Modernization Fund Program Isn’t Recouping Overhead Costs Fast Enough


The Technology Modernization Fund is incurring millions more in overhead costs than it is recouping in administrative fees.

The program office that manages the Technology Modernization Fund is spending far more money than it is taking in and is at risk of becoming insolvent without an infusion of funds or a change in how administrative costs are recouped.

The law that created the TMF in 2018 designed it to be a self-sustaining pot of money for IT modernization projects. The governing board awards funding based on the expected return on investment and larger impact across government, and as agency projects begin to see lower operating costs, a portion of those savings are paid back to replenish the fund on three- or five-year schedules. As part of the repayment plan, agencies also pay a fixed percentage for administrative costs to support the program management office. 

TMF receives no additional funding from the Office of Management and Budget or the General Services Administration, the agencies that govern and manage the program, respectively.

“This includes the cost of any services or work performed related to the administration of the fund, ensuring that the TMF is self-sustaining and can continue to support modernization projects well beyond the initial infusions of capital,” according to GSA’s fiscal 2020 budget request.

However, over the next five years, the PMO is on track to spend $4.7 million more on administrative costs than it is taking in.

The budget request shows a breakdown of overhead costs since the fund was established in 2018. The first year, the program management office incurred $409,000 in administrative costs. That figure jumped to $1.6 million in the first full year of operation, including $694,000 on salaries and $210,000 on benefits in 2019 for six full-time employees. For the coming fiscal year, the PMO expects to spend around $1.8 million on personnel, rent, utilities and other services.

The 2020 request includes a breakdown of the costs: $829,000 for full-time employee salaries, $251,000 for benefits and $695,000 for advisory services, along with about $76,000 in travel and supplies costs. The documents do not include a projected number of employees for the coming year.

Those costs are meant to be recouped through administrative fees paid by the agencies that obtain funding for their projects. Under the current setup, the PMO tacks on an additional 3% to the total award to cover its administrative costs, according to GSA. That rate drops to 2.5% if the agency repays the fund within three years instead of using the full five.

For example, an agency awarded $5 million for a modernization project with a five-year repayment plan will end up paying a total of $5.15 million—$5 million to replenish the fund in full, plus an additional $150,000 in administrative fees.

If the PMO incurs the full $1.8 million in costs in 2020, the first three years of the fund will have cost about $3.8 million to manage. If overhead costs remain flat for the two subsequent years, the PMO will have incurred costs of about $7.4 million.

To date, the board has awarded funding to seven projects at five agencies, for a total just shy of $90 million. At the current fee rate, administrative fees paid will top out at $2.7 million over the first five years. That results in a deficit of $4.7 million.

If the governing board makes additional awards in that time, the PMO will have additional funds to draw from. However, with less than $36 million left in the fund, Congress would need to authorize a significant infusion of cash to stabilize the program.

“With fewer funds to award, the TMF cannot recover as much in their administrative fees,” Carol Harris, director of IT and cybersecurity issues at the Government Accountability Office, told lawmakers during a June 26 hearing. “We have preliminary analysis that shows that the office’s operating costs through FY20 will exceed the administrative fees to be collected from these awarded projects.”

GAO analysts are working on a full audit of the TMF program, expected to be released mid-December.

According to Harris, the fund needs another $310 million—putting a fully funded TMF at around $435 million—in order to make enough awards to recoup its administrative costs.

Congress has appropriated a total of $125 million as of fiscal 2019. The fiscal 2020 appropriations bill in the House allocated $35 million for the fund. The Senate has yet to introduce a funding bill but in the past has been reluctant to put more money in the TMF.

“The Technology Modernization Fund was authorized at $500 million in order to help agencies upgrade from their large-scale and vulnerable legacy IT systems,” Rep. Gerry Connolly, D-Va., chair of the House Oversight Subcommittee on Government Operations, told Nextgov in a statement. “I will continue to work with OMB to see if there are other opportunities to provide additional funding for the TMF.” 

During the hearing, federal Chief Information Officer Suzette Kent, who chairs the TMF Board, said the fund can remain solvent in its current state, but the board is limited by the funding level.

“We absolutely have a plan for solvency,” she told lawmakers. “But it limits the number of projects and the acceleration of modernization that we can do going forward.” OMB officials declined to share the details of that plan at this time.

OMB and GSA officials declined to comment for this story, deferring to the pending GAO audit.

Editor’s Note: This story has been updated to correct the administrative fee rates charged by the TMF PMO.