IRS seeks $258M morefor Year 2000 solution

The Internal Revenue Service said last week that it will need an additional $258 million next year to make its systems century-date compliant because it has uncovered new requirements since it requested $84 million for its Year 2000 upgrade in President Clinton's budget.

"The size of the need as we have scoped this is getting larger and larger " Treasury Department deputy secretary Lawrence Summers told the Senate Appropriations Committee's Treasury Postal Service and General Government Subcommittee on Thursday. Although the IRS has not made a formal request for the funds Summers said Treasury intends to discuss the issue further with the administration and Congress.Neither Summers nor IRS officials at the hearing provided details about how this money would be spent although IRS chief information officer Arthur Gross said some of the money would be used for a planned data center consolidation project. This project a preliminary step in the agency's new modernization program would transfer mainframe operations from 10 IRS service centers to three central computing facilities and would result in upgrades that would make these systems Year 2000-compliant.

Like most federal agencies the IRS has seen its cost estimates for fixing its Year 2000 problem increase as it takes inventory of its software applications. In recent weeks Gross has said that although the agency has reviewed the software in its core systems 40 percent of its code - mostly in field applications and telecommunications systems - has not been studied.

Susan Marshall who recently researched the issue for Federal Sources Inc. McLean Va. said she was not surprised that the agency wants more money. "They found out that every single platform - all IRS applications and databases - is in danger of noncompliance " she said. "This is an iterative process. Their costs are going to escalate as each year passes."

Olga Grkavac senior vice president with the Information Technology Association of America's Systems Integration Division said she expected the IRS to make "a substantial funding request" given the size of the agency and the priority it has given the problem. The only thing unusual about the request Grkavac and Marshall said is that the IRS appears to be including system upgrades that other agencies are counting elsewhere in their budgets.

"That makes the number harder to compare" with Year 2000 spending by other agencies Grkavac said. "In a pure sense Year 2000 cost is something that an agency wasn't planning to do anyhow."Whether the IRS will get these or any additional funds next year is unclear. Lawmakers are already showing reluctance to add any money to the agency's coffers.

Sen. Robert Kerrey (D-Neb.) co-chairman of the National Commission to Restructure the IRS told the Senate panel that his group will recommend that the IRS be funded at its "current budget" for the next three years. The commission would leave it up to Congress to decide whether to provide increases to cover inflation.

Committee members questioned whether the IRS should have any new funds including the extra Year 2000 funds before the agency outlines the return it expects to get from its investments. Sen. Richard Shelby (R-Ala.) lectured Summers and IRS officials for not complying with the Clinger-Cohen Act which demands agencies show how their information technology spending will benefit their operations. "That's troubling not just to me but it will be really troubling to the American people " Shelby said.

James White associate director for tax policy and administration issues with the General Accounting Office testified at the hearing that Congress should consider not giving the IRS any of the money it has requested for modernization until the agency describes how it would be used. The IRS asked for $131 million to plan its new modernization effort next year plus advanced funding of $500 million for projects that it says it will not spend until fiscal 1999. The agency also has requested an additional $500 million be funded in its fiscal 1999 budget.

White said however that the agency's original request for Year 2000 funds "may be substantially less than what will be needed" next year to deal with the problem. "They may need several times what has been requested to date " he added.

The Senate subcommittee's counterpart in the House was scheduled to introduce its proposal for IRS' fiscal 1998 funding at a markup last week but the meeting was postponed after some concerns about the package were raised with House Appropriations Committee chairman Rep. Robert Livingston (R-La.). A committee aide declined to disclose who had questioned the proposal or why.