State’s centralized IT service under fire from some lawmakers

Henry Jimenez recently told lawmakers tasked with combing through state government spending about his frustrations with inheriting a legislative-chartered agency loaded with debt and little direction.

However, he was upbeat and excited to get to work for the state’s Latino population in his role as executive director of the Minnesota Council of Latino Affairs, an arm of state government Jimenez said he turned around by working 80 hours a week, cutting staff and reprioritizing the agency’s vision.

Jimenez sat in front of the House State Government Finance Committee in late January, outlining, in part, his upcoming budget concerns. One number kept popping out to legislators, however – a number comparable to other similar agencies and ethnic councils who testified a day earlier: the cost of operating information technology services was consuming 20 percent of the Latino council’s budget.

Although the council operates on a minimal budget, IT services have become a major part of the budgeting process. Legislators charged with balancing state spending with necessary infrastructure improvements have made the Office of Minnesota IT Services, simply referred to as MN.IT, the state’s centralized IT service, a major discussion point.

“This is a common theme here, in each of the agencies,” Rep. Sarah Anderson (R-Plymouth), the committee chair, told a MN.IT staffer during that meeting.

Gov. Mark Dayton’s biennial budget proposal includes $51 million in digital infrastructure improvements “to ensure Minnesota state government works at the speed of business” and $74 million to update cybersecurity defenses. Much of it will go directly to services MN.IT provides.

MN.IT builds the state government’s digital infrastructure from nearly the ground up, and it is in charge of maintaining and securing networks, computers and providing service to agencies large and small. The tech agency also assists higher education entities and local governments.

Formerly the Office of Enterprise Technology (and the Minnesota Office of Technology before that), MN.IT was formed after a 2011 law consolidated separate agencies into one central IT office. A year later, OET changed its name to MN.IT.

‘Simply because we couldn’t afford it’

Some agencies have MN.IT professionals in-house, people who can help government workers address technological issues. Other smaller agencies or councils have visiting IT staffers who regularly check-in or show up when called. These IT employees are part of MN.IT’s payroll.

Minnesota law requires agencies to reimburse MN.IT for its services, similar to a plumber sending you an invoice for replacing old galvanized pipes. Agencies build expected costs into their budgets – routine maintenance, planned updates and scheduled equipment replacement – but there is always the chance for unexpected bills.

Department of Veterans Affairs Finance Director John Powers told the State Government Finance Committee there was a budgeting “difficulty” with MN.IT during negotiations for the 2016-17 biennial budget. Powers claimed the IT provider said it was going to charge the department an extra $2.5 million between March and June.

House Photography file photo

However, that additional spending never surfaced and the disparity “threw off” reserve account estimates, according to Powers.

“If I had any angst about (MN.IT), that’s where it’d be within the budgeting area,” Powers said. “Overall, they provide the services we need.”

Republicans on the committee have made MN.IT questioning a regular practice, and Powers’ testimony raised some red flags for Rep. Mark Uglem (R-Champlin).

“I’m just hopeful that when we look at this budgeting process and things, the billings for MN.IT, which pretty much they’re deciding what they’re going to bill you, are appropriate when you combine them with possibly going out to the private sector,” Uglem said.

The 2011 consolidation of tech services required agencies to cooperate and comply with the then-enterprise technology office, which has been difficult for smaller entities.

“We aren’t fully transitioned into MN.IT,” Gambling Control Board Executive Director Tom Barrett told the committee. “Simply because we couldn’t afford it.”

IT services cost the Gambling Control Board $55,000 in Fiscal Year 2016. Its shift entirely into MN.IT’s hands by Fiscal Year 2018, however, is projected to cost the board $118,000 for the 2020-21 biennium.

In 2016, MN.IT billed state agencies an estimated $155.6 million for technology services, according to the nonpartisan Office of the Legislative Auditor.

Increasing costs in a fast-paced world

Jon Eichten, legislative director for MN.IT, told committee members the department “certainly” sees heads of state agencies questioning costs. But in an age where citizens increasingly use technology to interact with their government – and systems of government are attempting to keep pace with rapidly evolving technology – IT services are a spending necessity.

