"By late 1998, it became clear to Fagan the new system would not be ready for the year 2000. Y2K compliance was a key reason for the system, so Fagan shelved the program and the department turned its attention to making the existing system ready for the date change. "

State bungles computer project

By Mike Soraghan

Denver Post Capitol Bureau

Feb. 27 - Top state Revenue Department officials were told early on that the way they planned to overhaul their income tax computer system was too risky.

But instead of listening, an administrative law judge found, they demoted the employee who raised the concerns.

And $12 million later, the project is largely a failure.

The computer system sits on a shelf and the employee, Gar Olmsted, has been paid $165,000 to settle his complaint against the state.

Olmsted also had expressed concern that state officials downplayed the risks and overstated the advantages when they sought taxpayer money for the system from legislators.

But state auditors decided not to investigate and fought successfully in court to avoid explaining why.

Now auditors are looking at the project again, under pressure from legislators. They have yet to talk to Olmsted.

Sen. Jim Congrove, an Arvada Republican and one of the legislators who asked for a new investigation, wants to know what happened to the money.

"What they're doing is spending all their time trying to crush this guy instead of doing the right thing," Congrove said.

The state officials involved say their plan to overhaul the way taxes are collected and recorded was a large undertaking that didn't go as planned. But Olmsted, they say, didn't know any better than they did whether it would work.

"That's the luxury of critics. We don't know if their scenario would have worked out better," said Renny Fagan, executive director of the Revenue Department at the time. "The second-guessers don't have any proven track record." State officials say Olmsted was not demoted because of his complaints but as part of a larger office reorganization.

Fagan, now a top deputy to Attorney General Ken Salazar, emphasizes that he takes full responsibility for what happened with the project, called the Income Tax Initiative. And he denies misleading legislators on the project.

"That is wrong," Fagan said.

The project started in 1994. Fagan, Revenue Department head under then-Gov. Roy Romer, decided to revamp how the department collected income taxes. At the heart of this would be a new computer system.

Over time, Olmsted, a supervisor in the Revenue Department's computer division, became worried that the project would cost more than the department was expecting. He was concerned that the department had decided to use an unfamiliar, new kind of computer system, instead of modernizing the mainframe system it had used for years. In 1996, he started voicing his concerns to superiors and other members of a management committee overseeing the project.

"All my experience was telling me this was wrong," Olmsted, who retired from the department in January, said in an interview. "That's what we were supposed to be doing, raising the tough questions."

That began to wear on Olmsted's boss, Ron McNutt, Revenue Department chief information officer.

McNutt instituted a management reorganization that Administrative Law Judge Margot W. Jones later would call a "sham reorganization." "Getting Pierced" Olmsted was demoted to a nonmanagerial job and transferred from the department's Capitol Hill headquarters to another agency building on Pierce Street in Lakewood. Some in the department refer to such transfers as "getting Pierced." Olmsted protested, and eventually his case wound up before Jones, who found McNutt demoted Olmsted in retaliation for his criticism of the project.

She also found that many of Olmsted's concerns about the computer system were true. When an administrative law judge rules that a state government whistle-blower has been retaliated against, state law requires the matter to be turned over to state auditors, who determine whether a more thorough investigation is needed.

State Auditor David Barba decided not to investigate.

"We do not believe that there is sufficient evidence of waste of state funds or mismanagement of a state agency to warrant an audit in this area," Barba said in his November 1998 three-page report to the Legislative Audit Committee.

But in a recent interview, Barba said the issue for him was deciding whether Olmsted was a whistleblower who had suffered retaliation. Barba determined Olmsted was not a whistle-blower - someone who goes outside the agency to report waste or mismanagement. The auditors did not talk to Olmsted. Barba said the law ordering him to do preliminary investigations in whistle-blower cases does not allow auditors to interview anyone. Olmsted's lawyer, Charlie Kaiser, who'd had to push the state for auditors to do a preliminary investigation, questioned how Barba arrived at that decision.

Kaiser requested the auditor's files on the case as part of a federal lawsuit he filed on Olmsted's behalf. The state won a court fight to keep them secret.

That also bothers state Sen. Congrove.

"What are we hiding?" Congrove asked. "When we in government try to hide this stuff, it makes it look like there's something corrupt."

By late 1998, it became clear to Fagan the new system would not be ready for the year 2000. Y2K compliance was a key reason for the system, so Fagan shelved the program and the department turned its attention to making the existing system ready for the date change.

When Gov. Bill Owens took office in 1999, he replaced Fagan with former Greenwood Village Mayor Fred Fisher, who chose not to restart the project.

That left the department with its antiquated computer system. Some of the software on the system is more than 30 years old and needs to be replaced.

In December, Congrove and Senate President Ray Powers questioned Fisher about whether corruption in the previous administration was involved in the project's failure.

"We have nothing to show (the $12 million) didn't fall into somebody's pants pocket," Powers, R-Colorado Springs, said at the time.

But Fisher told them nothing was stolen, and the problem was not corruption. Olmsted agrees.

"The money went into the pockets of consultants," Olmsted said.

Fagan was irritated by the suggestion of corruption. "In the private sector when things go wrong, you move on and learn from your mistakes," Fagan said. "In the public sector, if you fail, you get flogged and called a thief."

After their meeting with Fisher, Powers and Congrove asked state auditors to look at the project again. That audit is expected to be released March 21.

Fagan said the $12 million effort did produce programs that allow taxpayers to file income taxes by phone and computer, called TeleFile and NetFile, though they are run on the old system. And some of the equipment bought for the project is being used by the department.

McNutt estimates those results are worth about $2.5 million to the department. Fagan and McNutt also paint a very different picture from Olmsted of what happened with the project.

The state officials say independent consultants told department officials their plan was the right way to go and was on track.

And they say Olmsted himself changed his estimate of how much it would cost to make income tax computers Y2K compliant. Olmsted predicted at one point it would cost less than $200,000. It wound up costing more than $600,000.

"His basis was "As we've gotten into it, we've learned it's more complex than we originally thought,' " Fagan said. "That's exactly what happened with the Income Tax Initiative." Fagan said the problem with the project was not that he and other higher-ups did not listen to Olmsted, but that the state is still learning how to handle large technology projects.

For instance, he said, the department should have paid contractors based on what they accomplished, rather than how many hours they worked.

He also said the state needs to employ highly paid computer experts to more closely monitor computer consultants it hires.

But Olmsted, who is considering doing some consulting, said the state needs to learn a few more things, such as how to treat employees.

"I'd like things to change for people who work for the state," Olmsted said. "I'd like to see the state not sanction people for doing their job."

http://www.denverpost.com/news/leg/leg0227.htm

-- Carl Jenkins (Somewherepress@aol.com), February 27, 2000