10 going to have to go back and change the way they do 11 their business. So it's very important to have that 12 organizational alignment with the business side of a 13 department. 14 It's important to wrap IT into this because 15 IT is responsible for all of the old systems that 16 are going to be replaced and the data that's 17 contained in the repositories and the connections 18 between those systems and the new system, as well as 19 any of the external data exchange partners. 20 It's not typical to have a project align 21 outside of that. It's not to say it can't be done. 22 It's not to say that it's necessarily a bad idea, 23 but it is one that -- that poses a level of risk and 24 one that needs to be carefully managed. 25 I was very encouraged, Chairman Horton, 26 with the letter that you wrote, and I think that -- 27 with the direction you outline there. I think 28 the -- the directions that you -- that you outline 13 1 there in terms of looking at the modif -- at the 2 implementation plan, and looking at whether or not 3 there's a -- there's an opportunity to break it up 4 and not try to go with the big bang approach, I 5 think that's a very wise and prudent thing to 6 consider. 7 I was also encouraged by your evaluating 8 the organizational capacity of the -- of the Board 9 of Equalization to take on CROS with the scope and 10 scale that it has at the same time as a number of 11 other initiatives are going on. That -- that also 12 is a significant challenge for -- for departments, 13 is to properly estimate the organizational capacity 14 for a -- for a project of this size. And then 15 finally, your -- your review of the organizational 16 alignment of the IT project. 17 What I will say is I think that the issues 18 that we have seen on CROS are not insurmountable. I 19 think they're fixable, and I think they're at an 20 early enough stage where we can get to them, address 21 them; and, you know, to the Department's credit, 22 they are doing that. 23 We've asked them to provide us a schedule 24 which lays out how they are going to account for the 25 activities and the workload and the staff resources 26 to take on, not only the initiatives and the 27 activities related to CROS, but all the other 28 initiatives that are equally important and 14 1 challenging for the Department. 2 To their credit, I think the Department is 3 working at providing us a schedule that will work 4 and that'll help us validate that the Department 5 really has the capacity and a plan that's going to 6 work. 7 I'm going to turn it over now to Becky to 8 go through in more detail, but I'm happy to answer 9 any questions. And, you know, if we need to, we can 10 go through the -- through the details quickly. 11 You know, I guess there's one other thing I 12 would say, because I think it's important. Mr. Gau 13 did identify, you know, right now the project is 14 still on track. It's still proceeding. 15 What we've done is we've delayed when -- 16 when vendors submit their bids because we think that 17 the Department can use that time to do some 18 planning, to do a little bit of catch-up work on the 19 planning and scheduling. I think that's work 20 that'll really pay off in the long run. 21 So, in case the Board was thinking that we 22 had come in and stopped the project, we have not. 23 The project is moving forward. But we are -- we did 24 delay this the middle of the bid so that we could 25 address these issues. 26 MR. HORTON: Thank you very much. 27 Ms. Stilling. 28 MS. STILLING: Yes. Thank you for inviting 15 1 us to come today. We appreciate the opportunity to 2 share with you the perspective that we had and the 3 information that we had about the CROS Project that 4 caused us to take the action that we did. 5 And, as Carlos was describing what we do at 6 the Department of Technology, particularly for IT 7 projects, it begins with the original project 8 justification. And this information here, I'm not 9 going into detail, but a project starts with a 10 Feasibility Study Report. And then as it 11 progresses, sometimes additional information or 12 additional planning needs to be incorporated into a 13 special project report. And typically, large 14 complex projects will go through several Special 15 Project Reports as we go through this. 16 The thing I wanted to point out in this 17 slide is that we've already done two Special Project 18 Reports on this project; again, which is not 19 unusual, but the main thing that you can see is that 20 we're refining the information and the planning on 21 the project that is causing some additional clarity 22 about how long the project will take. 23 And so, by SPR 2, we had an updated end 24 date of December 2021, which I want to caution is 25 the -- the final close-out. There'll be earlier 26 implementations before then, but that's just a point 27 in time. 28 The other thing I wanted to mention is that 16 1 for projects of this kind, our approvals for doing 2 them are conditional so that -- so that we can see 3 how the planning is progressing and we can see that 4 everything is healthy and ready for a contract 5 signing. And following the contract signing of the 6 CROS Project with the selected vendor, there will be 7 another Special Project Report which trues up a lot 8 of the information that has been gained from the 9 procurement process; so the cost of the vendor, 10 additional time, if needed, that sort of thing. 