post-election briefing document 10-6-11 - issued

Department of Administration

Transition MemorandumOctober 6, 2011

Dear Governor Tomblin,

This transition memorandum is designed to update you on issues within the Department of Administration’s purview and provide you with actionable recommendations. These are the issues that my staff and I believe you need to address immediately and in the next year.

The document is broken down into five sections:

Section 1 provides a concise source of information regarding agencies in the Department of Administration, including appointments currently filled in acting capacities.

Section 2 discusses decisions to be made or actions to be undertaken immediately.

Section 3 contains higher priority issues to be addressed in the coming months.

Section 4 describes priority issues to be addressed in the coming year.

Section 5 summarizes in list form all decision points and recommended actions from previous sections.

Department of Administration staff and I stand ready to assist you on these issues and on any issues that support the goals of your administration.

Respectfully submitted,

Robert W. Ferguson, Jr.Cabinet Secretary

Department of Administration: 2011 Transition Memorandum Page

The Department of Administration strives to operate a cost-efficient, customer-oriented service department whose actions are transparent to taxpayers resulting in innovative solutions and

quality results for a government that effectively serves West Virginians.

Table of Contents

1 Appointments and Code Cites...............................................................................................................1

2 Decisions/Actions Needed Immediately...............................................................................................22.1 PEIA General and Special Revenue Level During FY2013...........................................................22.2 Stimulus Broadband Grant Implementation...................................................................................22.3 Logan Building...............................................................................................................................32.4 Building #3 Renovation..................................................................................................................32.5 Rehabilitation Center......................................................................................................................3

3 Higher Priority Issues............................................................................................................................43.1 General Services Division’s Funding Shortfall..............................................................................4

3.1.1 Capitol Campus Fund 0230.....................................................................................................43.1.2 Capital Improvements Fund 2257............................................................................................4

3.2 Capitol Food Court.........................................................................................................................53.3 OPEB Unfunded Liability..............................................................................................................63.4 Records Management.....................................................................................................................6

4 Priority Issues........................................................................................................................................74.1 ERP System Implementation..........................................................................................................7

4.1.1 Staffing.....................................................................................................................................74.1.2 Fixed Asset Reconciliation......................................................................................................74.1.3 Internal Business Practice Standardization..............................................................................8

4.2 OT Oversight of Independent Boards and Commissions...............................................................84.3 Long-term IT Contractors...............................................................................................................94.4 Capitol Campus Master Plan..........................................................................................................94.5 Co-locating GSD Professional Staff...............................................................................................94.6 Pre-Award Negotiations.................................................................................................................9

5 Summary of Decision Points and Recommended Actions..................................................................11


1 Appointments and Code Cites

The following table serves as a quick reference guide for Department of Administration agencies, leadership, and code cites. Those leaders serving in acting capacities are highlighted and marked with an asterisk. It is recommended that these appointments be made as soon as possible.

Agency Appointee Title

Appointed By

Approval Of Status Current

Appointee W.Va. Code

Department of Administration

Cabinet Secretary Governor Senate Exempt Robert

Ferguson §5A-1

Aviation ServicesAviation Services Manager

Cabinet Secretary DOP Rule Classified Keith

Wood§5A-3-48 through 53

Board of Risk and Insurance Management (BRIM)

