More Budget Plays

Tough budgetary decisions will likely be a reality for state and local officials in the foreseeable future. Many are looking for ways to balance their budgets responsibly, without resorting to cuts in important investments or tax hikes on middle-class families. One alternative is to find savings by identifying and implementing better and smarter ways to deliver services. By focusing on government through a practical rather than an ideological lens, many state and local leaders are finding creative ways to identify performance improvements that save money or bring in additional non-tax revenues from the federal government.

One technique for making such improvements is a performance review, which systematically identifies ways to save money and move government in the right direction. Performance reviews originated in Texas under Democratic Gov. Ann Richards and State Comptroller John Sharp as a way to pull the state out of the worst fiscal crisis it had ever faced -- without raising taxes. Sharp undertook the first review with a staff specifically dedicated to questioning the premises of every agency and program in Texas. The effort produced 1,000 recommendations and resulted in $4 billion in savings in its first budget. Since then, the Texas Performance Review has been institutionalized, and has produced total savings of $13 billion during the last decade. These savings have ranged from lowering electricity costs by unscrewing the light bulbs in the display panels of soda machines (a suggestion that came in on a citizen telephone hotline) to the elimination of an entire state constitutional office.

This methodology was brought to Washington under President Clinton and Vice President Gore in the form of the National Performance Review, which produced 385 recommendations saving $108 billion its first year. In 2003, New Mexico Gov. Bill Richardson initiated a top-to-bottom performance review of state programs to find savings and efficiencies in 22 state agencies that would not have been unearthed during the routine annual budget process. The New Mexico Performance Review team set up a hotline and a web site for all New Mexico citizens to weigh in with their ideas and sent an e-survey to 16,000 state government employees. After a six month intensive effort, the New Mexico Performance Review announced $28 million in first year cost savings with $400 million in savings over 5 years. Overall, the New Mexico Performance Review should produce savings and efficiency gains of around 7 percent of the state budget.

What sort of recommendations come out of a performance review initiative? The New Mexico effort produced proposals for reducing waste that ranged from combining the state's several different mining commissions and workforce programs, to requiring state copiers to use double-sided printing as the default setting. Improved customer service recommendations included lengthening the time between drivers' license renewals and introducing while-you-wait license technology, as well as instituting direct deposit of state employee paychecks. The state reduced internal costs by standardizing state employment applications. And the allotment of state-provided postage stamps to prisoners was reduced when it was found that 60 percent of mail going through the prison mailrooms was not directed to family members at home but to gang members at other state prison facilities.

In 2005, Gov. Joe Manchin brought the Performance Review methodology to West Virginia by hiring a consulting team to train 15 state government employees to focus on 5 areas of state government - Division of Highways, Division of Purchasing, Department of Health and Human Resources, Environmental Protection and the Division of Motor Vehicles. In 2006, after an intensive "Phase I" Performance Review of these 5 areas, the West Virginia Performance Review Team announced $24 million in 1st year savings with $318 million of savings over 5 years.

Governor Manchin immediately folded the Performance Review's ideas into his state budget process as he suggested to the press that this isn't going to be another study on the shelf collecting dust with a pretty title. We're actually implementing these findings as we speak." Those recommendations included:

• Requiring prior authorization for Medicaid home health services, chiropractic services, referrals to medical specialists, and outpatient surgery could save an estimated $64 million a year;
• Cracking down on Medicaid billing fraud, such as double-billing or billing for "phantom patients," could save another $20 million a year;
• Transferring employees from administrative positions and an underused hospital to other state hospitals that are understaffed would save about $1.2 million a year in costs for overtime and temporary employees;
• Eliminating funding for vacant state employees positions would save more than $3 million a year;
• Imposing a statewide flexible work schedule policy could save more than $1.5 million a year in sick days and overtime costs;
• Eliminating unnecessary cell phones to save $1 million a year; and
• Properly calibrating how Division of Highways trucks cast salt and cinders on roadways during winter months could save $3.5 million a year.

Gov. Manchin added his own twist to the Performance Review to ensure accountability and implementation: the Governor and his agency heads signed contracts requiring implementation of the report's recommendations so that savings are built into the budgets of those agencies in the coming years.

