Question and Answer Log for Proposed FY 2009 Utility Rates

Could you tell me that why on the projected expense page for ICN that the GSE cost to the ICN for office and storage space shows an increase when the rate is staying the same?

Dear Kevin,

Thank you for your question. Barbara Bendon, our state property manager, looked into the issue and below is her response:

The increase in square footage charged to ICN between FY2007 and FY2008 is due to additional space now occupied by ICN in the Wallace building. The ICN is occupying 1,251 net square feet and 488 square feet of common area for a total of 1,739 gross square feet.

I apologize for the delay it getting an answer for you. Please let us know if you have any further questions about the rates communication and the information contained therein.

Many thanks,
Laura

Laura Riordan
DAS Marketing & Communications/
Customer Council Support
515-242-5038
Laura.Riordan@iowa.gov

IPERS is opposed to the proposed FY09 I3 rate setting methodology, just as we were opposed to the FY07 and FY08 methodology. IPERS has seen a dramatic rise in I3 fees from $9,151 in FY06 to $86,598 in FY07 to $204,433 in FY08 to $232,733 in FY09 and do not believe that the costs are being allocated on an equitable basis or that we are receiving that much value from I3. IPERS submitted a similar comment last year and made a presentation to the I3 Customer Council on 17 Aug 06. At that meeting there was much sympathy and agreement that the Revenue portion of the formula was problematic because it only takes into account non-general funds. Also, at that meeting the I3 Customer Council passed a motion to establish a subcommittee to review the formula and examine the issues we had raised before the next rate setting process. Based on the minutes of the 12 April 07 I3 Customer Council meeting it appears there was some discussion related to the FY09 methodology. However, no decision was made at that meeting and the minutes from the next meeting on 10 May 07 are not posted on your website. Therefore, we do not know if the methodology was changed. I will assume that you used a similar methodology as last year. Following are our major concerns:

1. Cost factors are not linked to expenditures. One of the two primary original selling points for I3 was that the State could finally obtain management information from our financial systems. It seems very ironic that I3 is unable to produce management information about I3 transactions. A transaction based methodology would be a much more fair way of distributing costs. By not utilizing a transaction based methodology you provide no incentive for entities to become as efficient as possible. Your methodology targets those entities that process large dollar amounts through I3 regardless of the effort/cost incurred by I3 to process those transactions. Specifically, the factors used for the financial and budget components of the formula do not have a relationship to the costs associated with those same components. It appears that you have used the volume of dollars passed through I3 regardless of how many transactions or how much effort is needed by I3 or your support staff to process those dollars. An entity such as IPERS that internally manages the detailed member and employer accounting on our own system and then automatically processes a few big dollar transactions through I3 unfairly pays a disproportionate cost for those few large transactions. Conversely, entities that manually process large numbers of small dollar transactions using I3 as their only financial system utilize significantly more I3 resources.

2. Non-general funds subsidize the system. We especially disagree with the Revenue Dollars factor of the budget component as you have excluded General Fund appropriations from the data. This severely skews the counts and results in IPERS share being dramatically overstated. This single element generates about 65% of the charges that IPERS has been asked to pay. This results in IPERS being asked to unfairly subsidize the I3 system. IPERS and other non-general fund entities are being targeted and asked to pay significantly more than general fund entities. IPERS has a fiduciary responsibility to protect the IPERS Trust Fund monies and can not allow expenditures to be used as a subsidy from IPERS for the I3 system beyond our actual usage.

3. Very old data used in the formula. We do not believe that the actual costs for FY09 should be based on volumes and counts from several years in the past. We understand the desire of DAS to ensure the stability of their income stream and the desire of agencies to have advance knowledge of their exact expenses. However, there may be a huge disconnect between the reality of the services provided in FY09 and the many year old cost basis. Also, by using old data for the cost basis there is little incentive to change behavior to a more efficient method for either DAS or the agencies. All DAS costs and rates should be based on actual usage of service provided when the service is provided. That is the standard method in the private sector where you pay for the services used when you use them. Within an entrepreneurial model there are going to be both potential risks and rewards.

We do not believe that if IPERS were to purchase these services from a private sector provider that we would be charged $204,000 annually. What research was conducted to identify the cost basis for these types of services in the private sector. There are many outsourcing providers for these types of services. Do they charge by the person, by transactions, by volume, by a fixed fee? Do any of them charge similarly to the I3 rate?

We propose that a fair methodology would be to identify the number of transactions processed through the system and build a rate structure on that basis. The number of transactions is a much closer measure of the amount of effort expended by DAS in support of I3. Also, there is no incentive in the rate structure to improve efficiency with your proposed methodology. If you charged by transaction there would be an effort by agencies to ensure that they were doing things in the most efficient manner to keep costs low.

Based on the information available and our understanding of that information IPERS may not be allowed to pay the full proposed rates due to our fiduciary responsibility. However, IPERS does plan to and will certainly pay for the actual usage and value we receive from the I3 system.

Thank You.

The I/3 Customer Council will address this question at their August meeting on Thursday, August 9 at 1:30 p.m.

Why is the FY08 rate for Worker’s Compensation in the June 2006 DAS communication the same rate used in FY07?

The Worker’s Compensation premium is not available prior to the budget year communicated so DAS puts in the most recent year’s premium available for budgeting purposes, which in this case was FY07. A notation is made in the communication that the Worker’s Compensation premium for each agency will be sent at a later date.