Fred Thompson checks in again!
Wednesday morning I attended the Interim Revenue Committee
meeting in the Oregon State Capitol. The headline topic was the September economic
and revenue forecast presented by Mark McMullen, State Economist, and Josh
Lehner of the Department of Administrative Services’ Office of Economic
Analysis (they predicted more lackluster growth). But I was there primarily for
the update on the Department of Revenue’s (DOR) core-system replacement
project, presented by agency director Jim Bucholz, and project manager Eric
Smith.
This project, which has been in the works for several years,
was finally authorized at the tail end of the legislative session and is
scheduled for kickoff in October. Over the next four years, it will replace
DOR’s thirty year-old information systems and processes and promises to upgrade
DOR’s performance materially. Arguably modern IT systems would use artificial
intelligence algorithms to determine how best to process each account and do so
on a just-in-time basis, thereby minimizing discrepancies between processing
time and cycle time and maximizing collections.
This spring, a group of my students looked very carefully at
the DOR’s processing of past-due accounts (so called liquidated and delinquent
accounts). They estimated that a one percent reduction in processing cycle time
would increase past-due accounts collections by >.5 percent. They observed
that obsolete information technology substantially retards the speed and the
accuracy with which the DOR identifies failures to file, filing errors, and
payment delinquencies, impedes execution of the collections process, and slows
decision making almost to a standstill. The current collections process
operates like a series of fallible filters. Accounts receivable are processed
more or less in their order of arrival to a revenue agent’s (RA) in-basket.
Processing follows a series of prescribed steps in which the account moves from
RA to RA, often spending far more time awaiting processing than being
processed. Only when these steps fail, is the account subjected to additional
scrutiny and assigned to the next higher level of collection effort.
Paradoxically, these procedures appear to subject the most difficult accounts
to the greatest delay. As a result my students concluded that if core systems
replacement reduced processing cycle time by only 20 percent, it would pay for
itself in seven years (or less) from increased collections alone, which is
really quite remarkable given that the project won’t generate substantial
operational improvements prior to its completion.
Jim Bucholz and Eric Smith did not make their case for the
core-systems replacement project in terms of improved performance. Indeed, they
very careful to make no performance-related promises. Instead, they emphasized
the need to upgrade (replace) antiquated systems and equipment (COBOL programs
and green screens) and sought to reassure the committee that this project would
not be Oregon’s
next information technology disaster. They noted that they were buying an off-the-shelf system
that had been successfully installed in 16 other states for a
firm fixed price.

Both the legislators and most of the folks present at the
hearing seemed pleased with the overall job DOR is doing. Mostly this
assessment seems to be based on the fact that Oregon spends thirty-to-forty
percent less than the average state to collect a dollar of revenue. But this
fact probably has very little to do with the DOR’s operational excellence and a
lot to do with the state’s tax structure. Unlike most states Oregon relies on a
single revenue source, the personal income tax (PIT), which means it needs only
one administrative apparatus to collect its revenue. Every tax type requires
its own collection organization and every one of those organizations costs
money. Moreover, to the extent that our PIT and business taxes are aligned with
the U.S. tax system, we can piggy-back on the efforts of the IRS to combat tax
evasion and excessive avoidance.

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