11 So this is a normal part of project -- 12 large project activity with the Department of 13 Technology, and particularly with my office. 14 This next slide I just wanted to point out 15 is that there have been several important 16 preparatory things that have been done that have 17 added more insight and information to the CROS 18 Project, including the beginning of the development 19 of the RFP that has been going on for a while now. 20 We had a bidders conference that provided the 21 opportunity for bidders to say -- to ask questions 22 and for the State to find out who they were. And 23 then we received draft proposals earlier this year. 24 So quite a bit of information has been gained from 25 the -- from the market community on vendor interest. 26 And, to date, there's been 16 addenda to 27 the RFP, which means additional refinement has been 28 coming in the requirements and the approach that BOE 17 1 is taking to the Request for Proposal. 2 I'll just point out that this is a fairly 3 significant amount of time for all of this work, but 4 it has been necessary time, I believe, for the CROS 5 Project because it is large and complex, and we'll 6 go into that in a second. 7 And I would point out that it has a unique 8 comp. model which factors into the way -- 9 compensation for the vendor, I'm sorry, model. So 10 that factors into the complexity of the project, and 11 the necessity to develop the requirements for 32 12 programs, new user interfaces, etcetera. So -- and 13 then, finally, vendor consultation. 14 All of this -- unfortunately, a lot of 15 folks who haven't lived through major IT projects 16 don't fully appreciate the amount of work it takes 17 in planning and thinking, and that's why we're 18 making a point of sharing that with you today. 19 I wanted to just provide a little 20 perspective on how large this project is and how 21 impactful it's going to be on the business of the 22 Board of Equalization. It literally is a 23 transformation project. And as Carlos said, this is 24 a remarkable vision. It's going to be just 25 enormously beneficial to not only the BOE operations 26 but the effectiveness of tax collection programs and 27 interaction with the customers and the -- and the 28 folks who pay the taxes. 18 1 So it's all -- it's all really quite 2 remarkable and very impressive, but we can't lose 3 sight of the details that go along with that. 4 So there are 32 tax and fee programs that 5 will be affected. It's going to replace all of 6 BOE's critical legacy systems, just replace them. 7 There'll be fundamental changes to how BOE 8 conducts business by virtue of the new system and 9 the capabilities of -- of the system. 10 It's going to affect all BOE employees 11 statewide, and it will change how customers interact 12 with Board of Equalization. 13 And finally, there -- there will be changes 14 to data exchange processes with other State entities 15 and Federal entities. 16 So this is all part of the original FSR. 17 This is part of the RFP. We see this scope and 18 character as planned for the CROS Project. 19 So there's going to be some -- I just hit a 20 highlight on some of the major project outcomes. 21 There's lots of project outcomes coming out of the 22 CROS Project, but these are pretty global and 23 significant. 24 The first of these is that there's going to 25 be a capability and tools for the Board of 26 Equalization to leverage the information in the 27 system and be able to perform analytical research on 28 the nature of the activities, both positive and 19 1 negative activities, with respect to the programs. 2 So this is -- by itself, that's a major project and 3 it will be potentially very beneficial to the tax 4 programs for purposes of improving their 5 performance. 6 Another major outcome is automated 7 collection and enforcement processes for 32 tax 8 programs. 9 The CROS Project plans to modify business 10 processes to go along more functional lines instead 11 of programmatic lines where you have 32 12 individual -- potentially, I'm not saying it's all 13 32 -- but potentially each program has its own 14 processes. Now there'll be a global process where 15 all 32 programs will be served by a single process; 16 so that's -- that's a significant change. It could 17 be very productive at improving efficiencies for 18 Board of Equalization. 19 There's a vision that customers will drive 20 a personalization for their own online services. 