Director Board N/A Exempt Chuck Jones §29-12

Children’s Health Insurance Agency Director Governor Senate Exempt Sharon

Carte §5-16B

Consolidated Public Retirement Board

Executive Director Board Governor Exempt Jeff Fleck §5-10D

Ethics Commission Executive Director Commission N/A Exempt Theresa

Kirk §6B-2

Finance Division Director Cabinet Secretary DOP Rule Exempt Ross

Taylor §5A-2

Fleet Management Office

Executive Director

Cabinet Secretary N/A Exempt Clay

Chandler§5A-3-48 through 53

General Services Division Director Cabinet

Secretary N/A Exempt David Oliverio §5A-4

Information Services and Communications Division

Director Cabinet Secretary N/A Exempt Kyle

Schafer

§5A-7; IS&C and OT both lead by CTO

Office of TechnologyChief

Technology Officer

Governor N/A Exempt Kyle Schafer §5A-6

Division of Personnel Director Governor N/A Exempt Sara Walker §29-6

Prosecuting Attorney’s Institute Director Executive

CouncilExecutive Council Exempt Philip

Morrison §7-4

Public Defender Services

Executive Director Governor N/A Exempt Russell

Cook* §29-21

Public Employees Grievance Board

Executive Director Board N/A Exempt Robin

Perdue §18-29

Public Employees Insurance Agency Director Governor Senate Exempt Ted

Cheatham §5-16

Purchasing Division Director Cabinet Secretary DOP Rule Classified David

Tincher §5A-3

Real Estate Division Executive Director Governor Senate Exempt Chuck

Lawrence§5A-10

through 11


2 Decisions/Actions Needed Immediately

The following five decisions/actions must be addressed immediately to avoid likely negative consequences. 2.1 PEIA General and Special Revenue Levels During FY2013

Pursuant to W.Va. Code §5-16-5(d)(4), the Governor must sign a letter providing an estimate of the projected general and special revenues that will be made available to the Public Employees Insurance Agency (“PEIA”) and the Retiree Health Benefits Trust Fund (“RHBTF”) during FY2013.

Based on previous discussions with the Governor’s Office and the Budget Office, it is expected that the funding level for FY2013 would be 4%, or $18.5 million, higher than that in FY2012.

State General Revenue $314,034,101State Special Revenue $169,633,747 Total Available Revenue $483,667,848

The Governor must sign a letter stating this information by October 15, 2011.

Decision Point/Recommended Action 2.1: Ensure the Governor signs a letter by October 15, 2011, wherein an estimate of the projected general and special revenue funds that will be made available to PEIA and RHBTF during FY2013 is provided.

2.2 Stimulus Broadband Grant Implementation

West Virginia is the recipient of the largest grant associated with the Broadband Technology Opportunities Program (“BTOP”), which is overseen by the National Telecommunications Information Administration (“NTIA”). The overall project costs for the broadband build-out is approximately $159 million, with $126 million of the funding coming from American Recovery and Reinvestment Act (“ARRA”) funds and $33 million supported through the state. NTIA requires that 67% of the ARRA funds be drawn down by February 2012 and project completion by February 2013. There is an extensive amount of work that must take place to accomplish such an aggressive goal.

Currently, the project is significantly (at least three months) behind schedule. One objective of the grant is to connect “anchor” locations around the state. Of the 778 anchor tenants to be connected, only 23 have been connected to date. Further, only 19.5 miles of fiber are currently installed of the 631 miles expected to be deployed. Additionally, the state purchased more hardware with grant funds than it has locations to which to deploy. Because of this, it is possible that the state could be asked to reimburse the federal government in excess of $2 million. Additionally, anchor tenants are expressing frustrations with inconsistent communication from the state.

Essentially, the accountability for this project’s success is with the state, although the project’s responsibility lies with Frontier Communications (“Frontier”). In other words, Frontier has no “skin in the game.” Their past and present verbal commitments to the project’s success are no longer sufficient. It is imperative that a project plan that includes phased milestones towards completing the project on-time and on-target be developed and agreed to by all parties.


Operational leadership of the project consists of Jimmy Gianato as Grant Administrator/Project Lead, Mike Todorovich as Financial Grant Manager, and Kyle Schafer as Technical Lead. Frontier is the linchpin for the project’s success.

Decision Point/Recommended Action 2.2: Demand that Frontier Communications publish an action plan that includes phased milestones to mitigate current issues and to complete the state’s BTOP project on-time and on-target.

2.3 Logan Building

Construction for the state office building in Logan continues on schedule. Excavation for the foundation and steel is complete, and steel placement began in early October. Construction is expected to be completed by August 2012.

The Department of Administration followed agreed-upon protocols upon the discovery of archaeological features. The Seneca Nation has retrieved all features discovered to date. However, communications continue to be tense. The Seneca Nation requested a meeting with the Governor and a member of the legislative branch in the coming weeks.

