Closing Virginia’s Budget Shortfall

Virginia needs more effective tools to evaluate competition and efficiency opportunities across state government

As the Commonwealth grapples with a $1-billion-plus budget shortfall – and the inevitable calls by some to “solve” it through tax hikes – policymakers seek every opportunity to tap the demonstrated cost savings possible through privatization to help close the gap. Ad hoc approaches won’t cut it. Virginia must develop more effective tools to systematically evaluate competition and efficiency opportunities across state government.

One logical place to start is with the Commonwealth Competition Council (CCC). An independent advisory body in state government since 1995, the CCC is a bipartisan council charged with providing long-term strategic direction for privatization and competition initiatives. Over the last dozen years the CCC has done excellent work on privatization, identifying and researching a plethora of opportunities to achieve cost savings, service quality improvements, and higher customer satisfaction.

Unfortunately, the CCC lacks a mandate to ensure follow-through on its recommendations. Its role as an advisory body, its lack of a clear statutory mandate drive statewide privatization initiatives, and its lack of integration into the executive branch have constrained its effectiveness at limiting the size and scope of government.

Until 2008, the state of Utah was in the same boat. For two decades, Utah has had its Privatization Policy Board (PPB), which has a similar mission to Virginia’s CCC. But with its membership heavily tilted towards public sector representation, the lack of clearly defined duties in its statutory mandate and no dedicated staff, the PPB’s efforts have been piecemeal at best. Only two of its major outsourcing recommendations have been implemented.

In 2008, the Utah state legislature overwhelmingly passed two bills designed to give the PPB more teeth. First, lawmakers adjusted the membership of the Board so it had a nearly equal split between the public and private sector. Also, the PPB is now required to develop a biannual inventory of “inherently governmental” and “commercial” activities performed by state agencies, with commercial activities being those widely performed in the private sector and prospects for privatization.

The Secretary of Administration prepares a similar inventory in Virginia. However, Utah went a step further by requiring most Utah cities and counties to prepare similar commercial activity inventories for the PPB. The underlying premise is that taxpayers deserve transparency in how their state and local tax dollars are spent.

Utah empowered the PPB in several other notable ways worthy of consideration in Virginia. For example, the PPB is now required to not only make annual recommendations on privatization opportunities but to review the potential privatization of a good or service at the request of a state agency or a private company. And the new laws require Utah’s governor to select three identified commercial activities performed by executive agencies every two years for which his Office of Planning and Budget must conduct further privatization review, creating an internal “feedback loop” through which PPB recommendations can be advanced. The PPB is also now responsible for developing a set of privatization standards, procedures, and requirements to guide the statewide contracting process.

Utah’s board is clearly moving in the direction of Florida’s groundbreaking Council on Efficient Government (CEG), the state-of-the-art in competitive government. It fulfills a variety of functions, including conducting commercial activity inventories, identifying state competition opportunities, creating new standards and processes to guide competitions, assisting agencies with business case development, and serving as a clearinghouse for best practices in privatization.

And it’s working. As Reason Foundation’s new Annual Privatization Report 2008 shows, state contracting has been on a significant rise in Florida in recent years, averaging 25 new contracts annually since 2000. In all, the state currently has 289 projects being outsourced, with a lifetime value of over $5.5 billion. Many of those contracts are the end result of CEG recommendations or guidance throughout the contracting process.

Using a conservative estimate of a 5-10 percent cost savings through privatization (which tends to be on the low range), Florida is currently saving taxpayers literally hundreds of millions of dollars through privatization, and the CEG is a critical part of it.

Luckily, some in the General Assembly understand the need to modernize the state’s efficiency tools. Earlier this year, Del. Chris Saxman, R-Staunton, introduced House Bill 1238, which would replace the current CCC with a new Commonwealth Realignment Commission with more teeth to review the operations of state agencies and state-funded programs and promote privatization through competitive contracting.

The bill didn’t advance, but policymakers should revisit it in the next session. Whether or not that particular approach would offer the state a more powerful tool certainly merits a substantive policy discussion. Regardless, Saxman’s bill is exactly the kind of thinking Commonwealth taxpayers deserve to see more of moving forward.

Fiscal prudence demands comprehensive, enterprise-wide approaches to introducing competition into government service delivery and ensuring that taxpayers are getting high quality services for the lowest possible cost. Utah and Florida are on the cutting edge in this regard. If restructured or given more tools, the Commonwealth Competition Council could truly be an effective force in driving down costs and relieving pressure to take yet another grab at taxpayers’ wallets through more taxes.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.

The project aims to promote solvent, sustainable retirement systems that provide retirement security for government workers while reducing taxpayer and pension system exposure to financial risk and reducing long-term costs for employers/taxpayers and employees. The project team provides education, reform policy options, and actuarial analysis for policymakers and stakeholders to help them design reform proposals that are practical and viable.

In 2016 and 2017, Reason's Pension Integrity Project helped design, negotiate and draft pension reforms for the state of Arizona's Public Safety Personnel Retirement System and Corrections Officer Retirement Plan, which both passed with overwhelming bipartisan support in the state legislature and were signed into law by Gov. Doug Ducey.

Gilroy is also the Director of Government Reform at Reason Foundation, researching privatization, public-private partnerships, infrastructure and urban policy issues.

Gilroy has a diversified background in policy research and implementation, with particular emphases on competition, government efficiency, transparency, accountability, and government performance. Gilroy has worked closely with legislators and elected officials in Texas, Arizona, Louisiana, New Jersey, Utah, Virginia, California and several other states and local governments in efforts to design and implement market-based policy approaches, improve government performance, enhance accountability in government programs, and reduce government spending.

In 2010 and 2011, Gilroy served as a gubernatorial appointee to the Arizona Commission on Privatization and Efficiency, and in 2010 he served as an advisor to the New Jersey Privatization Task Force, created by Gov. Chris Christie.

Gilroy is the editor of the widely-read Annual Privatization Report, which examines trends and chronicles the experiences of local, state, and federal governments in bringing competition to public services. Gilroy also edits Reason's Innovators in Action interview series, which profiles public sector innovators in their own words, including former U.S. Transportation Secretary Mary Peters, former Florida Gov. Jeb Bush, former Indiana Gov. Mitch Daniels, former New York City Mayor Rudy Guiliani and more.

Gilroy's articles have been featured in such leading publications as The Wall Street Journal, Los Angeles Times, New York Post, The Weekly Standard, Washington Times, Houston Chronicle, Atlanta Journal-Constitution, Arizona Republic, San Francisco Examiner, San Diego Union-Tribune, Philadelphia Inquirer, Sacramento Bee and The Salt Lake Tribune. He has also appeared on CNN, Fox News Channel, Fox Business, CNBC, National Public Radio and other media outlets.

Prior to joining Reason, Gilroy was a senior planner at a Louisiana-based urban planning consulting firm. He also worked as a research assistant at the Virginia Center for Coal and Energy Research at Virginia Tech. Gilroy earned a B.A. and M.A. in Urban and Regional Planning from Virginia Tech.