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Editorial | Island Voices

Tax-collection deal with CGI makes financial sense for state

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It is unfortunate that the Star-Advertiser rushed to speculation and judgment based on preposterous claims of irregularities surrounding the state’s extremely successful delinquent tax-collection effort through its contract with CGI.

Based on the scurrilous, fabricated and outright false claims by one person, Tu Duc Pham, and spurred by the Hawaii Government Employees Association, the Legislature undertook a witch hunt that the editors of this paper openly embraced.

The undisputed fact on this matter is this: Pham was not a part of the contracting or collection process and is making unsubstantiated claims, accusations and insinuation on the events that led to the successful collection of delinquent tax revenues that will likely realize $80 million for the state.

This represents new money that would otherwise have been unrealized tax revenue critically needed during the most significant downturn in Hawaii’s economy since the Great Depression. This achievement comes without the state having to bear any upfront costs.

For the record: The state spent no funds or paid CGI any amount other than grant them a share of what amounts they could be responsible for generating.

Essentially, CGI was compensated a "finder’s fee" amounting to a third of all monies realized, up to a ceiling of $25 million — a cap requested by CGI and approved in advance by the Department of Taxation. The state in turn realizes new revenue, gains new equipment and programming provided by CGI, and, going forward, has identified sources of delinquencies from whom future tax receipts will be realized.

Pham and HGEA complain that this initiative could have been carried out by adding additional government employees. The practical reality is that the contract required money to upgrade equipment — money the state did not have — as well as talent, skills and specific experience for this complex work that the state does not possess, along with the ability to immediately pursue the collection effort, which the state was not able to do.

When the department considered canceling the contract because of some personality disputes and other issues unrelated to performance, it was informed that it could, provided it was able to:

» Establish a legal basis for terminating the contract;

» Offer a viable plan for how department employees could do the work; and

» Confirm the ability to realize the projected revenue that was anticipated to be accrued under the CGI effort within the current fiscal year.

The ultimate conclusion was that the department did not offer any alternative and subsequently it became necessary to work on resolving any conflicts with CGI and move ahead. Since that adjustment, work was accomplished without difficulty and the state has realized more than $85 million to date in new tax revenue.

The contract is essentially the collaboration between two entities. If CGI failed to find any new tax revenue, it would have received no compensation and would have lost its upfront investment in time, equipment, software updates and staff costs.

There was no impropriety to the contract amendments that were done to benefit both parties. The changes clarified issues relating to how work was to be performed and introduced greater flexibility to the state. The adjustments did not change the method or amount of the compensation CGI would earn for successful collections.

The allegations and accusations by Pham and the HGEA are baseless and not substantiated.

Pham complained to the union and obtained its assistance because of the charge that the state was "outsourcing" work. But this was work that state employees could not do, did not have the capability to perform without assistance and required investments the state could not afford. Pham was not involved in the development of the contract, its amendment or any aspect of the department’s collections activity.

Barry Fukunaga is chief of staff in the Office of the Governor.


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