New Democrat Update - September 2009
SAVING MONEY - FROM THE BOTTOM UP
Colorado’s permanent fiscal crisis continues as state leaders must find $318 million in either increased revenues or decreased expenses to balance the budget. Without question, Coloradans will really begin to feel the pinch, considering that the state had to already severely squeeze the budget last year, filling a daunting $1.4 billion hole.
In addition to finding ways to expand the tax base, one focus must be on looking at every innovative way possible to save money, while maintaining - and quite possibly in the process - improving the quality of services. Like it is in the private sector, the best place to find those ideas is from managers and employees on the front lines.
“Charter agencies” provide a new and different, much more promising, environment for innovation. Under a chartering arrangement, departments agree to lower operating expenses and provide the same or better levels of service. In return for that commitment, they are freed from red tape through waivers to certain rules, as well as given special authorities.
Based on what each side wants - and is prepared to give - the basics of the new deal are negotiated between the head of the department and the head of each sub-department. Each charter agency negotiates a deal with the department head, including what measurable results they will produce, lower net expense targets, and what flexibilities (some of which might require new legislation) they will receive. These arrangements would be specified and controlled through Flexible Performance Agreements between the cabinet head and the Joint Budget Committee and/or the Governor.
Iowa implemented charter agencies in 2003 and saved taxpayers $20 million a year for the first two years and $50 million in the third year, while, at the same time, improving results. For this effort, it won a Harvard Innovations in American Government Award and also the Council of State Governments' Innovation Award.
The old bureaucratic approach holds departments accountable for playing by the rules. Charter agencies hold departments accountable for getting results as cost-effectively as possible.
Reforming internal departments that provide services to other agencies (maintenance, printing, training, data processing, vehicle fleet, etc.) represents another service quality improvement and cost-savings opportunity. Implementing enterprise management makes these internal departments "earn" their budgets by selling their services to other agencies - often in competition with private providers. Suddenly, survival depends on how well these departments please their customers and at what price.
Internal services that must remain monopolies (for example, telecommunications) can be treated like "utilities" - their appropriations (minus a 10% per-year efficiency dividend) are spread among the departments receiving the services. While customers would be prohibited from going to outside providers, they could still choose how much they want to purchase. Customers would also get seats on a Customer Council, which helps to negotiate the rates charged by the utility.
INVESTING TODAY TO SAVE TOMORROW
Of course, when the ingenuity of state managers and employees is unleashed, many new and more cost-effective ways of generating the same or better results will be identified. Because such innovations often require changing the way services are delivered, financed and managed, many high-return projects need an initial, one-time investment. All too frequently, those lucrative opportunities to save taxpayers millions of dollars go by the wayside because the “money is simply not there.”
Innovation Funds, a pot of money set aside for such investments, can get around that all-too-frequent Catch 22. Savings generated from the project are then repaid back to the Innovation Fund.
One way to get such a process started would be for the administration and legislature to identify broad opportunities that are likely to save money, estimate the overall savings, and put a negative line item in the budget. Former Iowa Governor Tom Vilsack (now U.S. Secretary of Agriculture) did that in 2004, proposing savings of $88.5 million, with a one-time $25 million investment to achieve them. The savings were realized and the budget balanced before the end of the fiscal year.
CHANGING THE WAY THE STATE DOES BUSINESS
Another great way to improve service and save money is to reform the budget and personnel systems that drive much of state government decision-making. Both too often unnecessarily hamstring employees, ignore results, and create colossal waste.
Today, managers have trouble hiring the talent they need because the centralized hiring process is so slow and bureaucratic. Thousands of job classifications divide employees into narrow categories and pay grades, frustrating managers' attempts to move them or reward them with higher pay. Within each classification, pay is determined by longevity, not performance, and when good employees reach the top of their pay grade, further raises are impossible without a promotion. When layoffs occur, employees with seniority can usually "bump" those without, causing a massive game of musical chairs down the organization chart - leaving behind unhappy people in jobs they were not trained for and do not want.
Even firing those who cannot perform seems almost impossible. It usually takes so long - and requires such a prolonged battle through multiple appeals - that managers avoid it like the plague. Good managers waste enormous amounts of time circumventing these rules and battling human resource offices in a frustrating attempt to get the right people with the right skills into the right positions. Hiring an employee often takes three to six months - by which time all the best candidates have found other jobs.
A modernized personnel system would decentralize authority for hiring, firing, and promotion, giving the responsibility to the agencies and departments themselves, along with accountability for performance. The centralized human resources office would become primarily a consulting or support resource. After all, if managers are on the hook for producing specific results, they need the power to assemble a team with the necessary skills and motivation.
The system would also have "broadband" job classification and pay systems to give agencies flexibility in organizing work. While held accountable for performance themselves, managers would have more say in setting salaries at levels required to recruit and keep the talent they need.
Finally, an updated personnel system links compensation to performance. Eliminating automatic pay increases based on longevity, performance would be rewarded based on objective outcome measures, - not subjective appraisals - with bonuses, awards, gainsharing, and other ways.
Implementing these and other progressive reforms would transform the very nature and culture of state government from one rooted in old, bureaucratic rules to one about getting the best results at the best price. Coloradans receiving the services and paying the bill would welcome the change.
SENATOR EDWARD KENNEDY
Millions of Americans are mourning the passing of U.S. Senator Edward Kennedy (D-MA). New DLC chairman Harold Ford, Jr. said "We mourn the passing of Senator Kennedy. When the roll of history is called, Edward Kennedy will be acknowledged as a giant; the very best who ever served our nation in the Senate.
"His courage and idealism shaped the very best of our country for the last five decades. He asked us not to settle for 'what is' in our country, but rather work toward what 'can be.'
"From leading the way on civil rights to fighting for quality health care, education and a living wage that would sustain working families, Senator Kennedy left his mark on the progress of America. He was a seminal force in passing Family and Medical Leave, Title IX for women college athletes, the American Disabilities Act and a constitutional amendment to allow 18-year-olds to vote. As the savvy sailor that he was, he helped steer the ship of our nation to brighter and calmer seas.
"Let us give thanks to this great man."