Fix the Technology Modernization Fund to Overcome Obstacles in Funding Critical IT Initiatives

Eric Egan February 4, 2022
February 4, 2022

It’s no secret that the federal government’s information technology (IT) infrastructure needs a serious overhaul. A few years ago, the U.S. Government Accountability Office (GAO) identified a set of high-risk legacy systems that were in critical need of modernization, including some that use outdated programming language, contain poor user interfaces, and exhibit clear security risks. To address these types of issues, Congress passed the Modernizing Government Technology Act (MGT Act) of 2017, which included the establishment of the Technology Modernization Fund (TMF), to pay for upgrades to federal IT systems. Unfortunately, the TMF has not met its full potential. To maximize the impact of the program, the TMF should assist eligible agencies by improving transparency in the approval process, establishing more explicit criteria for which projects meet more forgiving repayment schedules, encouraging agencies to partner with the private sector on proposals, and directing agency chief information officers (CIOs) to submit at least one proposal by the end of the year.

What Is the TMF?

Congress designed the Technology Modernization Fund (TMF) to be a self-sustaining working capital fund that “enable[s] agencies to reimagine and transform the way they use technology to deliver their mission and services to the American public in an effective, efficient, and secure manner.” Chaired by Federal CIO Clare Martorana of the Office of Management and Budget (OMB) and with voting members from the General Services Administration (GSA) and the Department of Homeland Security (DHS), key areas of focus for the TMF board include modernizing high-priority systems, cybersecurity, public-facing digital systems, and cross-government services. Initial funding for the TMF was an anemic $175 million over three years, with an additional $1 billion appropriated through the American Rescue Plan (ARP) in 2021 and another possible $250 million from the Biden administration’s Build Back Better bill.

The TMF board employs a two-step process to evaluate and approve proposed projects, with GSA and OMB setting the terms of repayment. Repayment typically aims to recoup full costs within five years. However, as part of the ARP, the TMF began accommodating proposals that require greater repayment flexibility (if they align with the aforementioned priorities). Repayment plans fall under full repayment, partial repayment at 25 percent, 50 percent, or 75 percent of funding level, and minimal repayment. The latter of which is reserved for “proposals that tackle the most urgent IT cybersecurity and modernization problems facing our government, and where cost savings are not easily realized by the proposing agency.”

What’s Happened With the TMF Since It Started Funding Projects?

In addition to establishing the TMF, the MGT Act also authorized certain federal agencies to develop their own IT working capital funds (WCFs). The idea is that agencies could save money or transfer unused funds to these WCFs for designated IT initiatives, particularly those that require multi-year cash injections, as many large-scale projects do. Establishing agency IT WCFs has proved easier said than done, however, as Congress has approved the creation of only one so far. As such, the TMF offers a lifeline in helping federal agencies fund their ongoing IT modernization efforts.

Unfortunately, much of this funding has been left undistributed and not for lack of interest. The TMF provided 11 projects $89 million in funding from the initial pool of $175 million prior to the ARP, but to date, has only approved seven new projects from 113 proposals with funds totaling just over $300 million from the additional $1 billion provided by the ARP. The TMF “received upward of $2 billion in funding requests from agencies in 2021” alone. And yet, despite clear interest in accessing these funds, the federal government is leaving money on the table, which means they are underutilizing the TMF to help modernize federal IT.

One reason agencies may be struggling to get project approval is the lack of clarity on what the TMF considers to be the most urgent IT cybersecurity and modernization problems and how this perspective informs the TMF board’s decision-making process when approving projects. At the moment, there appears to be a selection bias for proposals focused on cybersecurity. Sanjay Gupta, Chief Technology Officer (CTO) of the Small Business Administration and TMF board member, stated ARP funding was specifically targeted toward supporting COVID-19 relief efforts and strengthening cybersecurity. This is understandable given cybersecurity’s importance to modern IT infrastructure, not to mention the attention it has received in the media, but enterprise systems used daily by hundreds of agency staff are also vital to operations, and modernization of these systems is more likely to result in federal government cost savings and productivity increases.

