State: Health emergency’s strain on systems warrants use of pandemic aid for ’19 software contract

The Iowa Capitol dome. (Photo by Iowa Capital Dispatch)

Iowa state officials on Tuesday defended the use of federal pandemic relief for a no-bid software contract questioned by the state auditor and federal officials, arguing that the disruption caused by COVID-19 warranted the expenditure.

The state is asking the U.S. Treasury Department to reconsider allowing the use of CARES Act dollars for the contract.

Samuel Langholz, special legal counsel and special adviser to Gov. Kim Reynolds, admitted in a letter to the U.S. Treasury Department that the $21 million contract with California-based software firm Workday came before the pandemic started.

“But the time of the contract does not change the fact that the expenditures incurred under it between March 1, 2020, and Dec. 30, 2020 were not accounted for in the most recently approved budget and are necessary due to the current public health emergency,” Langholz wrote. “They are thus allowable expenditures under the CARES Act.”

State Auditor Rob Sand and Treasury’s deputy inspector general last week told Reynolds to return the $21 million in relief aid to the state coronavirus response account or risk having to repay the money to the federal government at the end of the year. Both said using the money for a contract approved before the pandemic started was inappropriate, because by definition the CARES Act covers expenses related to responding to the health crisis. 

Langholz wrote that the Workday contract was signed in October 2019 to help the state replace its mainframe human resources and financial accounting systems. Workday is a cloud-based system already used at Iowa State University and the Iowa Department of Transportation. 

Iowa lawmakers declined to provide the $21 million Reynolds requested last session in part because the governor’s office had not sought competitive bids and because her staff had ties to the company. Lawmakers also said gambling revenues, which would have paid for the contract under Reynolds’ budget request, were running low because of COVID-19. Reynolds later decided to shift part of the state’s pandemic aid to the contract. 

The pandemic response made it more clear that the state’s human resources system was inadequate to track employees who were working at home and needed to access state systems, Langholz wrote. “The cumbersome processes to reprogram the 1950s-era COBOL-based human resources system to accommodate changing leave types (and) other processes arising from the emergency inhibited an agile response. And the ever-changing fiscal and operational situation demonstrated the need for a better system of planning, modeling, budgeting, and forecasting … for our state agencies and statewide leadership,” he wrote. 

The state, which had the ability to terminate the contract if funds weren’t appropriated, used one-time funds from the Department of Administrative Services’ technology account to pay Workday expenses between October 2019 and March 2020, Langholz wrote. He didn’t  say how much was spent. 

Reynolds has noted that she and other governors appealed to federal officials to give them broad power to use the federal aid while balancing changing revenue situations. In the letter, state officials noted the federal guidance states “a broad range of uses is allowed.”