“I know you’re seeing these kind of increases, generally for a lot of the small agencies, boards, councils, commissions,” Eichten said. “It’s largely attributable to we’re trying to bring everyone in the executive branch up to a standard service level.”

What Eichten called “refresh cycles” are a consistent driver of costs. Additionally, Dayton proposed increasing technology spending because some in state government are using outdated systems.

“Imagine using the first-ever Macintosh computer – released over 30 years ago – to send email, find a job, or do your daily work,” the governor’s budget pitch states. “It sounds crazy, but a lot of Minnesota’s IT infrastructure is that old, and it is tasked with processing customer service request for Minnesotans, hosting information online in an accessible, accountable way, and supporting the work of state government.”

Minnesota Management and Budget Commissioner Myron Frans called the investments the “cornerstone” of new infrastructure spending.

“As you know, we are subject to constant attack and attempts to interfere with state government or illegally access information of our state’s citizens,” Frans told the Senate Finance Committee Jan. 31. “Thanks to Minnesota’s team of cybersecurity experts, these attempts have been identified and prevented in many cases.”

After a 2015 audit found MN.IT overcharged for some shared services to offset undercharging elsewhere, MN.IT has since improved its practices. Previously, MN.IT used predetermined rates to bill agencies, but in recent years, the service-provider established what they see as a fairer practice – billing by the number of employees using services. Included in the change was shifting some overhead costs away from smaller agencies, like the Latino affairs council, who were previously being charged for things like human resources.

“We recognize, especially for the agencies that are small, that have limited budgets, tight budgets, that it is a significant increase for them,” Eichten said. “And that’s where you’re going to see IT service costs increase baked into some of the operating increases that are being put forward in the governor’s budget recommendations. We know it’s not easy, but we think it’s very important.”

The Office of the Legislative Auditor, the same office that has audited MN.IT in previous years, gave the technology services provider a thumbs-up last year. Legislators expect another follow-up any day now. The tech agency will release its report to the Legislature in coming weeks.

Eichten said the a recent study by an outside firm evaluated MN.IT’s upcoming biennium rates against 31 state government IT organizations, along with putting those rates up against nationwide benchmarks for private-sector providers.

Ninety-three percent of MN.IT’s rates were “reasonable to best value” compared to other states and 90 percent of their rates were reasonable against the private sector benchmarks, according to Eichten.

Future changes?

MN.IT hasn’t presented its case to the House State Government Finance Committee yet, but lawmakers expect a presentation the week of Feb. 13, according to staff. When that day comes, questions will persist.

“I’m just trying to make sure that when we have these agencies come before (House) State Government Finance Committee, telling us what their budget requests are going forward, that we ask a lot of questions,” Rep. Jim Nash (R-Waconia) said in an interview. “This isn’t MN.IT’s money, this isn’t the agency’s money, this isn’t my money. This is money that belongs to the taxpayers of Minnesota. That’s why I’m here. I work for those folks.”

Rep. Jim Nash

Nash, who owns an IT analysis firm, introduced legislation last session that would have curbed some of MN.IT’s duties, along with adding further oversight. No one has introduced legislation yet this year involving MN.IT, but Nash said it’s still “very early in the legislative session.”

“There’s a lot of room to improve and the delivery of IT services has to be good, and if it’s not, it’s my job as a legislator to inspect, enforce what they do. Now there’s a lot of very good and talented people at MN.IT, but that doesn’t mean that they don’t need a little oversight,” Nash said.

Anderson, the committee chair, told Eichten she will be looking for ways to achieve cost-savings. The committee, as it combs through Dayton’s budget in meticulous detail, has approached nearly every presenter with the same questions about their IT services.

“It’s nice that word has gotten out about some of the line of questioning that I’ve got,” Nash said to a recent testifier.

After Minnesota State Lottery officials told lawmakers about their banner year, which included raking in $592 million in total revenue –$76 million of which goes to the General Fund – Nash reminded the committee that, “as you know, the lottery is exempt, so I will mercifully not be asking you any IT questions.”

Laughing, acting executive director Michael Vekich responded, “Thank you.”