Decision Point/Recommended Action 2.3: Refine and implement a coordinated communication strategy across the executive and legislative branch related to the archaeological features found at the construction site of the state office building in Logan.

2.4 Building #3 Renovation

Bids for the renovation of Building #3 were opened in April 2011, with the lowest bid significantly higher than the General Services Division’s maximum budgeted amount. The contract is still awaiting award, and the prices quoted in the bids continue to become stale.

Decision Point/Recommended Action 2.4: Award the contract for the Building #3 renovation immediately.

2.5 Rehabilitation Center

The General Services Division (“GSD”) continues to secure and maintain the Rehabilitation Center (“Rehab Center”) in Institute. GSD paid approximately $846,000 in utility, maintenance, security, and closure costs in FY2011 and has paid approximately $63,000 to date in FY2012. These costs further exacerbate the funding shortfall in GSD, which is discussed in greater detail in Section 3.1.

Decision Point/Recommended Action 2.5: Determine the future course of action for the Rehab Center.


3 Higher Priority Issues

The following four issues need to be addressed in the coming months to mitigate likely negative consequences.

3.1 General Services Division’s Funding Shortfall

GSD continues to work closely with the Finance Division and the Real Estate Division regarding its funding options. For FY2012, projected expenses exceed projected revenue in Fund 2241 (GSD Rent Fund). The cash flow projections for major GSD capital projects (Funds 2257 and 2462) indicate GSD will be facing a deficit in FY2013, with the deficit growing to over $40 million by FY2016. These projections are based upon GSD not starting any additional major projects, although the projects may be deemed necessary.

3.1.1 Capitol Campus Fund 0230

GSD Fund 0230 is to be used specifically for costs associated with the care, custody, and control of the Capitol buildings and grounds. Other than an increase to create new positions within GSD in 2007, the fund’s level has remained approximately the same for the past ten years. However, especially during the past three years, revenues have decreased because of budget cuts, while the costs of utilities and maintenance have increased significantly. Summarily, for FY2012:

Operating Costs of Capitol Buildings and Grounds $5,586,000Current Appropriation $2,993,175 Shortfall $2,592,825

To cover these increased costs in past years, GSD paid expenses from its capital improvements fund and its rent account, both of which are not designated for the Capitol buildings and grounds.

GSD is requesting a supplemental appropriation for FY2012 and also a recurring appropriation for future years to cover this shortfall. Approving these requests will properly account for the costs associated with the care of the Capitol buildings and grounds and reduce the shortfall in GSD’s capital improvements fund.

Decision Point/Recommended Action 3.1.1: Approve GSD’s approximately $2.6 million supplemental appropriation request for FY2012 and its recurring appropriation for future years to GSD Fund 0230 to properly account for the costs associated with maintaining the Capitol campus.

3.1.2 Capital Improvements Fund 2257

According to cash flow projections, GSD’s capital improvements fund will be exhausted in FY2013. Three decisions can help mitigate this issue.

First, past discussions with the Governor’s Office indicated an additional $10 million would be transferred to supplement GSD’s Building #3 renovation project because bids were higher than estimated.


Second, GSD is currently paying approximately $7 million in costs out of Fund 2257 that should be paid out of its Rent Fund 2241. This is because of (1) the relatively low rental rate (when compared to increasing costs) that has been in effect for Department of Administration-owned buildings during past years; (2) some tenants not paying rent; and (3) not charging rent for common areas in buildings. The Real Estate Division, in conjunction with the Budget Office, is beginning to mitigate these three issues in FY2013. However, GSD is requesting a one-time appropriation of $7 million to offset past costs that would not have been paid out of Fund 2257 if rental revenues had been at the appropriate level to cover operating costs.

A possible source for these one-time appropriations is an amount currently being maintained in a fund at Huntington Bank, the former trustee on the West Virginia Lottery Revenue Bonds, Series of 1997 (known as the “EAST Bonds”). The EAST Bonds matured by their terms and were fully paid in the summer of 2010. The combined ending balances in the bonds’ Revenue Fund and Debt Service Reserve Fund are approximately $18.4 million. The Department of Administration requests assistance from the Governor’s Office to reallocate these funds to the General Services Division.