21 Literally, customers will be able to have their 22 own -- you might refer to it as a portal. They can 23 figure out what information they want to see, how 24 they want to be informed, all of that is 25 state-of-the-art interaction with customers. 26 There'll be electronic tracking of payment 27 and banking information and new audit tools for the 28 audit program. 20 1 Yeah. So, as Carlos mentioned, large 2 multi-year IT projects are risky, they're inherently 3 risky. They require careful planning, and they 4 require adherence to project management practices. 5 And he mentioned already some of the things that 6 affect the success of a project. 7 So this was -- this is a slide that we are 8 sharing because it was our perspective on the big 9 picture for Board of Equalization. Board of 10 Equalization has a lot of activities that are going 11 on all the time. And we were already had 12 visibility, not only into the CROS project but the 13 Fi$Cal Project and the new MTS, Mobile Telephony 14 System Project. 15 And then, just a large number -- and I 16 didn't put them all on the chart -- of projects in 17 the technology division to enhance the tools and 18 capabilities of the businesses already. 19 So, this just shows, over the period of 20 time of CROS, there are going to -- there is going 21 to be contention for decision-making and resources 22 and -- and other kinds of activities because you 23 have a lot going on all at once. That's, as I think 24 Carlos indicated, that can be managed, but it's 25 important that there be visibility into the planning 26 of those things. 27 So I just wanted to, on the next slide, 28 talk about the schedule risk that we saw. We had 21 1 been working with the CROS Project team for -- 2 since -- since the beginning, since the FSR. We had 3 had project oversight people assigned to the CROS 4 Project, working with the CROS Project team. And we 5 began -- we'd been talking about the need for a 6 master schedule for more than a year. And we -- we 7 began to be concerned about the planning capability 8 of available resources. 9 And as we talked to the CROS Project team, 10 we -- we understood that while there was -- there 11 was agreement that a master schedule was a good 12 thing to do, it was a question of timing. And the 13 CROS Project team wanted to do -- wanted to base the 14 master schedule on what the vendor proposed and not 15 put one together for BOE before the vendor's 16 proposal was accepted. 17 As we say here, the problem with that is 18 that the vendor is going to have a dis -- a very 19 different perspective on time and task, and they're 20 incentivized under the comp. model for the CROS 21 Project to move as quickly as possible. So they -- 22 they could not possibly have visibility into the 23 resource needs of the State, and they could not 24 understand any impediments; you wouldn't expect them 25 to. 26 So we -- we felt that without a CROS -- 27 without a master schedule, CROS had no way of 28 knowing if the proposed vendor schedule was 22 1 feasible. And if a vendor is proposing an 2 infeasible schedule, we don't want that baked into 3 the contract because we'll have to live with 4 those -- those results. 5 Okay. So we did, as Carlos indicated, move 6 the vendor bid due date to October 2015. We -- we 7 first allowed a change of one month, and then we 8 moved it to allow three additional or three more 9 months to prepare the schedule. And we -- and we 10 took that action because we felt that BOE needed 11 time to develop the key tasks that are required to 12 complete a project. 13 These are -- we focused primarily on the 14 State task, but also an acknowledgement of what 15 vendors would be expected to be doing during that 16 time. We wanted to see reasonable time estimates 17 for State staff to complete the State's project 18 tasks, and we wanted to see that the State resources 19 needed to complete the tasks could be identified and 20 understood in terms of those roles and 21 responsibilities. And then last, of course, is any 22 dependencies that the other BOE projects might have 23 for use of those same resources, a master schedule, 24 the exercise of developing a master schedule gives 25 visibility into those resource contentions. 26 I want to emphasize again that even though 27 we moved the bid due date, the project is still 28 active. There's still work going on in the project 23 1 and the procurement is still alive. It's -- nothing 2 has changed in the procurement except the due date 3 for the bids. So this gives us time to complete 4 that important planning work. 5 And then, just to say again that as we were 6 looking at all of the risks of this project and 7 trying to help CROS mitigate those risks as much as 8 possible, we focused on the question of how massive 9 the work effort is. Each of those major outcomes 10 that I touched on earlier could by themselves be a 11 IT project of -- of significant size. And, you 12 know, the -- the risk of doing everything all at 13 once cannot be understated. So it does need to be 14 looked at again. 