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Reason Foundation

Baltimore Sun

Outsourcing Can Help Maryland Measure Up

Reducing costs, maintaining services can be done

Geoffrey Segal
August 6, 2003

In the lexicon on civil service, outsourcing is too often a dirty word.

It shouldn't be.

The truth is governments that effectively outsource services better performed by the private sector have more money to do the important work that many people go into civil service to do — the work that the public counts on and values most.

None of this is foreign to Marylanders. Right here in the state, the Army is doing it. The Navy is doing it. And the state already uses private companies to deliver important services, including health care services for the poor, math instruction, operation of the Motor Vehicle Administration's electronic licensing system and the Department of Health and Mental Hygiene's data and technology systems.

Ironically, state government itself, the sector in the worst financial shape and in the most need of creative ideas to close its two-year, $2.1 billion budget gap, doesn't outsource enough. Specifically, the outsourcing of Maryland's internal human resources functions could save taxpayers millions of dollars a year and, amazingly enough, give state workers the benefit of much-improved HR services.

Like all cash-strapped governments, Maryland is looking for ways to maintain core services while reducing enough costs to balance the budget. Already, cuts have been made in a number of agencies, with higher education taking one of the most significant hits. For the 2004 fiscal year, reductions have been proposed in funding for child care assistance, local school aid and transportation. There are smarter ways to save money, and one of the best of them is outsourcing. In the Reason Foundation's more than three decades of tracking competition, savings typically average 30 percent.

For a current example, lawmakers should look to Florida, where a revolutionary project is under way to outsource much of the state's administrative back-office operations. Just last summer, Florida signed a contract with Convergys Corp. of Ohio to administer almost all of its routine personnel functions, including payroll, insurance benefits, employee training and recruiting. The contract will save the state an estimated $173 million over seven years. Florida will not only avoid $80 million in capital spending to replace the state's aging HR computer systems, but will also cut millions of dollars in recurring expenses for many fiscal years to come.

There's more good news. State employees and retirees there will get access to the latest in HR computer and Web-based technology, not to mention the best HR practices and service levels enjoyed by employees at many of the finest Fortune 500 companies. For the first time, every state employee will be able to access his or her account and make transactions at any time.

Perhaps the chief benefit of outsourcing is that it allows states to devote fewer internal resources to burdensome back-office administrative tasks and instead concentrate resources on the core mission, responsibilities and programs of state government. As taxpayers, isn't that what we want from government?

Unfortunately, outsourcing often leads to work force reduction. But the loss of jobs is a foregone conclusion, given Maryland's budget shortfall. Shouldn't state leaders outsource those back-office operations that can be done more cheaply and better by the private sector, rather cut than essential public services? The latter, after all, is the work that ultimately attracts people to public service. It is the work that taxpayers value most.

Geoffrey Segal is director of privatization and government reform at Reason Foundation.



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