State data center merger has hit early savings goals, accounting shows

But it's still too early to tell if the $863 million contract will realize its total savings prediction

The merger of dozens of state agencies' data centers, led by IBM Corp. under an $863 million contract, has met some early cost-savings goals, an independent accounting shows.

But it is too soon to tell whether the mammoth project involving 27 state agencies will produce the touted savings of $25 million in the current two-year budget period and $178 million over the seven years of the contract, said Cindy Reed, deputy executive director of the state Department of Information Resources, which oversees the project. The 2008-09 budget years run from Sept. 1, 2007, to Aug. 31, 2009.

In 2005, the Legislature mandated that 31 independent data centers be consolidated into two IBM-operated facilities in Austin and San Angelo with upgraded technology, security and disaster recovery services.

For now, the accounting firm Grant Thornton has found that the project saved a total of $2.1 million in the first six months of the 2008 budget year. In the previous five months, however, the project costs were $1.6 million higher than estimates madebefore the contract started, which Reed attributed to expected transition costs.

"We're pleased with how it is tracking," Reed said. "We're certainly optimistic that it is going to continue to track that way."

At the same time, the agencies are asking for more money to make the project work.

Eighteen of the 27 agencies have requested a total of $71 million in "exceptional items" from the Legislature, whose session begins in January, to cover data center consolidation costs beyond what is in their base budgets, documents submitted for the two-year budget that starts in September 2009 show.

Some agencies say the additional money is needed to cover their increased use of the data center or new projects, which would not affect the overall cost-savings calculation.

But other agencies say meeting the project's requirements is proving to be more expensive because they are essentially renting server space now rather than owning it.

The Texas Department of Licensing and Regulation requested an additional $230,157 because the agency "must now pay more than was originally projected for its same level of services," according to a budget document.

Similarly, the exceptional item request of the Texas State Library and Archives Commission tops $532,000 to continue its current level of service at the data center, said Peggy Rudd, librarian and commission director.

Rudd said her agency, the first to move its work to the consolidated data center, previously paid $304,000 per year for its own data center but was told by the Department of Information Resources to plan for a cost of $397,000 in the 2008 budget year, which ended Aug. 31. The agency's actual bill was $557,000.

Rudd said there's no reason that the department's costs should be going up.

The Texas Health and Human Services Commission, by far the biggest participant, is asking for almost $47 million as an exceptional item.

Much of the money would pay for technology upgrades needed to make the data center transition, Health and Human Services Commission spokeswoman Stephanie Goodman said.

"We've known from the start that upgrades would likely be necessary because we have so many older systems and antiquated technology," Goodman said in an e-mail. "But anticipating those costs doesn't mean we have money in our baseline budget to make the changes."

Reed said that each agency's exceptional item request "will be as varied as the 27 agencies that are participating" and that no general conclusion should be drawn about how those requests might affect the project's overall cost.

Some of the requests might improve overall cost savings, and others might not, Reed said. But the agencies would have asked for even more if they had not had access to the benefits of consolidation, she said.

kalexander@statesman.com