15 And the project organization structure, as 16 Carlos indicated, is unusual. A project that is 17 outside of the IT organization can result in 18 accountability results being divided and -- and I 19 think that is a risk for this project. 20 This one, I think we kind of touched on: 21 Adequate planning reduces risk. The whole 22 organization should know what they will need to do 23 to support CROS, not just the CROS Project team. 24 BOE needs to be able to consider both CROS Project 25 as well as other critical initiatives. And by 26 developing this master schedule, we'll be able to 27 better evaluate vendor proposals for their 28 feasibility. 24 1 Okay. Let's see, I might skip -- yeah, I'm 2 going to skip this one. 3 These are -- these -- these remaining 4 slides, I think we're kind of running out of time. 5 But I just wanted to point out that in the first 6 master schedule that we did receive in June, after 7 we requested it formally, we saw some quality issues 8 with that. 9 I'll back up just one. 10 We did see some quality issues. We worked 11 with the CROS team, told them about the quality 12 issues. We also saw, in the next slide, some 13 significant things that have to be a part of any 14 major IT project that were not adequately addressed 15 and, in some cases, were completely missing in the 16 master schedule. So these needed to be planned for 17 because all of these activities are an essential 18 component of the State's responsibility. 19 And then the other thing I wanted to 20 mention is that in the first version of the master 21 schedule that we got, we didn't see that there was 22 adequate time to consider some very important BOE 23 specific things that -- that will be part of this. 24 Vendors under this CROS Project are expected to 25 propose new revenue generating ideas. And to use 26 business analytics and to use their expertise to try 27 to improve or increase revenue for Board of 28 Equalization. 25 1 So, presumably, they're going to be 2 companies that are capable of doing some really good 3 work here. But Board of Equalization will need to 4 decide if those are feasible alternatives or not. 5 Presumably legal constraints, possibly political 6 constraints, or other policy constraints will 7 involve important thinking about those proposals 8 that the vendor makes. Those need to be factored 9 into the -- the schedule and adequate time allowed 10 if a Board meeting is required, for example. Don't 11 say "We'll give an answer in two days" if a Board 12 meeting is going to need to take place. So just -- 13 just thinking a little bit more about that. 14 Similarly, automating tax collection 15 processes is going to have impact to the -- to the 16 organizations and individuals who pay taxes to the 17 Board of Equalization. So the impacts of those 18 changes need to be adequately considered. And we 19 would expect a master schedule to allow time for 20 that activity. 21 Then I just wanted to, on this slide, 22 emphasize again the risk that we see that we refer 23 to as vendor risk. And the important take-away here 24 is that vendors expect the State to do the State's 25 job and vendors expect to do their job. And when an 26 RFP is led, the vendors expect to see everything in 27 there that they need to be able to then plan their 28 work and propose their -- make their proposal. 26 1 Those assumptions that the vendor uses, 2 they incorporate -- we all incorporate into the 3 contract and these bind the State. So by the time a 4 vendor contract is signed, there needs to be, as 5 much as possible, a full understanding of what's 6 expected and needed on both sides so that they can 7 both honor their own commitments, both the State and 8 the vendor can honor their commitments. 9 And what we've seen a number of times with 10 IT projects that struggle is that if the State can't 11 keep up with the vendor at the pace and with the 12 tasks and responsibilities that the State has to 13 fulfill, then the vendor has contractual remedies 14 and the State can suffer from cost increases or 15 taking longer. And, ultimately, projects can fail 16 if the -- if the State hasn't done an adequate job 17 of planning for resources and time. 18 So just -- it's out of experience, it's out 19 of the insight that we have on major projects of 20 this kind that caused us to -- to ask for additional 21 time to create this master schedule before the bids 22 would be due. 23 And I think we already covered this. 24 And then finally, our observations include 25 that BOE should continue to work on completing the 26 master schedule. And we believe that with the 27 active participation of all the relevant groups and 28 Board of Equalization, the CROS Project team can 27 1 complete a satisfactory schedule which will be 2 refined further