Third, selling lease bonds to finance the construction of the Logan, Clarksburg, and Fairmont buildings can also reduce the shortfall in GSD Fund 2257.

Decision Point/Recommended Action 3.1.2(a): Assist in the reallocation of approximately $18.4 million in 1997 West Virginia Lottery Revenue Bond proceeds to GSD’s capital improvements account, Fund 2257.

Decision Point/Recommended Action 3.1.2(b): Sell lease bonds to finance the construction of buildings in Logan, Clarksburg, and Fairmont.

3.2 Capitol Food Court

The Pittman Group exercised its option to end operating the Capitol Food Court effective December 8, 2011. It cited reasons included the layout of the cafeteria; retaining quality, temporary staffing; health department standards; and the limited ability to generate sales throughout the Capitol campus.

The Department of Administration is currently developing detailed courses of action for review regarding the Capitol Food Court’s operation during the 2012 legislative session. The options will include (1) securing the services of a commercial vendor similar to the Pittman Group; (2) turning operation over to the Randolph Sheppard vendors (the Department of Education and the Arts); (3) utilizing the Division of Natural Resources and their successful model in Chief Logan State Park (currently being researched); and (4) negotiating with the Pittman Group to return prior to the session (only as a last resort, based on Pittman’s expressed intent).

Decision Point/Action Item 3.2: Review, once provided, the proposed courses of action for the operation of the Capitol Food Court to ensure its operation during the 2012 legislative session.


3.3 OPEB Unfunded Liability

The other post-employment benefits (“OPEB”) unfunded liability reflects the amount of non-pension benefit expenses an employee has earned, including health care costs, which will be paid by the state for an employee from the time retirement begins to the date of his/her death. As of June 30, 2011, the state’s unfunded actuarial accrued liability is approximately $9.3 billion.

It is important that the state develop a long-term strategy to manage this substantial liability; sustain its ability to provide health care benefits to employees and retirees; and avoid having to use funds that are currently supporting other vital state programs to pay for health care benefits in the future. One option available to the PEIA Finance Board is to develop a methodology that will limit the “pay-go” liability. PEIA currently subsidizes 70% of retirees’ premiums, which is $150 million this year. This amount could continue to grow unlimitedly in the future depending on the trend of healthcare costs.

The PEIA Finance Board can cap this amount at $150 million for future years, or it can allow the amount to grow at a fixed, manageable, and sustainable pace. This will, in effect, either reduce the OPEB liability or virtually eliminate it.

Decision Point/Recommended Action 3.3: Meet with PEIA Director Ted Cheatham prior to the PEIA Finance Board meeting scheduled for October 11, 2011, and continue to work with the legislature to develop a long-term strategy to eventually eliminate the OPEB liability.

3.4 Records Management

The executive branch lacks a comprehensive records management program, which was highlighted in a 2009 legislative audit. W.Va. Code §5A-8 et seq. names the cabinet secretary of the Department of Administration as the state records administrator, who must establish and oversee a records management program.

The Department of Administration currently does not have the funding for or the expertise to implement a comprehensive records management system. The tasks outlined for the records administrator require a professional who can develop policies and procedures based on industry best practices that move the state from paper retention in physical storage space to digital retention, resulting in safer, more efficient practices.

It is recommended to fund and approve the hire of a full-time records administrator to develop and implement an executive branch-wide records management program. The recent hiring of a qualified state fleet manager and the subsequent successful consolidation of the state’s fleet should serve as a model for this records management process.

Decision Point/Recommended Action 3.4: Approve the funding for and the hiring of a full-time records administrator to develop and implement an executive branch-wide records management program.


4 Priority Issues

The following issues are those that the Department of Administration recommends that the new administration focus its efforts on after addressing the issues discussed in previous sections. Acting to resolve these issues will improve the state’s internal operations and better position the state for success in the future.

4.1 ERP System Implementation

The state’s evaluation team, in conjunction with its advisors STA Consulting, continues the procurement process for the state’s Enterprise Resource Planning (“ERP”) system software. The subsequent implementation will create some issues for agencies and also necessitates decisions be made regarding the state’s business processes.

