Kansas' outdated unemployment system has history of broken contracts and millions wasted. Here's what happened.

Andrew Bahl
Topeka Capital-Journal
Employees at the Kansas Department of Labor offices include information technology staff who are charged with maintaining and handling the state's antiquated mainframe computer system.

In the early 2000s, the bursting dot-com bubble prompted a recession that plunged scores of Kansans into unemployment.

The backbone of the state's unemployment insurance programs struggled to keep up after Congress created new programs for out-of-work residents.

"The antiquated system prevented KDOL from improving its operation to meet the needs of customers," a legislative presentation later said on the 2002-03 recession.

In 2010, it was deja vu.

Kansas was emerging from the Great Recession and the state's unemployment system had been pushed to the max.

A historic rush of Kansans filing for unemployment met that same out-of-date system, which was again being asked to adapt to a new benefits program started at the behest of the federal government.

"We have never seen such a high level of demand for UI benefits since the program was created more than 70 years ago," then-Kansas Department of Labor Secretary Jim Garner wrote at the time. "The crisis certainly confirmed the very real need for the UIM project and new system to support the UI program."

Sound familiar?

That same message could have been written in 2021, with little discernible progress on updating the state's antiquated unemployment backend.

Interviews with more than a dozen employees at KDOL and private contractors, as well as a review of state records, tell the story of a project that floundered throughout much of the 2000s.

More:About 7,000 Kansans haven't completed requirements, 400 refuse jobs months into new unemployment restrictions

Work was then halted by the administration of Gov. Sam Brownback and couldn't be restarted in time to prevent a fresh round of headaches during the COVID-19 pandemic.

Now, the agency is restarting the project — even though millions of dollars of labor was previously completed. Much of the work was discarded, lost to time and unusable.

In the meantime, the subject has become a political hot potato, with Republicans pointing the finger at Gov. Laura Kelly's administration. Kelly and top KDOL officials, meanwhile, have argued fault lies with previous administrations, particularly Brownback.

Legislators, business leaders — even everyday Kansans — are now intimately familiar with a system that few had likely given much consideration to before the pandemic. And all are watching closely to see how the state moves forward.

"We wanted to make sure, while we had everybody's attention, the governor made clear we need to move forward with the modernization," said Ryan Wright, who served as an interim KDOL secretary in 2020. "Because as soon as we get out of this headspace, we may lose this opportunity and we may never end up modernizing."

1970s-era computer system frustrates Kansas officials

The core of the state's unemployment backend is a mainframe originally rolled out in 1977, when Hall and Oates and ABBA populated the Billboard charts, Jimmy Carter was president and many current top KDOL officials weren't even born.

The system requires understanding a suite of complex codes, which show potential problems in a claimant's file, outline the employment history and how many claims have been filed and whether they were paid out.

Making changes to a claimant's file can take a considerable amount of time, requiring IT staff to specifically hunt down any issues and address them.

Waldo Jaquith, a fellow at the Beeck Center for Social Impact and Innovation at Georgetown University, noted mainframe systems aren't necessarily bad. He equated them to effectively "a bunch of computers stuffed into a box" that can process data efficiently.

"When they say mainframe, don't picture something from like a science fiction movie from the 1960s with a couple of spinning tape wheels," Jaquith said. "These things would look like refrigerators. These mainframes are awesome. These are modern."

But when the federal government rolled out a slate of new, expanded unemployment benefits designed to boost those affected by the COVID-19 pandemic, it meant weeks of programming to add those programs to the mainframe system.

The Pandemic Unemployment Assistance program, which allows the self-employed and freelance workers to apply for benefits, is built out entirely outside the mainframe. And each time the federal government extended the programs, it required a fresh round of work to ensure the system could cope.

"I mean, they've added little bells and whistles to it along the way," said Wright, the former interim secretary. "But, you know, I was born in the '70s. Right? It seems a little bit insane to think that we're still using that technology."

The KDOL mainframe is complemented by a corresponding system powered by the COBOL programming language, which was en vogue throughout much of the latter half of the 20th century and was used primarily to support financial and governmental systems.

More:Pandemic unemployment fraud estimates higher than initially thought. The number could reach $700 million.

It began to fall out of favor in the private sector after the turn of the millennium but is still relied upon by many state and federal agencies, including KDOL. This has posed problems, as there is a dearth of programmers who know the language, meaning the state is having an increasingly difficult taking updating and maintaining its platform.

At least 10 states, including Kansas, still rely on COBOL — despite warnings from the federal government to update.

"As they age, legacy systems can be more costly to maintain, more exposed to cybersecurity risks, and less effective in meeting their intended purpose," a report from the federal Government Accounting Office said in 2019.

But Jaquith noted that even states which updated their systems a decade ago, as Kansas considered doing, found this process wasn't a panacea during the pandemic. Mississippi, a state considered a model for Kansas in the 2010s, had roughly the same success in paying out claims on time last year.

"They sucked, too," Jaquith said.