when the vendor's proposal comes on 3 board. So we'll have a working schedule, 4 incorporate the vendor -- those vendor facts in 5 there, presumably be able to negotiate with the 6 vendor any particular schedule impacts that are not 7 favorable to Board of Equalization or can't be done, 8 and then a contract would be signed where both 9 parties can keep up with it. 10 And then the other thing that we want to 11 say is that we do have confidence that the CROS 12 Project team has the experience and the skill to do 13 this work. And we found a great deal of receptivity 14 on the part of the entire leadership of Board of 15 Equalization to work with us in this way. I 16 think -- I think it's simply been clarifying why 17 it's important, why it needs to be done now that 18 has -- that has made a very positive difference in 19 this effort. 20 So, that's it. 21 MR. HORTON: Thank you very much for your 22 presentation. 23 Discussion, Members? 24 Member Harkey. 25 MS. HARKEY: Hi, Mr. Ramos and Ms. 26 Stilling. I appreciate you coming before the Board. 27 Mr. Ramos, I think we missed our Orange 28 County meeting -- 28 1 MR. RAMOS: We did. 2 MS. HARKEY: -- due to traffic from LA. 3 MR. RAMOS: We did. 4 MS. HARKEY: So I'm so very sorry, but now 5 you see why we need road improvement. Make my 6 pitch. But we're a little bit spread out down 7 there. 8 MR. RAMOS: Sure. 9 MS. HARKEY: But I think, yeah, I mean I 10 appreciate, we're all in complete agreement that 11 we -- it's necessary to work in cooperation with the 12 stakeholders and with CalTech. I mean, you control 13 the purse strings, and the Governor's office, and so 14 we -- we wish to work cooperatively with you. 15 And I think that you'll find, as you get 16 deeper into what we've been doing here at the Board, 17 I've only been here since January and I had to get 18 baptized by fire in this project because of the 19 delay, which always frightened me a little bit 20 because of what I've seen happen on a legislative 21 project when I was there. 22 But I think, you know, we're going to leave 23 no stone unturned. I think the Board's fully 24 engaged. I think our staff is fully engaged. And 25 we've designated Mr. McGuire, Jeffrey McGuire, who 26 is highly regarded in the -- in the organization as 27 CROS's Project Executive Sponsor, and he'll be 28 working with Mr. Steen. And I think we'll open up a 29 1 few more lines of communication, be sure we're all 2 working together. 3 I think you'll find, as I have found since 4 I've been digging into this, that our staff level 5 cooperation on the business side has been a lot more 6 than what I understood. And I think we'll see that, 7 you know, the staff is -- we're working together to 8 be sure that we're staffed up, be sure that 9 everybody's involved. 10 I have a person from my office now in 11 Irvine that was on the CROS team that was up here 12 for a month at a time. So I think they're very 13 involved. They're, you know, 27-, 28-year 14 employees, district principal auditors, people that 15 are on the ground working with the topics. And I 16 think you'll find that, you know, we've got a lot 17 going on here as far as staff resources, subject 18 matter expertise and critical functions. I think we 19 will -- we will work with you to be sure that 20 everybody's on board. 21 So I appreciate you coming forward. I do 22 appreciate your concerns. It's very important that 23 we get off -- that we -- this three-year -- I guess 24 it's been three years in the making. That we figure 25 out now exactly where we want to go. I think we do 26 know. 27 I do -- I think, because we have 32 28 different taxes and fees, we're a lot different than 30 1 the FTB where, you know, they just overlay one. We 2 have a lot going on. 3 MR. RAMOS: Sure. 4 MS. HARKEY: But I think as we work 5 together you'll find out how that all integrates and 6 it will be beneficial to the State, it'll raise 7 revenue for the State, it'll make ease for the 8 taxpayers and also ease for our employees. 9 So I thank you very much for coming 10 forward, and I always invite you to please share 11 whatever thoughts you have. I'm only one person, 12 but I have a ready -- I'm ready to listen, to learn, 13 and to work with you to be sure that we get a 14 successful project. Because I think our staff to 15 date has really put a lot of muscle into this so 16 far. 17 Thank you. 18 MR. RAMOS: Thank you. 19 MR. HORTON: Member Runner. 20 MR. RUNNER: Yeah, just a couple quick 21 thoughts and -- and observations. 22 First of all, I'll kind of express my 23 opinion. I'm not too interested in changing some of 24 our governance structure and reporting structures 25 when it comes to CROS. I think we need to do what 26 we need to do in order to improve communications and 27 making sure that we meet the needs. 