A Good, Hard Look: February 2010

Rigorous review of how state government operates is gaining ground in legislatures.

By Garry Boulard

A Utah commission wants to take a hard look at the very essentials of state government: What it does, how well it does it and whether it can continue to do it in the same manner.

“Economic conditions have forced many states to realize that they are either going to have to find some more revenue somewhere or no longer do some of the things they have been doing,” says Gayle McKeachnie, a former legislator and lieutenant governor in Utah, where the budget deficit is pegged at some $279 million for FY 2010.

McKeachnie was recently appointed to the Utah Advisory Commission to Optimize State Government, a body formed by Governor Gary Herbert with the mission of looking for ways to improve efficiency, effectiveness and performance.

“We need to be thinking more seriously about how to reduce costs by reducing government,” McKeachnie says. “I think we have done as much as we can when it comes to eliminating unnecessary expenses.”

He says the commission will look at consolidating agencies and privatizing functions of state government such as prisons and state parks.

Chance for Change

Such state-level initiatives to make government more efficient come during one of the worst national downturns in American history. The effort in Utah is part of a larger movement by legislators and other state officials to reduce expenditures in the face of record budget gaps. Across the country, state legislators and governors have been addressing budget challenges by reconfiguring government and reducing agencies. Some see the economic crisis as an opportune time to push for structural changes.

“We need to think about re-engineering and reinventing the way we deliver government services,” says Minnesota Senator Terri Bonoff. Earlier this year, she proposed that the more than 340 separate school districts in her state engage in cooperative purchasing for items valued at more than $25,000—rather than negotiate for the best price on their own—based on the theory that the state government already has a Department of Administration and its job it is to get the best price.

Bonoff’s bill was passed in the Minnesota Senate but died in the House. Even so, she says, “The downturn gives all of us a chance to really look at how our government structures are designed, and to question models that are more than 50 years old.”

Utah Representative Ron Bigelow thinks reinventing how the state delivers services “may mean eliminating some programs, but it may also mean making programs more efficient.”

“It’s important to remember that when you make a program more efficient, you are also improving its services for the people. Reducing or streamlining a program doesn’t have to mean that the people the program is designed to serve will in any way lose out.”
States also have taken many short-term measures, says Robert Campbell, state government leader with Deloitte Development LLP.

“Most of the states have approached this downturn as they have approached other recent downturns,” he says. “They’ve deployed across-the-board cuts, postponed certain expenditures, and left certain items between accounting periods in the interest of getting budget reconciliation.”

Alan Rosenthal, a professor of public policy and political science at Rutgers University’s Eagleton Institute of Politics, says the depth of the downturn has put a spotlight on long-standing problems.

“Many people see this recession as a national federal crisis, but the states have been struggling with the same kind of fiscal deficits that we’re seeing in Washington,” he says. “Not every state, but enough states are trying to figure out what to do about pensions as well as the problems of higher education and structural deficits. These are problems the fiscal staffs in the states have been reporting on for years now, in many cases predicting that all of these problems could combine to create a huge headache.”

While approaches to grappling with the downturn differ, Rosenthal says states “are at least moving in the direction of addressing problems that have contributed to those deficits.”

Recovery at Stake

Such initiatives can’t come soon enough for some states.

Structural fiscal deficiencies in many states are not only long-standing, but may have reached the point where they could actually forestall or greatly reduce economic recovery, according to the report “Beyond California: States in Fiscal Peril,” released in November by the Pew Center on the States.

“The truth of the matter is that no state gets to pick its own economy,” says Susan Urahn, managing director of the center. “Some are natural resource states, some are manufacturing states, and each state will feel different stresses and strains from entirely different economic forces.”

The center looked specifically at Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin. It concluded each state in fiscal trouble shares similar characteristics:

• A dependence on one industry, such as automobile manufacturing in Michigan.

• Gaps between revenues and spending.

• Constitutional limits or other requirements when it comes to either cutting spending or raising taxes.

• A habit of putting off making difficult budget decisions.

But the problem, says Urahn, extends well beyond the 10 states studied by Pew. “Virtually every state in the country has been dealing with a budget gap of some magnitude in fiscal 2010, and the majority will have budget gaps in fiscal 201l, which means that all of these states are right now looking at either cuts or tax increases, or a combination of both.”

Even so, says Georgia Senator Mitch Seabaugh, legislators should not be afraid to investigate and explore possible ways of simply doing business differently.

“We can look at all of the bad news and just get depressed” says Seabaugh, “or we can try to honestly assess the things that we need to be doing, while cutting out the things that we don’t need to be doing.”

Seabaugh is particularly supportive of the Best Value Government Task Force in Georgia, which is supposed to review the work of all state agencies, asking them “why they believe this or that activity that they are involved in is a fundamental purpose of government.”

“Once legislators begin to ask these kinds of questions, they almost always find practices that can either be eliminated completely or done in a more efficient way.”

Note of Caution

Even a willingness to tackle the most challenging fiscal state issues may not mean much if they are not approached in a methodical, thought-out way, says Deloitte’s Campbell.

He points, for example, to the increasing number of states that have tried to cut costs by handling vehicle registration, driver’s licenses, birth records and other tasks online. The success of those innovations often depend upon how well they’re planned.