In May 2007, Colorado Governor Bill Ritter announced his Government Efficiency and Management (GEM) Performance Review and hired a consulting team to train 22 state employees who will streamline services and eliminate redundant programs. This GEM Performance Review will focus on the 12 largest state agencies in Colorado and will develop recommendations and proposals that Gov. Ritter intends to fold into his first full state budget proposal that will be submitted to the Colorado Legislature in early 2008. Gov. Ritter has invited every member of the public and every state employee to participate in the Colorado Performance Review and offer efficiency suggestions.

San Francisco Mayor, Gavin Newsom, also found ways to reduce city spending without squashing key programs. He came up with $6 million of savings by reducing the city's car fleet, cutting cell phone services and trimming down copier and printer related expenditures. Mayor Newsom hopes this trend will continue and plans to eventually cut the city car and cell phone budgets by half.

An integral part of any effort to improve state and local government performance is to look for ways to generate additional revenues through better management of existing programs. There are currently billions of dollars in available federal revenues that states and localities are leaving on the table in a wide range of areas. Many states and their school districts, for instance, could be obtaining millions of dollars in federal Medicaid funding for at-school programs by properly classifying and reporting those activities. The Los Angeles Unified School District under Superintendent (and former New Democrat governor) Roy Romer, has been a leader in this approach. Efforts to identify and enroll citizens eligible for federal programs like the Earned Income Tax Credit and various entitlements -- being pursued by such Democrats as Arizona Gov. Janet Napolitano and Philadelphia Mayor John Street -- can raise individual incomes as well as boost the local economy. Meanwhile, on average, states have failed to draw down one-quarter of the federal monies available under the Workforce Investment Act (WIA) for job training and education programs. Filing the appropriate reports and designing the needed programs to help workers train for and find new jobs would actually produce the millions of new dollars needed to fund these efforts.

Tax increases and fee hikes are, of course, the last resort for most elected officials. Nevertheless, the Texas performance review recommended raising college tuition slightly, because doing so allowed the state to qualify for millions of dollars in additional federal Pell Grants. The fee hike was a net plus for the citizens of the state. And that illustrates several points. In general, the easiest cuts can save money in the short-term but end up costing more in the long run, while smart investments can often reap more in taxpayer savings. Maximizing savings through efficiency and gaining new revenues from the federal government or elsewhere go hand-in-hand as part of any comprehensive fiscal management program. In fact, the whole effort should be synergistic: The funds obtained from drawing down unspent WIA, Medicaid, or Social Security Act entitlements can pay the costs of a performance review that will then save additional money -- and those performance review costs themselves can then be reimbursed in large part through a proper revenue maximization effort. If done right, state and local governments can pyramid savings on savings.

Resources For Action

New Mexico Gov. Bill Richardson's Performance Review
www.governor.state.nm.us/performance.php?mm=4

Home Improvements: A Manual for Conducting Performance Reviews, Office of Texas State Comptroller
www.window.state.tx.us/tpr/home/t31.html

Return to Fiscal Responsibility II, PPI Policy Report
http://www.ndol.org/ndol_ci.cfm?contentid=254284&kaid=125&subid=162

Tax and Fiscal Policy, DLC 2008 Briefing Series
http://www.dlc.org/documents/DLC-Fiscal-Brief.pdf

Additional Reading

The National Partnership for Reinventing Government
http://govinfo.library.unt.edu/npr/library/review.html

The End of Government As We Know It By Elaine Kamarck, Lynne Rienner Publishers

Contacts

Eric Schnurer
Public Works, LLC
1690 East Strasburg Road
West Chester, PA 19380
(610) 296-9443
www.Public-Works.org

Joseph J. O'Hara
Strategic Governmental Solutions, Inc.
19 Dove Street, Suite 104
Albany, NY 12210
(518) 445-3840
www.sgs-inc.net

Larry Puccio
Chief of Staff
Governor Joe Manchin
State Capitol Building
1900 Kanawha Blvd., E.
Charleston, WV 25305
(304) 558-2000

James Jimenez
Chief of Staff
Governor Bill Richardson
State Capitol Building - Room 400
490 Old Santa Fe Trail
Santa Fe, NM 87501
(505) 476-2200

Ken Weil
Deputy Chief of Staff
Policy and Initiatives
Governor Bill Ritter
136 State Capitol
Denver, Colorado 80203
303-866-5800

Paul Weinstein, Jr.
Chief Operating Officer
Progressive Policy Institute
600 Pennsylvania Avenue, SE, Suite 400
Washington, DC 20003
(202) 547-0001
(202) 544-5014 (fax)
pweinstein@ppionline.org