28 And part of that is because our governance 31 1 structure was in place in the FSR, you know, and so 2 it's kind of like, you know, I don't -- I'm not sure 3 why we need to change much since that's the way we 4 started the project almost, what, four years ago. 5 So I think what we need to do is figure out 6 how to then take care of some of this -- some of the 7 discussion, some of the challenges that seem to be 8 in some of the communication aspects as we 9 prepare. 10 I'm going to be pretty specific in regards 11 to the -- the new IMS that was delivered. And I 12 think that there was actually a meeting then last 13 week in regards to review of that IMS? 14 MS. STILLING: Actually it was earlier this 15 week, one of my staff met with the schedule 16 person. 17 MR. RUNNER: Uh-huh. 18 MS. STILLING: We haven't yet debriefed 19 with all of our comments to the entire project. 20 I met with Jeff yesterday to talk a little 21 bit about his new role. 22 MR. RUNNER: Mm-hmm. 23 MS. STILLING: And I told him that what I 24 wanted to do is, next week, go into more 25 comprehensively the additional things that we have 26 questions about and that we want to see -- see 27 addressed. 28 MR. RUNNER: Mm-hmm. 32 1 MS. STILLING: So there was an informal 2 discussion with one of my staff, and -- and I'm 3 sorry, I've forgotten the fellow's name. 4 MR. RUNNER: Okay. So at least then 5 that -- the last IMS was delivered. 6 MS. STILLING: Yes, on June 16th. 7 MR. RUNNER: On June 16th. 8 MS. STILLING: I'm sorry, July. 9 MR. RUNNER: July, right. Because I think 10 you make reference to a June IMS. 11 MS. STILLING: Right. 12 MR. RUNNER: But that's not referenced to 13 the July IMS. 14 MS. STILLING: That's right. And the 15 reason I brought the June IMS up is that that was 16 the reason we extended it -- 17 MR. RUNNER: Mm-hmm. 18 MS. STILLING: -- from one month to three 19 months, because we see -- saw the need for 20 additional work. 21 MR. RUNNER: Okay. And let me ask, indeed 22 if -- in the next couple weeks then you'll be 23 reviewing and being able to get down to the detail 24 in terms of the current IMS? 25 MS. STILLING: Yes. 26 MR. RUNNER: And is there thought that 27 indeed if that is meeting the adequate issues in 28 regards to resources, those issues, that the -- the 33 1 October, mid-October date is an adjustable date then 2 that could be moved forward so that we, again, can 3 get moving on the project? 4 MS. STILLING: It's very difficult to move 5 it forward because the vendors are -- have planned 6 their own time and schedule for that new date. So 7 you can't spring it on them and say -- I'm not 8 saying you're saying that. 9 MR. RUNNER: Right. 10 MS. STILLING: But I mean if, for example, 11 I said got a good -- got a good schedule today -- 12 MR. RUNNER: Right. 13 MS. STILLING: -- we don't tell them 14 tomorrow to submit their proposals because they need 15 to the finalize. 16 MR. RUNNER: Okay. Just clarifying then. 17 So it's basically the view of CalTech then that 18 the -- that there's no need to then move the date 19 forward? 20 MS. STILLING: I think it would be contrary 21 to the best interests of BOE to move it forward 22 because we want the vendors to have adequate time to 23 prepare their final proposals, get them produced and 24 get them in. 25 MR. RUNNER: Okay. 26 I -- I mean I guess those are my 27 observations. We obviously want to get this thing 28 done. I've been here for the last four years that 34 1 we've been dealing with this, you know, concerns in 2 regards to that. 3 You know, again, I appreciate the fact that 4 concerns in regards to the management schedule. I 5 know we've done a series of turning in those and 6 there's been a lot of dialogue over the last year 7 and a half in regards to those. Hopefully, 8 hopefully we are getting closer in regards to that. 9 MS. STILLING: Mm-hmm. 10 MR. RUNNER: And -- and I guess I want to 11 leave -- and we've had this conversation and as I've 12 met with you all over there. And that is, the 13 priority of this project couldn't be higher for 14 us. 15 MS. STILLING: Right. 16 MR. RUNNER: That's why we set up this 17 structure that we did. That's why we have a direct 18 report to the Program Manager, to the ED in regards 19 to that. That's why we have a -- that's why we have 20 a monthly report in regards to these issues. 21 So all those are very highly important to 22 us, and so we appreciate the dialogue and -- and the 23 information. And we believe that now with some -- 24 also some other staff adjustments that we've made, 25 we've opened the door to get over some of those 26 other hurdles. But our goal is just deliver 27 project. 28 And maybe it's just frustrating to me is 35 1 somebody who sometime's in the middle of government 2 observes government, but to think about a fact that 3 it's going to take -- we set the goal at 10-year 4 implementation program from the day that we started 5 this project, just makes me breathe deep and say, 6 "Man, that seems unbelievable." 