The Florida Model: Competition to Raise Efficiency

Indiana can lower costs through competitive sourcing

With Gov. Mitch Daniels, the state has a governor well aware of the powers of competition. Last month, he told The Star, “I’m a proponent of competition that looks for opportunities for the private sector and the incumbent public providers to compete. When that’s the arrangement, I don’t care who wins as long as the taxpayer does.”

Like Daniels, Florida Gov. Jeb Bush believes competition leads to better, more efficient state government. Bush has successfully used private sector competition, initiative and innovation, where appropriate, to reform how Florida’s government operates. In the process he has drastically reduced its size, scope and cost.

Since 1999, when Bush first took office, Florida has entered into 138 contracts for services with private contractors. His ambitious use of competitive sourcing, where the government and private sector compete to determine who can deliver the service best, has netted the state significant benefits. In the same period, property taxes have fallen by 11 percent and an additional $8 billion in tax cuts have been delivered to taxpayers and businesses.

Florida has avoided deficits and actually increased its cash reserve while spending record amounts on education and transportation. The government is smaller and more nimble now, too. There are nearly 4,000 fewer state employees, but without gains in the universities and courts, caused by higher enrollment and workloads, the falloff would have been about 6,000 greater – all without quality of services suffering; in many cases it improved.

In Florida, the initiatives range from the mundane (cleaning state buildings and food service at state prisons) to progressive and innovative (an online professional licensing system and state employee human resources). Barton Protective Services employees now collect fees on the state’s tollways, saving more than $2 million a year, and Health Management Systems Inc. administers Medicaid billing with similar savings.

Nearly all of the state’s highway maintenance is contracted out, which has netted millions in savings and tremendous quality improvements.

Despite this success, all has not been rosy in Florida. A 2003 report from the Governor’s Inspector General noted several shortfalls in the administration of contracting. Each of the IG’s critiques rang true – lack of understanding of goals or purpose, lack of training or experience of employees conducting competitions, and a lack of follow-through and performance evaluation after implementation.

These systemic flaws threatened to derail current initiatives and call into question existing contracts.

The system was fractured and confusing, lacking a central point of accountability. Communication failures and the lack of organization largely prevented agencies from learning from each other and applying best practices.

The solution, while critical, was quite simple. Florida needed a centralized, standard process for determining what services would be available for competition and an actual process driving the competition.

To accomplish this, Bush created a new organization to develop a policy to guide the process. The Department of Management Services would be the central point of accountability and a clearinghouse for lessons learned. The new Center for Efficient Government would not only be responsible for developing the new policy but also would serve as a trained, specialized unit for carrying out the various initiatives. CFEG works directly with agencies, assisting them with business-case analysis and training them in the new process for undertaking competition.

CFEG has created a new transparent, accountable, results-based process for managing competition initiatives that is largely modeled after Britain’s private finance initiative and includes a series of “gates” where projects are reviewed at critical stages throughout the project lifecycle to ensure that goals are met.

Another benefit of a centralized approach is that CFEG can now take an enterprise-wide approach to initiatives. They have the ability to reach across agency lines and seek statewide solutions to common problems or initiatives.

Under the new process, Florida is pressing forward with more competitive sourcing initiatives. Several projects are under review, including an innovative approach to various economic-self sufficiency programs where technology will help improve services while savings hundreds of millions of dollars.

Florida’s process, which ensures a transparent, accountable and results-based approach to government reform, is a model for Indiana and other states to copy.

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