|Budget Issue:||Implementation of the Enterprise Data to Revenue (EDR) project|
|Program:||Franchise Tax Board|
|Finding or Recommendation:||Adjust administration's budget proposal to better align permanent workforce with ongoing work.|
The Franchise Tax Board (FTB) administers California’s income tax programs. The FTB uses information technology (IT) systems to process taxpayer returns and collect tax revenue. The Enterprise Data to Revenue (EDR) project will modernize several legacy IT systems. In addition, EDR is expected to collect and analyze more taxpayer information than is currently cost-effective. FTB expects that this information can be used to better detect and collect taxes from those who are not paying the amount of taxes they owe.
Staffing Decisions May Affect Payments To Primary Vendor. The EDR project was procured using a “benefit-based” compensation model in which the primary vendor is paid, in part, based on increases in state revenue directly attributable to the project. While it is impossible to determine whether a dollar of increased revenue is due solely to the implementation of EDR or an external factor (such as economic changes or statutory changes), the FTB has a process in place to estimate EDR-related revenue. In this process, staffing levels are an important consideration. On one hand, maintaining a baseline level of staff is important to ensure that prior revenue streams continue to flow to the state. On the other hand, additional staff may need to be added to take advantage of new information provided by the EDR project and realize new revenue. FTB claims that redirecting staff to handle new EDR-related workload could lead to a decline in baseline revenue, complicate the implementation of EDR, and affect levels of payments to the primary vendor.
Over Time, EDR Project Will Likely Shift Staffing Needs Within FTB. The EDR project is expected to automate several labor-intensive processes and make other tasks more efficient. At the same time, EDR is increasing the amount and quality of data available to auditors and other staff that are tasked with collecting revenue, investigating fraud, and improving taxpayer compliance. Consequently, we expect that some divisions will need to permanently reduce staffing levels and others will need to permanently increase staffing levels. At this time, it is unclear what the ongoing staffing needs will be. The administration has indicated that it will comprehensively review key FTB divisions following the implementation of EDR.
Budget Change Proposal (BCP) 1 Continues Implementation of EDR Project. The Governor’s budget for 2014-15 proposes appropriating $75.1 million from the General Fund to the FTB for 71 positions and anticipated payments to the primary vendor for continued implementation of the EDR project. Specifically, this item would provide for 23 new permanent positions, 42 limited-term positions, and 6 temporary help positions related to EDR implementation.
BCP 2 Reestablishes Limited-Term Positions. The Governor’s budget plan also proposes $7.7 million from the General Fund to the FTB to reestablish 101 expiring two-year limited-term positions for tax collection activities.
Position Establishment Should Consider Workload History and Nature of Work. The EDR project will permanently increase the amount of taxpayer data available to FTB staff, allowing them to better detect tax fraud and taxpayer non-compliance. Some of the new positions requested are needed to handle the increased amount of work generated by this improvement in the quality and quantity of information. While this workload will likely be ongoing, assuming there is no corresponding change in taxpayer behavior, the future volume of work is still uncertain.
We recommend that the Legislature increase somewhat the number of new permanent positions the FTB is allowed to establish in order to better retain staff to those positions. (It is often more difficult to attract and retain staff in limited-term positions.) In other instances, however, we recommend the Legislature only authorize certain positions on a two-year limited-term basis until a sufficient workload history has been established. Our specific recommendations are as follows: