4-2024 Nlets Membership Fee Increase.pdf

The International Justice & Public Safety Network

Frank Minice CEO / Executive Director

Jeremy Hansford, President Sandra Kelleher, 1st Vice President Kelli Erickson, 2nd Vice President

1918 West Whispering Wind Dr. Phoenix, Arizona 85085

OFFICE: (623) 308-3500 FAX: (623) 308-3501

September 16, 2024

Nlets Representatives, The International Justice and Public Safety Network (Nlets), is a private 501(c)(3) not for profit organization, formed in 1966, that is owned and governed by the 50 States and territories. Nlets is a secure interstate information sharing system for state, local, federal, tribal, and international law enforcement agencies. The system provides electronic messaging to allow trusted information exchange between state, local, and federal agencies and support services to justice-related computer programs. Nlets is the system United States law enforcement and public safety depend upon to send and receive criminal history information, driver’s license and vehicle information, sex offender information, state warrant information, concealed weapon permit information, regional and nationwide all points bulletins and homeland security messages, AMBER Alerts, Canadian information (warrants, stolen vehicle, driver’s license files, etc.), Interpol files, and over 100 other resources. Nlets is a critical tool for public safety and the protection of the homeland, which requires sub-second response times and nearly 100% availability. The Nlets system processes nearly 4 billion transactions annually.

Nlets is governed by the membership. Upon its formation, the state agencies made a decision to fund and manage the system autonomously without any federal grants or earmarks. A fee for service model was adopted and all states are equal in sharing the cost of providing the service. A representative is designated by the administrator of the chief law enforcement agency of each state and territory. These representatives form the Principal Membership. The Principal Membership is split into eight regions, each of which annually elects a chair to represent their region on the Board of Directors. The Principal Membership also annually elects a President, 1st Vice-President and 2nd Vice-President to serve as officers of the organization. Standing committees, made up of representatives from the membership, work for the Board of Directors to provide detailed oversight and guidance on the operation, technology and finances of Nlets. The Board of Directors creates and maintains a Corporate Strategic Plan, Financial Strategic Plan, and Technical Strategic Plan that lay out the organization’s goals, actions and vision for the future. The Nlets Executive Director works directly for the Board of Directors to meet the needs and goals of the organization outlined in these documents.

The mission of Nlets expanded greatly after 9/11 as the need for additional information sharing was realized. Nlets became a leader in the nation, promoting and providing standards for information exchange and adopting new technologies to do so. In 2004, the rate for Nlets membership was raised from $1,700.00 per month to $4,000.00 per month to cover this expanded mission. It was at that time that the state and territory representatives charged the Nlets Executive Director with finding and using alternate revenue streams to fund expenses for the services provided in lieu of raising membership fees. As a result, revenue increases to cover operational expenses were generated by onboarding and invoicing strategic partners (e.g., red light camera, speed camera, automated toll companies, etc.) for violation processing. This

1918 West Whispering Wind Dr. Phoenix, Arizona 85085

OFFICE: (623) 308-3500 FAX: (623) 308-3501

practice continued for 18 years, resulting in revenue from membership fees covering less than 60% of the cost for delivering the core services of the organization – the remainder being covered by revenue from partners.

In 2015, the Principal Membership began reviewing this practice and determined the funding model could leave the organization without enough revenue to cover expenses if a law change was enacted (e.g., banning red light/speed cameras, limiting interstate sharing of DMV information, etc.) or was potentially susceptible to demands from strategic partners funding part of the organization’s operations. The Financial Strategic Plan was modified to include an annual review of this risk by the Board of Directors.

In 2019, the ratio of core expenses to core revenue was reported at around 50% member funded and 50% partner funded. At the 2019 Annual Business Meeting, the membership addressed the risk by voting to increase rates for the first time in 19 years. The membership approved a fee increase to $7,000.00 per month beginning in July, 2021 with an up to 2% inflation increase per year.

A Core Services Task Force (CTF) was formed in 2022 to determine which Nlets services were considered “core” to the organization, examine and evaluate core costs, and recommend an acceptable level of risk moving forward. The CTF analyzed the Nlets Strategic and Technical Plans, revenue and expenses incurred by core and non-core services, and the relationship between core revenue and core expenses. Task Force members also reviewed message keys and services to determine what should be considered critical to the membership’s missions. The CTF moved to adopt a core set of message keys and services, the cost of which is accounted for as core expenses. The attached list of core services has been approved by the Board of Directors and the membership as a whole.

The CTF culminated its work by recommending the Board of Directors develop and adopt a risk tolerance policy for Nlets to maintain a five-year average core revenue to expense ratio of 80% with a minimum cash reserve balance to cover four years of operating expenses not covered by core membership revenue. For years, revenue from core membership fees has not covered the costs to provide core services. Nlets has been able to sustain operations by utilizing alternate revenue streams to subsidize the costs of core services. This new policy established a risk tolerance for Nlets, which ensures core services provided to the membership will not be impacted if the alternate revenue streams are removed. By achieving the 80% core revenue to expense ratio and maintaining cash reserves that cover four years of operating expenses, the Board is provided time to make adjustments to expenses or non-principal member fees in the event of a significant alternate revenue loss. It also permits time for any fee adjustments to be considered by the Principal Members, contracts to be updated, and budgets to be modified.

As the result of a thorough review and analysis of core services, revenues, and expenses completed by the CTF, four scenarios/options were developed for consideration on how to achieve the 80% core revenue to expense ratio. A report with the options was provided to the membership at the 2024 Nlets Annual Business Meeting. The Principal Membership voted to approve “Scenario 2” from the report – noted in the table below. Scenario 2 provided a true-up method to core revenue, where a 45.5% increase over 2027 projected revenue is implemented in 2028. This scenario also includes maintaining the current 2% standard annual revenue increase in place today through 2027. The 80% core revenue to expense ratio would immediately be achieved in 2028 under this scenario. After 2028, revenues would need to realize 7% annual increases to remain in line with projected future expenses. The annual uplift starting in 2028 is split evenly among the membership.

The motion from the Principal Membership recommended the above scenario be adopted in Fiscal Year 2027, or as soon as contractually possible. With this motion, the monthly membership will be changed to $10,610.00 per month beginning January 1, 2027. This will be a $2,958 per month increase from the Fiscal Year 2026 monthly membership fee of $7,652.80. It is still under discussion, but the expectation is the annual 7% increase will include “up-to” language in the contract. The annual fee increase percentage will only be assessed to match annual increases in expenses as approved by the Principal Membership.

Nlets has an overall budget of $17.2M in Fiscal Year 2024. Of this budget, expected revenue from the core membership is $8.3M with core expenses currently projected to end the year at $12.3M, which is a core revenue to expense ratio of 67%. The $4M budgeted deficit of providing core services is made whole by revenue generated from strategic partners and hosting customers. These budgeted alternate revenue sources bring the 2024 budget back to break even for the year, with overall revenues at the same level of overall operating expenses. The budgeting process involves a thorough review by the Nlets Finance & Management Committee as well as review and approval by the Nlets Board of Directors. Additionally, an external CPA firm provides a cursory review of the annual budget as part of the annual independent financial audit.

It is important to note that Nlets’ operational expenses have not grown out of hand, nor is the organization in any sort of financial trouble. Financial and security audits are conducted regularly and the organization has always received the highest marks in these areas. The Nlets Executive Director and staff have never exceeded an approved yearly budget and excess revenue over expenses are moved into the Brodie Assistance Fund for reinvestment into the membership.

To date, $4,372,000.00 has been provided back to the states and territories to upgrade systems, promote standards, and facilitate information exchange. Nlets currently has over $18M in reserves, which would cover five years of a complete loss of alternate revenue from strategic partners. The fee increase approved by the membership in 2024 will ensure 80% of the cost of core services are covered by the core membership regardless of other possible revenue streams.

To continue monitoring expenses, each new service is evaluated by the committees and membership to determine if will be considered a core service.

