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Modernization Project Yielding Success for State Tax Entity

The California Franchise Tax Board is working with Pegasystems, among other vendors, on part of its Enterprise Data to Revenue project, a key component of a 30-year modernization effort to capture revenue that’s owed to the state.

The California Franchise Tax Board (FTB) is almost seven years into a 30-year modernization project that’s been successful to date – and, if the process continues as it has, promises to bring new efficiencies to the state’s collection of tax revenue.

In government IT, where public success stories can be hard to come by, the “Enterprise Data to Revenue” (EDR) project, as it’s known, is a case of “what went right.” Pegasystems is working on the project with FTB and the prime contractor, OnCore Consulting of Rancho Cordova, along with CGI and Deloitte.

The stakes are high, as the numbers illustrate: “In FY 2020-21, FTB received more than 25.9 million tax returns, responded to more than 3 million telephone calls, serviced over 60 million Internet contacts, and collected about $170.2 billion in revenue, representing approximately 82 percent of the California’s general fund revenue,” Bryan Rau, with FTB’s Enterprise Development Bureau, told Techwire.

EDR1, as the first phase is known, was implemented in 2015 and served as “a building block project that was the first phase of FTB’s 30-year Tax Modernization strategy,” Rau said. He explained that EDR1 brought forth “the infrastructure and data warehouse capabilities, along with the Pega platform, which we used for managing correspondence workflow and the validation of tax returns.”

Julie Gabele, Pega’s California strategic client executive for public sector, touted the EDR project to date as an example of “one of the most successful projects at the state.”

In an email exchange with Techwire, Rau provided the details on behalf of FTB:

Techwire: What were some lessons learned in EDR1 for other public agencies with other projects?

Rau: One of FTB’s biggest lessons learned from EDR1 is the need to identify and support early the transfer of knowledge from vendor to state agency. This needs to be an ongoing and fully supported effort that ensures that state agencies can fully support ongoing operations after the project is over.

Techwire: Are there any takeaways from EDR1 that will influence the process on EDR2?

Rau: EDR2 will plug into the majority of the processes that were developed with EDR1. This was all by design as we prescribed in our RFP requirements, which already established processes that we had versus what the vendor had latitude to propose.

Techwire: How are you using Pega case management in the tax returns process today? What value does this bring to FTB and the state?

Rau: We use Pega case management in order to validate the correctness of a tax return. The value brought forth allows FTB to automate certain manual work that (has) a high confidence in the accuracy of the outcome, thus freeing up staff to handle more sensitive or complex assignments. In addition, it allows the breakdown of workloads into tighter priorities, thus allowing the most important/sensitive work to be handled more timely and effectively.”

Techwire: In addition to case management, how is Pega technology helping FTB?

Rau: In addition to return analysis, FTB uses Pega workflow to process correspondence. This gives us a window into our correspondence workflow, allows for accurate correspondence association (with taxpayers), and eliminates the need to push paper.

Techwire: In addition to taxes, where else is FTB leveraging Pega?

Rau: FTB has leveraged Pega in the following non-tax applications: 1. Political Reform Audit; this provides case management and workflow capabilities to allow FTB staff to audit political campaigns. 2. eRPA, (electronic request for personnel action); this also provides case management and workflow tracking to HR and management staff involved in any aspect of hiring, moving or changes to staff’s positions.

Techwire: Can you give an overview of EDR2? What capabilities will it offer that you don’t now have? What will the net effect be for FTB?

Rau: EDR2 is the second phase of FTB’s modernization effort, where we will be targeting our aging legacy systems that are reaching end of life. Therefore with EDR2, we will be moving our siloed compliance systems (collections, audit, nonfilers) onto the enterprise Pega platform.

On the horizon in this 30-year modernization plan is EDR3, which is still a work in progress.

Douglas Averill.jpg
Douglas Averill
Douglas Averill, Pega’s vice president for Global Industry and Government, said that although the technology is changing the nature and scope of case management, the concept will endure well into the future.

“This concept of case management, where things need to get routed to an outcome, that’s never really going to go away,” Averill told Techwire in an interview. “It’s really a question of what’s the most efficient way to do that. From Pega’s point of view, that’s our bread and butter. We like automating outcomes and making things efficient, handling complexity.

“What is that going to look like in a few years? Who knows?” Averill said.

On the matter of timing, the stakeholders are looking at 2022 being “the year of the build,” Averill said, with deployment and implementation coming in 2023 and 2024.

Gabele, Pega’s client executive, provided some metrics and other details that put the project in context.

EDR “is focused on closing the annual $10 billion tax gap for California, while modernizing and retiring legacy systems,” Gabele told Techwire. As FTB collects $92.3 billion in revenue annually – about 74 percent of the state’s general fund revenue – “this is vital revenue, important to funding other departments, services and programs Californians and our state count on,” she said.

EDR1, she said, has helped the state to recover $3.7 billion in revenue and, on average, $1 billion each year following using the modern tax system, which “leverages Pega case management at the heart of it.”

When EDR2 is rolled out, it will incorporate the Audit, Legal, Filing Enforcement, and Underpayments divisions to the modern tax system platform target, bringing even more revenue recovery for the state, while retiring the legacy systems in use today.

Gabele noted that FTB has been so successful with EDR1 that the agency considers Pega to be its case management standard for both tax and non-tax environments.

In addition to working with OnCore, Pega is working with CGI and Deloitte as key subcontractors for systems integration work on the project.
Dennis Noone is Executive Editor of Industry Insider. He is a career journalist, having worked at small-town newspapers and major metropolitan dailies including USA Today in Washington, D.C.