7 But I think we all just need to roll up our 8 sleeves and make sure we deliver this project as 9 soon as possible, in the best quality that we can. 10 Thanks. 11 MR. HORTON: Thank you, Mr. Runner. 12 This has actually been some -- I believe it 13 to be a natural evolution. I mean as one that went 14 through the ICIS transition back in the old days 15 when we changed our system back then. And then 16 through the legislative process when we went 17 through, many of us recall, the Oracle situation: 18 EDD, DMV and many of the others. 19 But, also, the number of successes that 20 we've -- we've experienced as the State of 21 California, which I think many people fail to 22 recognize. But those lessons learned are -- are 23 applicable in our case. And I think one of the 24 lessons -- I mean, some folks sort of speak of this, 25 in the newspapers and so forth, as if those -- this 26 is somewhat inconsistent with the norm. 27 I think it's consistent. I mean I think 28 this is a natural evolution. I think in the 36 1 beginning of this process it required that synergy. 2 It required that focus. It required the leadership 3 of someone that was aggressive, in the form of Eric 4 Steen, to be able to move that project forward. 5 As we embark upon the implementation and 6 the assessment of risk and values and so forth, now 7 it requires a broader base of experience, which 8 incorporates the business community, the program 9 community at the Board of Equalization and begins to 10 take a realistic assessment of our capacity, which, 11 you know, it's no secret I have concerns about our 12 capacity. But -- and then a realistic concern, look 13 at the revenue-generating abilities of the program. 14 We need this. This is important to the 15 State of California. Irrespective of the revenue, 16 irrespective of the challenges that we meet, we -- 17 we can solve this. And I'm just excited about the 18 fact that we do have a pathway to success, if you 19 will, and that we're beginning to evolve in a 20 natural sort of way to make this project extremely 21 successful. 22 The Governor wants the project. The 23 Legislature wants the project. The Members want it. 24 CalTech wants it. We all want to see success here, 25 so we have a lot in common and I think that 26 collaboration will just yield a very positive result 27 for the State of California. 28 MS. HARKEY: Is that it? 37 1 MR. HORTON: Yeah. I mean I just wanted to 2 be clear to -- to the evolution, that it is time. I 3 mean that we do need the additional staff support 4 and additional governance structure in order to be 5 able to move forward. I think that's clear. 6 CalTech's made it clear. The administration has 7 made it clear and the Members of the Legislature 8 have made it clear as well. So, it's not confusing 9 to me. 10 So, Member Ma. 11 MS. MA: Thank you very much. I, like Ms. 12 Harkey, have, you know, learned about this project 13 kind of on the fly. And, you know, we've been 14 meeting with Eric Steen since the beginning, every 15 month and sometimes more. And I appreciate his 16 focus and his -- his drive to kind of get this done. 17 It's a big project, we all know, but it is really 18 important. 19 I met with you, Mr. -- 20 MR. RAMOS: Ramos. 21 MS. MA: -- Ramos, and Becky, and I do 22 believe that you also care about this project and 23 making sure that -- that it gets done, and it gets 24 done correctly. 25 I think now it's very important that we all 26 work closer together, we all meet, continuously 27 meet. I know that you used to meet, you know, with 28 Mr. Steen often. And we'd like to continue to see 38 1 that synergy and that communication. Because now's 2 the time we need to, you know, work closer together 3 than moving apart as we are getting through this -- 4 this report, this done. 5 So I appreciate everybody, you know, coming 6 to the table and being here and briefing us, and we 7 also look forward to kind of following the progress 8 over the next three months, especially to make sure 9 that we are hitting the timelines and not extending 10 this excessively because, as we all know, time is 11 money and it just continues to cost more and more 12 the longer we delay and the money has to come out of 13 someone's budget. And so, you know, we are all, I 14 think, very concerned to kind of keep this project 15 as close to our timelines as possible. 16 So, thank you very much. 17 MS. STILLING: Mm-hmm. 18 MR. HORTON: Okay. Thank you. Thank you. 19 Much appreciated. Look forward to working with you. 20 Look forward to the leadership of Mr. McGuire and 21 the other individuals in working on this project. 22 MR. RAMOS: Thank you. 23 MR. HORTON: Thank you. 24 ---oOo--- 25 26 27 28 39 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 July 28, 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 39 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: August 7, 2015 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL 22 Hearing Reporter 23 24 25 26 27 28 40