Questions on the fee increase or budget can be addressed to the Nlets Representative from each state/territory/federal agency, the Nlets Executive Director, or myself.

Sincerely, Jeremy Hansford Ohio Representative Nlets President

Application Services

• Nlets Core Message Types

• Message Standards Management, Transformation Services & Programming

• Interstate Message Routing and Supporting Services

Systems Services

• Compute and Storage Services

• Authentication/Authorization

• Messaging, Phones, and Software

• Maintenance and Management of Nlets Justice Portal (NJP)

Training Services

• State User & Terminal Agency Coordinator training

• STARS/Implementers Workshops

• N-Cert: Nlets Training Certification Program

• Nlets Training Material Development and Maintenance

• N-Gage: Nlets Intranet

Outreach Services

• Production of Nlets and Industry Webinars

• National Representation Within Other Organizations to Set Standards and Drive Innovation

• Website Management

Financial Services

• Contract Processing

• Expense Processing (Payables and Training & Education Reimbursement)

Brody Assistant Fund

• Management and Deployment of the Program

Network Services •Provide a Reliable, Resilient, Secure Connection to each Nlets Member Agency •Provide a Wireless Backup Solution Delivering Connectivity During a Terrestrial Circuit Failure

Security Services

• Vulnerability Identification and Tracking Within the Nlets Enterprise

• Detection of and Response to Information Security Events

• Management of Security Policies, Processes, and Procedures

Operations Services

• 24 x 7 x 365 Service Analyst Support

• Nlets Computer Room Facilities Management - Infrastructure and Architecture

• Nlets Router & WAN Circuit Monitoring

• Application Troubleshooting of Message Traffic

• Supports Continuity of Operations (COOP) - for Primary/Alternate Nlets sites

Risk and Compliance Services

• Conduct Technical and Risk Assessments and Audits of Internal Nlets Systems

• Ensure Ongoing Compliance with CJIS Security Policy

• Provide Risk and Compliance Direction to All Nlets Service Departments

PMO Services

• Project Management Support

• Vendor Management Support

Nlets provides a variety of resources to our core members as part of their service fee. This document provides a high-level overview of some of services provided by each department at Nlets to our core members.

Core membership includes the U.S. States & Territories, Canada, as well as Federal and Associate members.

Core Message Types

Administrative Messages Aircraft Registration Alarm Exchange Transactions Amber Alert Boat Registration Transactions Charge Code Transactions CHRI Additional Query CHRI Full Record Query CHRI Identity Query CDLIS Query Commercial Vehicle Carrier Status Commercial Vehicle Status Concealed Weapons Permit Info Corrections Photo Query Corrections Query Driver History Transactions Driver License Transactions Error Messages General Person Query Generic Messages Hazardous Material File Hit Confirmation Transactions Homeland Security Alert Homeland Security Alert / LE Immigration Alien Transactions Interpol Stolen Gun Full Report Interpol Stolen Gun Query Interpol Stolen Travel Document Full Report

Interpol Stolen Travel Document Query Interpol Stolen Vehicle Full Report Interpol Stolen Vehicle Query Interpol Wanted Person Full Report Interpol Wanted Person Query IFTA Transactions License Plate Reader Mexican Commercial Driver License Mexican Commercial License Plate

NDPIX

NICB

Nlets Full RAND Query Nlets RAND Query

ORION

Parole Query Parole, Probation, Corrections Query Probation Query Railroad Crossing Transactions Registration Query Registration Query by Name Only Road - Weather Transactions Sex Offender Registration Snowmobile Registration State Warrant Transactions Status Messages VIN Check Wildlife Violation and License File

Canadian Message Types

Article File Boat File Criminal History Index Criminal History Full Driver License Gun File Securities File Stolen Vehicles Vehicle Registration Wanted Persons

National Insurance Crime Bureau (NICB) Files

Export File Impound File Salvage File Rental Fleet File Key Code Transaction File Vehicle Lien Holder File OEM Shipping File Vehicle Claim File NCIC Purge File NCIC Inactive File

core servicesrevised4.21.pdf