Modernization gets off to a rocky start in 2000s

Observers agree modernization, which began under the administration of Gov. Kathleen Sebelius, had a chaotic beginning. More than $20 million in funding was approved in 2004 to conduct a feasibility study and start work on the project

Bering Point was brought in as the initial vendor to handle the product and handed a contract worth almost $4 million. Its deal was terminated in early 2005 with relatively little work completed and KDOL staff frustrated at the firm's output.

A subsequent firm, IBM, was brought on board later that year to stabilize the project and conduct an overhaul of the process and its personnel. The company subsequently won a $24 million contract in 2006 to handle the next phase of the modernization project, with a suite of subcontractors brought on board to provide support and oversight.

But this relationship also soured. The state and IBM ended the contract in 2008 amid complaints about cost overruns. 

Leadership of the project was shared by KDOL and the subcontractors, most notably the Tulsa-based Persimmon Group. It was at this point, project members say, things began moving in a more promising direction.

Then everything changed.

Project abruptly halted under Brownback administration

The Brownback administration opted in 2011 to bring in a new contractor, IT21, amid concerns from top KDOL officials that the project still wasn't on the right track.

The no-bid deal with IT21 was signed in early March, with a goal of saving almost $850,000 by the end of May — less than two months away.

The move was justified, the agency's chief council Karl Hansen wrote in a memo, due to "numerous critical process and programming errors," as he argued the project was still "floundering."

"The debacle created by these two projects has negatively impacted Kansas workers as workers have been delayed in filing claims and receiving benefits — a situation that if left unchecked, could jeopardize the federal funding upon which the program relies, as well as invoking legal issues that may bring forth both federal and private actions against the state," Hansen wrote to the state's director of procurement, Chris Howe. "Therefore, the situation must be addressed and resolved immediately."

But a regular summary of state information technology projects published in February gave the project good marks, noting major updates were due to go live in a matter of months.

It also didn't raise any concerns that the project was over budget, a common complaint cited by the Brownback administration. In fact, documents show it was ahead of expectations when it came to spending.

More:Topeka restaurants are struggling to staff shifts. The reason isn't as simple as extended unemployment benefits.

Lee Biard, a project manager at KDOL at the time, agreed with the more positive assessment.

While he was focused on bringing the system's software up-to-date, he noted the agency and its respective contractors had only been hiring individuals for the UI work who were certified by the Project Management Institute, a nonprofit that sets industry standards worldwide for project management.

"It was a very energetic and well-run show," he said. "It really was. And it was moving forward. And we were working within the constraints that were being set up by the state."

The Brownback administration publicly professed to want to continue the project.

The Kansas Department of Labor halted work on unemployment modernization in 2011 under secretary Karin Brownlee, pictured here. Brownlee was tapped by Gov. Sam Brownback to lead the agency.

KDOL Secretary Karin Brownlee told a legislative committee that IT21 will "assess where the project is currently and determine how to achieve 24/7 service and transition off the mainframe ASAP."

Brownlee and Jim Garner, her predecessor under Gov. Kathleen Sebelius, didn't return calls seeking interviews.

‘That was a dark time for Labor’

But modernization operations were effectively shut down overnight with virtually no notice given to personnel and contractors, many of whom had hotel reservations and other plans locked in. At the time work was halted, about $12.7 million of the $18 million allocated had been spent.

One area KDOL and IT21 did appear to move forward on was a significant reduction in staff, both in agency employees and contractors.

Michael Blatchford, an IT enterprise architect on the project, said the department's subsequent reduction of its information technology staff wasn't predicated on job performance but rather a targeting of those perceived as loyal to the previous administration.

"That was a dark time for (the Kansas Department of) Labor," Blatchford said.

About half of the department's IT workforce was axed — a move that had long-term ramifications on its operations.

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"I feel bad for the people who have a hard time getting their unemployment and still haven't been paid," said Jessica Farrell, chief information officer at KDOL under Brownback. "But I also feel bad for the ones working at KDOL — there were some of the most skilled individuals I know working in that department. And it was terrible that skill was not allowed to be used and the whole entire project just became politicized." 

IT21 insisted the moves were necessary, insisting a new culture was necessary in the agency. 

But while some elements of the broader project did appear to initially continue, the upgrades to the benefits system was put on hold indefinitely.

Staff said a major update to the system employers use to pay payroll taxes — something Kansas also hasn't been able to modernize — was halted in its tracks weeks before going live, with thousands of hours of work eventually deleted.

IT21 instead complained of hundreds of bugs they said were in the system — something Blatchford says was accurate but missed the point.

"These big projects are a big heavy lift and they're not fast, and they're not easy," he said. "And so oftentimes, when you're trying to modernize a system like this, you've got to be extremely strategic about it. And you almost cannot do it without building some temporary bridges."

Unemployment improvements largely sit untouched 

At that point, modernization work sat largely dormant, though the remaining staff continued some of their efforts quietly.

The original plan was to move elements off the mainframe computer piecemeal, with the goal of avoiding major service disruptions unless absolutely necessary.

In the mid-2010s, some of that work continued, with the web portal allowing claimants and employers to check the status of their UI claims that had been moved off the mainframe.

