Rubin: Cuts imperil TSM program fix

Treasury Secretary Robert Rubin last week warned Congress that a plan to cut more than 2,000 information systems employees at the Internal Revenue Service's Tax Systems Modernization seriously jeopardizes the agency's ability to fix the troubled program.

Rep. Jim Lightfoot (R-Iowa), chairman of the House Treasury, Postal Service and General Government Subcommittee, included the staff cuts in his proposal, approved last Tuesday, to restructure the TSM program.

The plan, part of a funding bill for Treasury, the White House and other central administrative agencies, would cut the TSM budget by 39 percent - to $424.5 million - and freeze all spending until the IRS revamps the program.

Testifying before a Senate appropriations subcommittee Thursday, Rubin said the House-proposed cuts to TSM "go to the heart of the IRS' ability to provide taxpayers with the services that they have a right to expect" and would prevent the agency from repairing the program. "We know that there are serious problems with TSM, and we have begun to put this program on track," Rubin said.

The proposal shocked Treasury and IRS officials, although Lightfoot had said repeatedly in recent weeks that he would not provide any funds at all for TSM unless the IRS produced a new, detailed plan for the program. He had also questioned why, in a report outlining new plans to outsource most TSM systems development work, Treasury did not say the IRS would eliminate in-house jobs.

One IRS insider, who did not wish to be identified, said employees were "shell shocked. This thing has stunned everybody."

The measure will include an as-yet undetermined amount of money for buyouts at the IRS. Meanwhile, the subcommittee agreed to draft report language to accompany the bill that would ensure laid-off employees are eligible for other jobs with the agency.

"We're going to do everything we can to make that as painless as possible for them [because] it's not their fault," Lightfoot said in an interview, adding that he expects that as many as 4,000 IRS jobs will become vacant next year through normal attrition.

To quell speculation within Treasury that the measure might disrupt IRS computer operations for the 1997 filing season, Lightfoot released a copy of the bill to Rubin on Friday.

In a letter to Rubin, Lightfoot said the bill would not cut funds for processing taxpayer returns or regular services next year.

A Treasury spokesman said Rubin had not been able to review the material and had no comment.

Before the plan can become law, it will have to get through the Senate, where lawmakers are not certain they agree with Lightfoot's approach to fixing TSM, according to a Senate Appropriations Committee aide. But even if the Senate disagrees with some of Lightfoot's recommendations, general budget constraints make it unlikely that the IRS will get as much money as it wants for TSM anyway.

Lightfoot's plan would leave 150 employees working in a new Government Program Management Office, which the IRS is creating to manage TSM contracts.

Lightfoot left open the possibility that this office might expand in the future as TSM systems come on-line, but the committee rejected an amendment by Rep. Steny Hoyer (D-Md.) to preserve half of the positions proposed to be cut.

In addition, if the IRS decides to hire a new integrator for TSM, the bill would require the procurement to be run by the Defense Department, a suggestion that is also controversial. Lightfoot said he chose DOD because it has "the best expertise in terms of putting big, complex contracts together."

Once a contract was awarded, DOD's involvement with TSM would end, a Lightfoot aide said.

Bob Dornan, senior vice president of Federal Sources Inc., said it is becoming common for agencies voluntarily to delegate their procurement work to other agencies. He said the Defense Information Systems Agency has awarded telecommunications contracts for the Federal Aviation Administration, and the National Institutes of Health is currently buying support services through the Navy and the General Services Administration's Federal Computer Acquisition Center (Fedcac).

Steve Meltzer, director of Fedcac, said that, in his experience, agencies that do their own acquisitions "often lose sight of what they are doing," becoming distracted by pressure from users to make specific purchase decisions. "When you're too close to the source, you run into problems," he said.

But William Kovacic, a contract law professor at George Mason University, said the arrangement will not work unless the IRS has a strong advisory role in the source-selection process.

"That advisory role will have to be very robust, or there is a big risk that they will not get what they want," he said.

Dornan said the House "may be trying to solve the wrong problem" by assigning contracting responsibilities to DOD, in part because the IRS acquisition workforce has a good reputation. "The real question is, Is the TSM problem in procurement or in the planning and management?"

Lightfoot responded that he thinks IRS associate commissioner for modernization Judy Van Alfen and chief information officer Arthur Gross "together have the talent and expertise and ability to do this thing right." The spending bill would make Van Alfen responsible for all IRS information systems programs.

It was not immediately clear last week specifically how the proposed budget cuts would affect TSM systems already under development. More than half the cuts - nearly $150 million - would come out of IRS salaries rather than from payments to vendors for systems and software work, and an IRS spokeswoman said it is "premature" to draw any conclusions about the impact.

Earlier this month Treasury scaled back its original budget request from $850 million to $664 million. According to a letter from Treasury deputy secretary Lawrence Summers, under this scenario, the IRS would cut $48 million from program management, mostly by cutting its staff as well as delaying the deployment and development of several systems.

Among the consequences of these less severe cuts, Summers said:

* The IRS would maintain TSM systems that are already on-line but would cancel or delay some enhancements, such as automating fraud detection for paper returns.

* Improvements in the IRS' software development capabilities, which critics have said are needed to properly oversee contractors, would be hindered by unspecified layoffs and lack of equipment.

* The pilot for Cyberfile, the IRS' Internet-based tax return filing program, would be postponed.

* The IRS would be unable to purchase equipment or develop software next year to improve its "customer service" programs, slowing down efforts to streamline its problem-resolution procedures and to answer more telephone calls.

* The agency would postpone enhancements to its automated Case Processing System, which would supply collections and criminal investigations agents with the most up-to-date information about taxpayer accounts.

Vendors said they want TSM to be fully funded, arguing that investments that have already been made in equipment and software can soon begin to produce results.

But one vendor, who did not wish to be identified, said that, by turning the systems development work over to contractors, the IRS "can probably make more progress with $424 million than they have with the last $600 million to $700 million they have spent."