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Two
Commissions in One
To
guide
the
state
through its
fiscal
crisis, Virginia
CEO Mark Warner needs
to find quick,
short-term savings
and carry out long-term reforms.
The
recent brouhaha between former Gov. L. Douglas Wilder
and other members of the study commission he chairs
reminds me of the old Certs commercial.
“It’s
a breath mint,” asserted one young woman.
“It
tastes great,” insisted another.
“You’re
both right,” the announcer intoned. “It’s two…
two… two mints in one.”
In
a contentious meeting Wednesday of the Governor’s
Commission on Efficiency and Effectiveness, Wilder cited
Virginia’s
rapidly deteriorating fiscal condition as reason to roll
out proposals for concrete program cuts. According to
press reports, he has targeted two dozen Cabinet
secretariats and departments for elimination. But other
board members stuck to their original goal of
recommending reforms that would yield savings from
productivity and efficiency.
“Slash
agency budgets,” says Wilder.
“No,
reform government processes,” retort the others.
All
we lack is the governor to chime in, “You’re both
right. It’s two… two… two commissions
in one!”
Governor
Mark R. Warner
addressed the Senate Finance and House Appropriations
and Finance Committees Monday morning and delivered
another wallop of bad news. Revenues are in free fall:
The shortfall in the two-year, $25 billion General Fund
budget was projected to reach $1.5 billion dollars over
and above the spending cuts approved earlier this year.
He announced a number of stopgap cash-conservation
measures but said he expects to build on the work of the
Wilder Commission. It looks like the governor could
use two government commissions in one.
Wilder
is right to emphasize urgency and action: Long-term
reforms can’t kick into effect in time to close the
shortfall. Cuts in programs – indeed, outright
elimination of entire agencies – may be unavoidable.
But the other commissioners have a point, too: Laying
waste to government programs will make it difficult, if
not impossible, for Virginia
to
do those things that only government can do. Operating a
leaner government structure will free resources over the
long haul to meet priorities such as education,
transportation, public health and economic development.
There’s no time like now to start putting these
reforms into place. (See Doug Koelemay’s story this
issue, "Thunder and
Lightning," for details on commission
members’ thinking.)
Warner
has expressed his intention to run state government like
a business. That’s an admirable instinct. The
governor, like a CEO,
must pay attention to corporate culture, managerial
processes and other operational concerns. From what
I’ve seen, Warner has done a good job so far, focusing
on problem areas like the overruns in highway
construction and spending on information technology.
But
there are limits to what the governor can accomplish given the
civil service-like protections of the state workforce.
Unlike a corporate CEO, he can do little to lay off
workers, fire individual under-performers and
incentivize strong performance. Overhauling state
personnel policies would be a tremendous accomplishment
but it would take years of legislative trench warfare to
do so. The governor cannot change the corporate culture
of government in time to address the current budget
crisis.
CEOs
also set the strategic direction of the enterprise,
which requires communicating a vision for the future and
allocating resources in accordance with that vision. By
necessity, chieftains of corporate enterprises as financially
overextended as Virginia
find
themselves spinning off, divesting, downsizing and even
liquidating operations of marginal value. If the budget
picture is as bleak as May revenue figures indicate,
Warner may have no choice but to take a Wilder-like chainsaw to
the state budget.
It
won't be easy. The
bulk of state spending -- 70 percent -- is concentrated
in five main areas:
So
far, no one has evinced the political will to curtail
any of these programs in
any significant way. Virginia
already has one of the most parsimonious Medicaid
programs in the country. What Democratic governor would
want to balance the budget on the backs of the poor? The
Department of Corrections is a significant fiscal
burden, but I haven’t noticed a groundswell of public
support for emptying the prisons and putting criminals
back on the street.
The
Compensation Board has possibilities. This agency
underwrites the salaries of local
sheriffs offices, Commonwealth’s attorneys,
treasurers, commissioners of revenue and clerks of the
circuit court to the tune of a half billion a year. The
origin of these archaic offices, mandated by the state
constitution, literally can be traced back to the
colonial era. These institutional relics are
increasingly redundant. Why can’t sheriffs departments
be merged with police departments? Why can’t
treasurers and commissioners of revenue be consolidated
with finance departments? Surely, the savings would be
measured in the tens of millions of dollars. I don’t
see Virginia
voters rising up in arms to protect the independence of
these obscure local offices from a change in the state
Constitution.
That leaves education. If there’s a bipartisan consensus in
Virginia
on anything, it’s that the K-12 and higher education
are core functions of government. Can’t go there. But
there is massive redundancy and waste in state- and
federally funded workforce training programs which
account for a half-billion dollars in spending. The
Gilmore administration tried to tame this bureaucratic
monstrosity but didn’t get much further than setting
up a statewide system of Workforce Investment Councils
before the clock ran out. The
Warner administration would be well advised to pick up
where the Gilmore commission left off.
Reportedly,
one of the agencies on Wilder’s hit list is the Department
of Alcoholic Beverage Control. The state can tax and regulate the consumption
of alcohol without actually owning and operating a
retail chain of more than 250 stores. In fiscal 2001,
ABC outlets produced net profits of $41.6 million.
Assuming a valuation of 10 times earnings, ABC
properties could be worth more than $400 million if
privatized. Someone needs to put an investment banker on
the job right now
to appraise how much money the state could raise from a
spin-off.
Divesting
ABC would deprive the state and localities a valuable revenue
stream in the future. But it’s hard to argue that
retail distribution of alcohol is a mission-critical
function of state government in the 21st
century. Divesting ABC operations might be a small price
to pay to get the state through the current cyclical
crisis without damaging core programs.
These
are the challenges that Governor/CEO Warner now faces:
He must downsize state agencies to squeeze through its
short-term financial crisis. He must re-engineer the
enterprise of state to improve long-term productivity
and efficiency. He must free up resources by spinning
off non-essential operations. He must articulate a
vision of Virginia’s
future and explain how his budget priorities help us get
us there. And, finally, he must remember that running
the state of Virginia
really isn’t
like a running a Fortune 500 company – the governor
has far more stakeholders to answer to than a CEO, not
to mention a legislature controlled by the other party.
And that means engaging in very un CEO-like behavior of
getting out of the headquarters office in Richmond and
persuading people around the state to follow.
--
August 19, 2002
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