The TMF repayment commitment is another hurdle for agencies that would otherwise apply, or that may be rejected because they cannot make such a commitment in their proposal. While the TMF board “is aware that requiring full repayment to the TMF has been a barrier to the submission of a diverse set of project proposals,” the reality is that any form of repayment acts as a barrier. Replacing IT legacy systems typically falls under the full repayment model, but systems that are particularly costly and inefficient (like those identified as high risk by the GAO) should be eligible for at least the partial repayment plan as they seem to fit the “high-urgency” and “high-priority” specifications from TMF. The cost savings from modernizing legacy systems can and should make up for some of the TMF funding, but if TMF only considers these efforts applicable for full payment by default, then TMF will be denying agencies money for critical IT investments. While most federal CIOs believe the TMF offers an opportunity to pursue meaningful IT modernization, most are also not expecting to receive funding. And yet given that participation in IT modernization funding via the MGT Act is now one of the criteria in the Federal Information Technology Acquisition Reform Act (FITARA) scorecard—an oversight and accountability tool that grades IT activities for federal agencies and as such encourages investment in high-priority, mission-critical IT initiatives delivered effectively—it seems likely the TMF will continue to receive an influx of proposals.

How Can the TMF Be Improved?

The federal IT modernization effort has been perpetually top-of-mind for agency CIOs, and the TMF can significantly move the needle in this space. However, the TMF requires a handful of adjustments to see this potential met and affect lasting change across the federal government.

  • The TMF board should provide greater transparency of the approval process, detailing which projects were approved and why particularly if replicating project successes across other agencies continues to be an ongoing TMF goal.
    • Federal CIO Clare Martorana stated that TMF should act like a “catalyst to take something, to make an impact, to share playbooks and best practices that can be scaled across government.” However, there is still a lot of confusion regarding how this will be accomplished on the agency side.
  • The TMF board should clarify which projects meet their prioritization threshold for flexible repayment, as this will continue to be a barrier for many agencies.
    • This could also include revisiting the GAO’s list of high-risk legacy systems and working with the respective agencies to prioritize and submit proposals to modernize or replace these systems.
    • The TMF has struggled to recoup funds so far, but updating key IT infrastructure through a more forgiving repayment structure will pay (at least partial) dividends in the long run as agencies avoid expensive maintenance and operations activities for outdated technology—which would have to be appropriated through Congress anyway—and allow for savings to be funneled back into the TMF.
    • At least some of the cost savings from IT modernization accrues to non-federal users of federal IT systems. As such, agencies should get credit for these cost savings when applying for funding.
  • The TMF board should encourage agencies to partner with the private sector on proposals (when this aligns with the board’s objectives and assists agencies in getting projects approved).
    • Private vendors offer scalable, replicable solutions that could lead to greater interagency collaboration, enhanced shared services, and improved interoperability.
    • Private vendors also come with best practices and strong project management expertise to ensure projects are timely, cost-effective, and have clear milestones.
    • This could be implemented by including weight or priority in the approval process for projects that have specified a committed vendor and how this partnership directly contributes to cost savings and delivery success.
  • Congress should expand the overall pool of money in the TMF (at least in the short term).
    • Though the TMF has received a new influx of funding, it still has significantly fewer funds than its proponents have called for. Therefore, Congress should continue to expand funding as long as the program shows positive results.
    • Given that some of these modernization projects are akin to fixing other critical infrastructure like roads, upfront investment will be required before long-term savings are realized, and the TMF can shift its priorities toward more forward-thinking IT modernization.
  • OMB should mandate that every federal agency submit a proposal so that the TMF board can evaluate collective IT modernization priorities across the federal government, develop and track a project pipeline, share findings across multiple agencies and private partners, and plan project approval and delivery accordingly.
    • This would also likely require expanding the role of the TMF Program Management Office and their ability to offer technical oversight in delivering the approved projects, including leveraging best practices and playbooks from other successful TMF projects.

Conclusion

In an increasingly digitized government, IT is a complicated ecosystem that requires up-to-date IT hardware and software and continued investment upgrades. The TMF has the potential to offer agencies with a funding pathway for both standard IT modernization efforts (e.g., replacing a legacy system) and more innovative investments that support agency-level advances in how technology improves service delivery to users, including citizens, businesses, and other governments (e.g., optical character recognition via mobile app). TMF leadership has a clear desire to award meaningful projects and replicate successes, but they need a better plan to do that at a more impactful scale and with more resources.