Contracting out state services would save money

WHEN the governor announced her plans for closing a multibillion-dollar budget gap, we learned that transforming the state budget will not be painless. There will be cuts in social services, health care and education. The transformed budget will, of necessity, do less.

As staunch supporters of higher education and improved public schools, the Washington Roundtable acknowledges that our priorities, which we believe to be critical to revitalizing the state economy, will absorb a share of the required cutbacks.

The take-aways, however, cannot be the only lesson of the recession. Hard times spur innovation, leading to increased productivity and new ways to do business. Washingtonians should not expect less from their government. Rather, we should expect government to find better ways to meet our highest expectations.

It's not solely about finding new ways to do things. Sometimes, all that is required is using the neglected tools we have at hand to realize savings and efficiencies.

For policymakers striving to balance the state budget, that means taking advantage of the contracting-out authority established in sweeping personnel-reform legislation adopted in 2002. The reform streamlined civil-service policies, expanded collective-bargaining rights to include compensation, and removed barriers to contracting with the private sector to perform services traditionally performed by state employees (sometimes referred to as competitive sourcing).

Since the law passed, there's been virtually no new contracting out. A 2007 report by the Joint Legislative Audit and Review Commission concluded that agencies were not competitively contracting because managers thought the administrative rules were too complex and because collective-bargaining agreements can exclude the option.

These are problems that can and should be overcome. In a new Thrive Washington report, prepared by the Washington Roundtable and Washington Research Council, we suggest a path forward.

Specifically, we recommend the Legislature change how the state conducts labor negotiations so contracting out is not subject to collective bargaining. Management should not give up its right to get the best deal for taxpayers.

Further, lawmakers should direct the state auditor to survey all state agencies to identify services that could be provided by the private sector. Over the next year, the state should identify potential savings of 15 percent from contracting out. A streamlined prototype contracting-out process should be available for use by at least five agencies by 2013.

Successful contracting out does not occur without a strong, high-level commitment. Every state with a positive and sustained experience with competitive sourcing has an established commission charged with responsibility for facilitating, promoting and overseeing contracting-out activities.

The governor and Legislature should create a broadly representative competitive sourcing commission here. We're not proposing a "study group." The commission should be entrepreneurial, actively seeking out agencies that could benefit from contracting out and establishing clearly articulated savings goals.

These recommendations fall clearly within the mainstream of contemporary public administration nationally and globally. Competitive sourcing figured prominently in the "reinventing government" initiative of the Clinton-Gore administration. In the last three decades, the practice has systematically been adopted by state and local governments to cut costs and improve service quality.

There is a long list of services ripe for contracting out. The Texas State Health and Human Services contracted out all of its human-resources management, for a five-year savings of nearly $33 million. Across the nation, governments have let contracts for everything from trash collection to landscaping, health care to fleet maintenance.

Research by the International City/County Management Association and the Council of State Governments find savings typically fall in the range of 5 percent to 20 percent. How much financial benefit Washington can realize will stem from two variables: how much of the operating budget can be contracted out and how much savings contracting out would garner.

We looked at several alternatives. Our middle-range estimate, in which the state contracts 10 percent of its services for a 10 percent savings, the biennial savings amounts to $320 million. Obviously, it doesn't close a $4.7 billion budget hole, but it makes an appreciable contribution.

We know contracting out is not a panacea. It works best where the market is large enough to supply multiple bidders and government provides clear performance measures and professional oversight. The savings are greatest in states with dense urban environments, large public-employee unions, and high personnel costs.

Washington meets the criteria. As we undergo the difficult process of budget transformation, resetting to a new fiscal reality, we cannot afford to leave tools unused. State policymakers should act swiftly to realize the savings and performance improvements that contracting out has been proven to deliver.