Sharpening the Budget Saw in Virginia

Arizona bill offers a blueprint for right-sizing state government

In an August 2008 Bacon’s Rebellion column, I discussed the need to restructure Virginia’s Commonwealth Competition Council (CCC) in order to give it far more teeth to advance spending and budget reform in Virginia. A new bill introduced in the Arizona legislature offers a model that Virginia lawmakers should consider following as it would establish perhaps the most comprehensive and strongest competition/government efficiency board in the nation-or put simply, a turbo-charged version of the Commonwealth Competition Council. Given the current budget deficit, this model couldn’t have come at a more opportune time.

Arizona’s Senate Bill 1466 would establish a new Council on Efficient Government (CEG) in that state which in many ways represents the ultimate fruition of the CCC concept (note: see my previous Bacon’s article for a discussion of why the CCC is a good start, but has limited statutory authority to be truly effective). In Arizona, this new center of excellence in state procurement would:

  • Review whether or not goods or services provided by state agencies could be privatized to provide the same (or higher) level of service delivery while delivering cost savings or better value for money;
  • Develop a standardized, enterprise-wide process for identifying and implementing competitive sourcing;
  • Develop rules instituting performance-based contracting as default requirements for state procurements;
  • Require state agencies to develop a business case justifying any proposed outsourcing initiative-covering everything from cost-benefit analysis to employee transition plans-prior to deciding whether or not to outsource;
  • Disseminate lessons learned and best practices in competitive sourcing across state government;
  • Conduct an annual or biannual inventory of all functions and activities performed by state government, distinguishing between inherently government and commercial activities;
  • Require the Governor’s office, at least every two fiscal years, to subject three commercial activities undertaken by state agencies to strategic review;
  • Create a uniform cost accounting model to facilitate “apples-to-apples” cost comparisons between public and private sector service provision (critical to ensure a level public-private playing field);
  • Review and take action on complaints regarding inappropriate government competition with the private sector.

At its core, Arizona’s CEG would facilitate the regular, wholesale review of state government activities with an eye toward right-sizing government through privatization (i.e., applying the Yellow Pages test to state agency activities). But at the same time it recognizes that successful privatization requires a high standard of due diligence in contracting. Hence the CEG would be responsible for establishing a standardized method for procuring and managing contracts in order to maximize accountability, transparency and competition and deliver the best value for taxpayers.

It’s worth noting that the Arizona Chamber of Commerce and Industry has made SB 1466 one of their legislative priorities in the 2009 session. In a recent editorial, the Arizona Chamber explained why:

With a $1.6 billion deficit for fiscal year 2009 and a $2.2 to $3 billion deficit for fiscal year 2010, the legislature will have to carefully evaluate which government programs should be scaled back, eliminated, or privatized. […] Identifying areas where the private sector can perform government functions more efficiently and at a lower cost can be an important part of the budget solution. Additionally, minimizing government competition with businesses will aid in retaining private sector jobs.

Florida’s experience with their own Council on Efficient Government demonstrates the power in this “procurement center of excellence” approach. Prior to former Gov. Jeb Bush’s term (1999-2007), Florida had a total of 16 outsourced projects reported by state agencies. With privatization being a key plank in Bush’s management agenda, by the end of his term in FY2008 state agencies had identified a stunning total of 551 projects being outsourced with a lifetime value of over $8 billion. Notably, Bush created the CEG in 2004, which coincides with the tremendous ramp-up in state privatization.

It’s why he created the CEG that makes the story even more compelling. Midway through his term, some of Bush’s many privatization successes became overshadowed by the media spotlight on a few big-ticket outsourcing projects that experienced difficulties in implementation. Gov. Bush surmised that the state was “not very good at procuring, and as a result we’ve had some challenges . . . that have clouded a really good record as it relates to saving money for the state…we have to get better at procuring and monitoring the procurements.” To that end, Gov. Bush signed an executive order in March 2004 establishing the Center for Efficient Government, subsequently codified into statute as today’s CEG.

Under Bush, Florida engaged in over 138 privatization/managed competition initiatives saving taxpayers over $550 million in aggregate, and the CEG was a critical part of that. When many other states were raising taxes, Florida was lowering them. And since Bush’s departure, the CEG is still humming along. Last year, it reviewed a total of 21 business cases valued at more than $94 million, identifying more than $29 million in potential savings to the state. The value that CEG is delivering for taxpayers is so evident that even Bill Cotterell, a Tallahassee Democrat editorialist and frequent critic of Bush’s privatization initiatives, recently wrote, “For return on investment, no Agency can beat the Council on Efficient Government. Each of the council’s four employees saved the taxpayers about $7.25 million last year.”

Saving tens of millions of dollars per year is nothing to sneeze at these days. Commonwealth policymakers should consider following Arizona’s lead and restructuring the CCC along similar lines. The CCC could be a powerful tool if sharpened. With so much to cut in the next budget, policymakers are going to need the sharpest tools in the toolbox at their disposal.

Leonard Gilroy is the Director of Government Performance at Reason Foundation and a Senior Fellow for Government Reform at the Thomas Jefferson Institute for Public Policy. This column was originally published in Bacon’s Rebellion.