The Technology Modernization Fund isn’t recovering administrative costs at a sustainable speed, according to a review by the Government Accountability Office.
If current trends continue, that will mean less funding available for modernization projects, GAO says. Administration officials say that view is shortsighted.
The Modernizing Government Technology, or MGT, Act in 2018 established the fund as a central pot of money for agencies to request loans for IT upgrades. While Congress allowed for the program office to fund itself in part through money in the fund, it also required the General Services Administration and Office of Management and Budget to develop a way for the office to be self-sustaining.
To achieve this, the program management office established a schedule for administrative fees to be charged to agencies depending on the length of the award repayment schedule. For projects with a three-year timeline, agencies are paying 2.5% on top to support the PMO. Projects with a five-year timeline pay 3% and longer projects have unique rates set by OMB and the TMF Board, which approve projects.
As of August 2019—the end-date for GAO’s assessment—the board had awarded $89.4 million to seven projects on varying repayment schedules. However, due to several factors identified in the report, the program office isn’t recouping funds as fast as initially expected.
Federal Chief Information Officer Suzette Kent, who chairs the TMF Board, said GAO’s assessment doesn’t take the long view into account.
“We understand the GAO focus on the historical process, but would have liked to see more focus on outcomes and long-term benefits achieved in accordance with the intention of the MGT Act,” she told Nextgov Friday. “Technology development is now rapid and more iterative. The management processes supporting transformation projects should evolve to be more agile as well.”
The fund is not in danger of becoming insolvent, as concerned lawmakers suggested during a hearing in July. But without a significant infusion of funds or a fundamental change in the way administrative costs are reimbursed, the program management office won’t fully recover its costs to-date until 2025.
By the end of fiscal 2019, the PMO had incurred about $1.2 million in costs, most of which went to salaries for employees ushering agencies through the process and helping manage post-award. However, as of August, only three projects had begun to repay the fund, totaling $33,165, or less than 3% of overhead costs.
And while the board has technically awarded more than $89 million, only $37.65 million has been distributed to agencies because projects receive funding on an incremental timeline. Based on the $37.65 million in funds currently in play, at the current administrative fee rates, the PMO will not recuperate its current outlay until 2025. If all $89.4 million is transferred to projects, the fund will receive $2.37 million by 2025, though there is good reason to believe the actual number will fall somewhere in between.
Ultimately, GAO identified five factors that led to fewer fees being collected:
- No fees were collected in the first year of operation.
- Projects chose longer periods to make payments.
- Projects make payments based on funds transferred.
- Fee rates were determined based on assumptions regarding appropriations that were not met.
- Changes to several projects will result in an estimated reduction of $369,117 in fees collected.
GAO cites the fourth issue as one of the biggest problems. As of fiscal 2019, Congress had obligated $125 million to the fund. However, GSA has requested $438 million for the fund, and developed the fee recuperation rates assuming the administration would be able to award that amount of funding.
“While the office exceeded its projections for distributing funds in fiscal year 2018—$1.93 million more than projected—the office had not yet met its projection of distributing $75 million in fiscal year 2019,” auditors said. “Specifically, as of August 31, 2019, the office had distributed only $25.71 million to awarded projects. Consequently, these lower levels of distributed funds decreased the amount of administrative fees scheduled to be collected.”
None of these issues will be going away any time soon: Congress does not appear willing to make large allocations to the fund, projects are scaling down rather than up and new awards will still have a one-year grace period before payments begin. But the program office isn’t just sitting idle.
The program’s Executive Director Elizabeth Cain told GAO analysts that the office was able to cut operating expenses in half in fiscal 2019 by using temporary employees tapped from within GSA rather than increasing its staff.
Cain also said the office is in the process of reassessing the fee structure for fiscal 2020, however, they will first need a budget to work off of, something Congress is still working on.
GAO made five recommendations for the project, two for OMB and three for GSA.
GSA officials told GAO they agreed with the need to reassess the fee structure but pushed back on some assertions made in the report. Officials from OMB pushed back more aggressively in their response to the report, though they declined to state whether the agency agreed or disagreed with the recommendations.
In OMB’s response, Deputy Director for Management Margaret Weichert said the report—which was reviewed in draft form—“contains many key assumptions and recommendations that are, at best, misleading and paints an incomplete picture of the TMF.”
“The fact is, the fund is financially solvent and it maintains a positive balance to cover both administrative costs and additional project awards,” Weichert wrote, citing language used in a July 2019 congressional hearing during which lawmakers first broached the funding issue. In their response to the response, GAO noted auditors at no time in the report suggested the fund would be insolvent, merely that the current administrative fee structure would not recoup costs until 2025.
“Administrative costs are less than $1 million annually, supported by a small two-person PMO staff. Projects are beginning to repay as planned, including PMO fees,” Weichert added. “The primary shortcoming has been the fact that the TMF has been underfunded by Congress, leading to slower than anticipated project volume.”