Rooted in Reason: Nurturing the Seeds of Liberty

The Cost of State Favoritism by grassroothawaii
June 22, 2010, 8:44 am
Filed under: Uncategorized

By Kelsey Winther

Hawaii taxpayers are bearing the cost of scandal, favoritism and inefficiency. SCR 78, passed by the state legislature in April, called for an audit of a $53 million contract between Hawaii’s Department of Taxation and CGI Technologies and Solutions, Inc. No results from the audit have yet been published. CGI was contracted to modernize the technological infrastructure of the Department but reports show that they have failed to produce beneficial improvements.

According to the testimony of Tu Duc Pham, Ph.D. a former tax researcher at the Department of Taxation, the contract has cost Hawaii taxpayers $53 million and cancellation was approved by Governor’s Chief of Staff Barry Fukunaga after it was clear that the corporation had failed to produce a stable system. He later reversed that decision with little apparent reason.

In a June 2009 amended contract, CGI was awarded with $15.2 million over two years, simply for providing ten people to aid the Department of Taxation. The contract grants the ten CGI positions a salary of $760,000 per person per year, an unreasonable salary for the job being preformed. Deputy Director of the Department of Taxation, Stan Shiraki, confirmed that CGI has substantially profited from the contract, stating that CGI made $25 million since 2009.

In addition to coming at a significant cost, the system maintained by CGI was unreliable and, according to Department of Taxation employees, crashed up to 200 times a day.

While attempts to integrate the market with public work can be an effective way to reduce taxpayer burden and increase quality, this recent example demonstrates how private companies can be just as inefficient as government. Just because a private company is doing the work does not mean that market incentives are present. Markets are efficient because a company who fails to produce good work suffers loss. However, in the case of government contracts with private companies the burden to produce a good product is not as prevalent due to the lack of market competition and poor oversight. This is the case with CGI, where poor service and broken contracts did not result in loss for the company because the state of Hawaii lacks the profit motive present in the market and can spend tax dollars without a second thought.


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[…] to know conclusively what went on in the Department and if the contract was a wise use of funds.  Thus, in this follow up to a post I made a couple of days ago, I would like to take a step back and analyze what can be observed from the […]

Pingback by Follow up: CGI vs. Department of Taxation « Rooted in Reason: Nurturing the Seeds of Liberty

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