“Success frequently depends upon having a well-thought-out approach to change management within the state organization,” says Campbell. “I would ask: Are we adequately communicating upfront before the change the reason and support for the change? Are we adequately training the state workforce in the new business environment? Do we have a plan for displaced workers, retraining them to address other high-priority state needs?”

There are states where a methodical approach has meant a smooth transition to a new way of doing things. “But there have been other cases,” he says, “where leadership may jump to an answer such as outsourcing or making a major change without an underlying substantive analysis.”

Embracing a dramatically different way of doing business may seem like the right thing to do, but he says it could backfire.
“You could end up trading one set of problems for a new, different set of problems.

Garry Boulard is a free-lance writer in Albuquerque, N.M., and a frequent contributor to State Legislatures.

Lessons From a Recession

The recession and a deep drop in state revenues have prompted lawmakers in a number of states to look for ways to retool. The approaches range from consolidating departments to changing how things are done to eliminating agencies.

Massachusetts

Facing a $3 billion FY 2010 budget shortfall, the Massachusetts legislature this summer approved a plan to consolidate several transportation agencies and authorities into a single streamlined department to save about $6.5 billion over the next two decades. The reform legislation eliminated the Massachusetts Turnpike Authority and Massachusetts Aeronautics Commission, while moving the Registry of Motor Vehicles into the new department, called MassDOT.

“We had myriad different state agencies that handled transportation, and we’ve merged them all,” says Senate President Therese Murray. “They’ve all been moved together under a single administration, a single board, and we expect in the long run to save money there.”

The consolidation took place Nov. 1.

The legislation also created four new divisions under MassDOT, which will oversee, among other areas, the state’s highways and regional transit authorities. Still undecided is whether offices from the former separate departments will physically merge.

Connecticut

This fall, the Connecticut General Assembly included a provision in the FY 2010 budget establishing a new independent Office of Administrative Hearings.

The provision, supporters say, could save as much as $300,000 by combining the hearing offices of the Commission on Human Rights and Opportunities, the Department of Children and Families, the Department of Transportation, the Department of Motor Vehicles and Firearms Permit Examiners.

“The overarching theory is that hearing officers are too stuck on their agencies and that no one really has a steady caseload,” says Jim O’Neil, legislative liaison with the human rights commission. “By combining functions, people who do work for DCF could do work for the Department of Transportation and vice-versa. Everyone would stay busy and there would be no backlog of cases.”

Michigan

Governor Jennifer Granholm signed an executive order that will consolidate Michigan’s Natural Resources and Environmental Quality departments, a move expected to save at least $1.5 million. By some estimates, the state budget gap for FY 2010 is $1.4 billion.

“Experience has shown us that conserving natural resources and protecting the environment go hand-in-hand,” Granholm said when she announced the merger. “These efforts will now be coordinated under one department.”

The new department, now called the Department of Natural Resources and Environment, was expected to debut on Jan. 17, says Mary Dettloff, public information officer with the Michigan Department of Natural Resources.

Nevada

Governor Jim Gibbons won the backing of the Nevada Legislature to close down the state’s Consumer Affairs Division—a part of the Department of Business and Industry—until at least this summer. The division is responsible primarily for regulating deceptive trade practices. The state hopes to save up to $1.9 million over two years with the move. Some forecasts suggest Nevada’s shortfall may hit the $3 billion mark with the biennial state budget that combines FY 2010 and FY 2011.

Gibbons encountered legislative resistance, however, when he also asked to get rid of the Governor’s Office of Consumer Health Assistance, which provides help to people having trouble with the state’s health care system. The move would have saved an estimated $2 million over the biennium. When Gibbons vetoed the budget that included the Consumer Health Advocate position, the Legislature overrode it.

Nevada Assemblywoman Debbie Smith describes the choice between closing down the state’s Consumer Affairs Division and reducing the Nevada budget as a “particularly tough one, because in a time of fiscal crisis consumers need to be protected more than ever.”

Even so, Smith says, “We’ve had to do certain things like cutting back the hours for museums and parks, while prioritizing the needs of health and safety and education in the state.”

The end result is that legislators are questioning the accepted way of doing things. “When times were good, this wasn’t anything we talked about very much. But now, if we take that approach to everything that we do, even with essential services, we are bound to make almost every program more cost-effective.”

Washington

When the state of Washington earlier this year was facing a shortfall of some $6 billion, Representative Larry Springer went to work on a bill designed to make government more efficient by getting rid of what he described as “unnecessary boards and commissions.”
“A group of us looked at the issue, and once we found out that there were more than 400 such operating boards and commissions, we thought it was time to take a closer look at them,” says Springer.

Springer and several other lawmakers identified nearly 75 boards and commissions that they recommended for the chopping block. “We identified the ones we thought we could live without,” he says.

Springer and other legislators found they were targets of a spirited effort on behalf of supporters to keep virtually each and every board and commission in place. “Every one of those boards and commissions had a constituency that felt passionately about the role they performed,” he says. “And they let their feelings be known, too—they were in my office, on the phone and sending e-mails.”
In the end, the Washington Legislature voted to do away with a little more than 20 panels for savings estimated in the tens of thousands of dollars. But, says Springer, what really mattered was “not so much the amount of money saved this time around as the fact that we have now broken the ice on this subject.”