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 recent 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.
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August 25, 2008
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