By 2015, however, much of had ended as staff continued to exit the agency. Staff working at KDOL at the time say there was no effort to put the undertaking back out for bid.

More:Four finalists are competing to modernize Kansas’ unemployment system. Each has struggled in other states.

Simultaneously, Oracle was pitching the agency on upgrading its current system to counteract fraud. Those efforts were rejected by the agency at the time, as KDOL leaders insisted much of the work could be handled in-house, albeit with a bare-bones staff.

It isn't known whether Oracle's plan could have helped stem the tide of fraudulent unemployment claims filed during the pandemic, with the Legislature's nonpartisan auditing arm estimating upward of $700 million in bogus claims were paid out. Other states, like Michigan, implemented an automated fraud detection system at the time but still were slammed with their own rash of fraudulent claims.

Officials quickly blamed the success of fraudsters in bilking the state on a lack of fraud controls in the antiquated systems.

Meanwhile, scores of Kansans had fraudulent unemployment claims filed in their name — including Blatchford, who felt that taking Oracle up on its offer would have minimized the damage and amount of money lost to fraudsters.

"I tried to help them so much and invested so much of my time," Blatchford said. "But now I'm the victim of fraud myself. That was really rough."

COVID-19 pandemic halts fledgling modernization efforts

Kansas has restarted efforts to modernize its unemployment systems, with the project falling to the Kansas Department of Labor under Secretary Amber Schultz. The department put out a document soliciting bids for the work in April.

When Kelly took office, Wright, who led the transition team for KDOL, and then-Labor Secretary Delia Garcia made the recommendation that modernization resume. The governor agreed and indicated the project should be "fast tracked."

But Republicans have argued the agency didn't move as quickly as it should have in restarting the modernization process.

“You have heard the term 'analysis paralysis.' Well, it seems to me that we might be there because you guys have been looking at this for over two years,” Sen. Caryn Tyson, R-Parker, said at a committee hearing last year. “And this has become one of the major, if not the major, issues for the state of Kansas.”

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In 2020, a group of state officials were in the midst of touring other states that had modernized their systems in a bid to glean insight on potential contractors.

KDOL has said such background was a key part of the process, allowing the agency to ensure its eventual modernization effort was successful. Records show $3,500 was spent on trips in late 2019 to Mississippi and Idaho — both states that have modernized.

Then the COVID-19 pandemic hit in early 2020, bringing fledgling modernization efforts to a halt. Again.

The agency rushed to deal with a historic flood of unemployed Kansans and had a series of issues, including an attempt to claw back $7 million in benefit payments mistakenly doled out to 4,500 claimants. The attempt caused many of the accounts to overdraft in the process. 

The line of claimants waiting for benefits stretched into the thousands throughout the summer and fall 2020, with backlogs continuing into the new year.

‘You're not special, everybody's bad at this’

Rep. Sean Tarwater, R-Stilwell, is leading a panel of officials overseeing the state's ongoing unemployment modernization process.

KDOL has continued to prep for what it hoped would be the final modernization thrust. 

The hefty, 200-plus page document seeking bids for the latest modernization installment is largely similar to what other states have put out when embarking on their own modernization efforts.

Kansas is seeking a so-called "off the shelf" system, taking a standardized system, used in other states, and tweaking it to what the state needs.

"There are companies out there that have this already built and they can just give it to us," said Rep. Sean Tarwater, R-Stilwell, who is leading an oversight committee on modernization. "Unemployment is unemployment. It is pretty much the same. Different states have different rates, but the program is the same."

This model isn't universally considered to be the right path forward, however. A Carnegie Mellon study found it can pose "some fundamental, thorny problems" and Jaquith, the Georgetown fellow who researches state IT procurement, said it pointed to broader problems in how states solicit these types of contracts.

Most states, he said, use one vendor to handle the entire modernization, a costly endeavor that means they are ultimately beholden to a single contractor who will eventually be unable to maintain whatever system is built.

He likened the current system to seeking firms to build a bridge, where the bridge is built then inspected once a year but otherwise is largely ignored. 

Instead, Jaquith advocated for using multiple, smaller vendors, with the understanding that any system will require continuous modernization work — otherwise Kansas will be in a similar boat 30 years from now, just with a different system.

"We're not buying a system that we're going to build, and we're going to be done with," Jaquith said of what Kansas' mindset should be. "We're buying a system. We will continually improve and modify it and upgrade to make sure that it meets the needs of users at all times."

While Kansas has had a long path forward on modernization, Jaquith noted it is far from alone in this regard.

Kentucky, for instance, experienced a similar series of starts and stops over the years, even declining federal funding to help modernize its system in the mid-2010s. And a dozen or so states are improving their unemployment backend or are looking to do so in the near future — even those which previously modernized.

"I've spoken to legislators across the country ... every one of them thinks they're special," Jaquith said. "Every one of them thinks their state is uniquely bad at this stuff. Everyone thinks they're the only one who has this horrible failure of some procurement of some major thing in recent history that is the third rail and nobody wants to touch it.

"And I have to tell all of them: 'It's everybody. You're not special. Everybody's bad at this. All of these systems are failing. You're just as bad as everybody else.'"