4.1.1 Staffing

ERP implementation requires the full-time and part-time commitment of many Department of Administration employees. While staffing decisions will be finalized after the procurement process is completed, current estimates range from 12-46 full-time employees being committed to the project on a full-time basis. The best estimate at this time is approximately 30 employees will be needed on a full-time basis.

This will present many challenges for agencies to ensure service levels continue at the same level despite the loss of many vital employees. Additionally, staff must be trained on the new systems and also operate multiple systems for a period of time. The implementation will likely ultimately result in temporary delays for agencies’ processes. However, it is the Department of Administration’s goal to mitigate delays; however, situations may arise outside of its control that could affect agencies’ processing times.

Decision Point/Recommended Action 4.1.1: Assist in the communication efforts to other departments that some service levels for Department of Administration agencies may be impacted because of the ERP implementation.

4.1.2 Fixed Asset Reconciliation

Currently, state agencies include equipment on their physical inventories that are no longer in the agencies’ possession. Conservative estimates based on agency-provided data in FY2009 indicate at least 4,000 assets, with an estimated value of $9.7 million, would be categorized as “lost.” It is expected that these numbers would be below actual levels if reconciliation occurred.

Because agencies’ reported inventory is inaccurate and/or incomplete, the state’s mainframe-based inventory system does not accurately reflect the state’s total amount of reportable property on hand, which means inaccurate data is reported for the state’s comprehensive annual financial report.

A fixed-asset management system is one component of the coming ERP system. It is imperative that this new system, when launched, contains accurate information and data to ensure current inaccuracies do not grow to an unmanageable level.


The Department of Administration recommends that reconciliation of fixed assets be made a part of the ERP system implementation with support from the Governor’s Office, if needed. Blending the reconciliation into the ERP project will reduce or eliminate any negative publicity with regard to lost assets. Agencies should be required to take a complete physical inventory prior to the new system. The Purchasing Division would develop, communicate, and manage a process by which lost items would be purged.

Decision Point/Recommended Action 4.1.2: Direct agencies to reconcile their fixed asset inventories as part of the ERP system implementation.

4.1.3 Standardization of Internal Business Practices

The state currently does not have a standard work week, has over 140 different federal employer identification numbers, and has varying practices regarding compensatory time and overtime. Programming these examples and other varying internal business practices of state agencies into the ERP system will increase incremental costs during implementation.

The Department of Administration recommends the Governor’s Office (1) issue a strong statement that sets an expectation for standard business processes, and (2) re-evaluate exemptions from any central administration authorities.

Decision Point/Recommended Action 4.1.3: Direct the development of a standard work week and other standard business practices across state government.

4.2 OT Oversight of Independent Boards and Commissions

Many boards and commissions, although they are not explicitly exempted from the Office of Technology (“OT”) in W.Va. Code, challenge OT’s authority and do not comply with OT policies, procedures, and standards.

This represents a significant security and financial risk to the state.

A November 2009 memorandum from the Governor’s Office specifically stated that boards, commissions, and authorities were to cooperate with OT. However, many boards and commissions continue to operate independently from OT.

OT recommends that the Governor’s Office expressly mandate that any organization connecting to the state network must follow the policies, practices, standards, and procedures developed by OT. Boards and commissions should pay the standard connectivity fee when they are connecting to the state’s network.

Decision Point/Recommended Action 4.2: Direct independent boards and commissions to follow the policies, practices, standards, and procedures developed by OT.


4.3 Long-term IT Contractors

Many information technology (“IT”) contractors have been working in the same state agency for more than three years, with some as many as ten consecutive years. Salaries for these contractors range from $75 to $210 per hour. This situation raises many concerns, including the following:

Possible violation of fair labor laws (see Microsoft case regarding independent contractors);

Economic infeasibility, as full-time state employees could be hired for a fraction of current costs; and

Possible security risks, as it is not possible to conduct thorough background checks on foreign contractors.

Decision Point/Recommended Action 4.3: Direct an analysis of the use of IT contractors in various state agencies in an effort to replace them with full-time state employees.

4.4 Capitol Campus Master Plan

GSD received the final draft of the Capitol Campus Master Plan in early October. Once approved by GSD and the Governor’s Office, the Master Plan needs to be approved by the Capitol Building Commission to guide future campus growth.

Decision Point/Recommended Action 4.4: Present the Capitol Campus Master Plan to the Capitol Building Commission for approval to guide future campus growth. 4.5 Co-locating GSD Professional Staff

The professional staff of GSD is currently located in multiple locations on the Capitol campus, including in the basement of Building #1 and in a house on the east part of the campus. The third floor of Building #4 is vacant in preparation for renovation. The Department of Administration recommends co-locating all GSD professional staff into that single space to improve agency performance by providing for better coordination and communication across various GSD sections.

Decision Point/Recommended Action 4.5: Approving the co-location of GSD professional staff in the third floor of Building #4. 4.6 Pre-Award Negotiations

W.Va. Code permits the director of the Purchasing Division to negotiate if a sole source request or lowest bid is higher than an agency’s maximum budgeted amount. The state can realize greater savings if the director’s power to negotiate is expanded. The Purchasing Division drafted proposed language to modify W.Va. Code § 5A-3-11a to allow the director to negotiate with an apparent successful bidder in an effort to obtain a lower price without changing proposed specifications. Subject matter experts from agencies would be involved in the negotiations.


By providing this expanded authority to negotiate, the Purchasing Division would be in a better position to procure goods and services at the best possible price.

Decision Point/Recommended Action 4.6: Approve the proposal of, endorse, and actively support legislation to expand the authority to negotiate pre-award.


5 Summary of Decision Points and Recommended Actions

Section 2.1: Ensure the Governor signs a letter by October 15, 2011, wherein an estimate of the projected general and special revenue funds that will be made available to PEIA and RHBTF during FY2013 is provided.

Section 2.2: Demand that Frontier Communications publish an action plan that includes

phased milestones to mitigate current issues and to complete the state’s BTOP project on-time and on-target.

Section 2.3: Refine and implement a coordinated communication strategy across the executive and legislative branch related to the archaeological features found at the construction site of the state office building in Logan.

Section 2.4: Award the contract for the Building #3 renovation immediately.

Section 2.5: Determine the future course of action for the Rehab Center.

Section 3.1.1: Approve GSD’s approximately $2.6 million supplemental appropriation request for FY2012 and its recurring appropriation for future years to GSD Fund 0230 to properly account for the costs associated with maintaining the Capitol campus.

Section 3.1.2(a): Assist in the reallocation of approximately $18.4 million in 1997 West Virginia Lottery Revenue Bond proceeds to GSD’s capital improvements account, Fund 2257.

Section 3.1.2(b): Sell lease bonds to finance the construction of buildings in Logan, Clarksburg, and Fairmont.

Section 3.2: Review, once provided, the proposed courses of action for the operation of the

Capitol Food Court to ensure its operation during the 2012 legislative session.

Section 3.3: Meet with PEIA Director Ted Cheatham prior to the PEIA Finance Board meeting scheduled for October 11, 2011, and continue to work with the legislature to develop a long-term strategy to eventually eliminate the OPEB liability.

Section 3.4: Approve the funding for and the hiring of a full-time records administrator to develop and implement an executive branch-wide records management program.

Section 4.1.1: Assist in the communication efforts to other departments that some service levels for Department of Administration agencies may be impacted because of the ERP implementation.

Section 4.1.2: Direct agencies to reconcile their fixed asset inventories as part of the ERP system implementation.


Section 4.1.3: Direct the development of a standard work week and other standard business practices across state government.

Section 4.2: Direct independent boards and commissions to follow the policies, practices, standards, and procedures developed by OT.

Section 4.3: Direct an analysis of the use of IT contractors in various state agencies in an effort to replace them with full-time state employees.

Section 4.4: Present the Capitol Campus Master Plan to the Capitol Building Commission for approval to guide future campus growth.

Section 4.5: Approving the co-location of GSD professional staff in the third floor of Building #4.

Section 4.6: Approve the proposal of, endorse, and actively support legislation to expand the authority to negotiate pre-award.


post-election briefing document 10-6-11 - issued

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