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Agency Activity Inventory a Powerful Tool to "Right-Size" State Government

Testimony to the Utah Senate Business and Labor Standing Committee

Leonard Gilroy
February 21, 2008

Thank you for the opportunity to address the committee this morning. My name is Leonard Gilroy, and I am the director of government reform at Reason Foundation, a public policy research and education institute based in Los Angeles. Reason first began researching privatization and government reform in the late 1970s. Our experts have advised numerous presidents and state and local governments on how competition and privatization efforts can improve government services and reduce costs.

Over the years governments at all levels have expanded into hundreds of activities that are commercial in nature. Many of these are support functions that service the bureaucracy. However, most of these functions are not inherent or unique to government; in fact, they can be found in the Yellow Pages in towns all over America.

This trend should concern those of us who believe that government should be focused on performing its core functions well and should not be in competition with its own citizens to perform non-core functions. Today, the opposite is happening. Not satisfied with just managing education, roads, police and the other core duties that traditionally define the scope of government, public officials are creating agencies and departments that compete directly with the private sector. From servicing vehicles to running print shops, and from building convention centers to providing IT services, Utah's state and local governments are literally cutting into the business of business.

Often, this government mission creep goes unnoticed by the bulk of the citizenry because public officials are not required to draw a bright line between those activities most appropriately performed by government and those that can be performed by private sector providers (in most cases, more efficiently, at a lower cost, and at a higher level of quality).

If enacted, House Bill 75 (HB 75) would require the state to draw that bright line and allow taxpayers, policymakers, and administrators to see exactly what the public sector is doing and where it is competing directly with private sector providers. Under HB 75, the Privatization Policy Board would conduct a bi-annual inventory of state agency activities to determine whether each is "inherently governmental" or "commercial" in nature.

Citizens and officials would be able to see for themselves how much of the state's activity is devoted to performing non-core functions, and public officials would have an additional tool to prioritize limited resources and identify opportunities to seek more efficient and effective means of service delivery through contracting-out, or competitive sourcing.

Applying similar thinking, Congress passed the Federal Activities Inventory Reform (FAIR) Act in 1998. Its purpose was to identify which activities within the federal government are "inherently governmental" (i.e., it is a job only government can do?) and which are commercial in nature. A "commercial activity" is a service or good that can normally be obtained from private enterprise. In the federal law, agencies perform inventories annually and identify both commercial and inherently governmental positions. With this information agencies can identify services that can be competed or privatized.

As a result of the FAIR Act, agencies have identified more than 800,000 federal employees engaged in activities-such as data collection, administrative support, and payroll services-that could be provided by the private sector.

The Commonwealth of Virginia has adopted a similar process at the state level. Under the direction of the Commonwealth Competition Council (CCC), a survey of state agencies was conducted in 1999 to determine what commercial activities were being conducted by state personnel. In the 1999 survey alone, the CCC identified 205 commercial activities that were being performed by nearly 38,000 state employees. According to the CCC's first director, actions taken at the Council's recommendation (based on the inventory results) currently are estimated to be saving Virginia taxpayers at least $40 million per year.

Similar procedures have also been successfully implemented at the local level, most notably in both the city and county of San Diego, California.

HB 75 would create a valuable new tool to help "right-size" government. As a result of the inventory it calls for on a bi-annual basis, competition opportunities would be more transparent. And the Governor would be required to examine at least three commercial activities every two years.

HB 75 would also establish the methods to undertake activity-based costing for government services or activities; in other words, capture the full costs of service provision-much like the private sector. This is one of the least understood, but most critical, components, of making an apples-to-apples evaluation of the costs of providing a service or undertaking an activity between the public and private sectors. Governments don't usually think this way-the direct and indirect costs of providing services are spread across agencies, making it very difficult for public agencies to answer seeming simple questions like, "how much does it cost the agency to change a light bulb?" It also explicitly requires an estimate of what taxes the government would be paying to undertake that activity if it were a private enterprise, a critical step to developing a meaningful apples-to-apples, public/private sector cost comparison.

The work of the Privatization Policy Board would offer Utah taxpayers and policymakers new tools to understand how and to what extent government has overstepped its bounds and engaged in unfair competition with its own citizens. Further, under HB 75, government agencies would be equipped with necessary information to allow them to concentrate on their core functions of providing "inherently governmental" services while partnering with the private sector for commercial activities. Applying competition to non-core activities could free up valuable resources for agencies to complete their missions and provide the greatest value to taxpayers.

Thomas Jefferson's words from 1808 ring as true, if not more so, today as they did then: "It is better for the public to procure at the market whatever the market can supply; because there it is by competition kept up in its quality, and reduced to its minimum price." HB 75 would honor Jefferson's words and represent an important step towards more effective, efficient, transparent, and accountable government.

As the think tank that has done the most research on privatization and government reform, Reason Foundation welcomes the opportunity to be of further assistance to this committee. Please feel free to call upon us.


Leonard Gilroy is Director of Government Reform


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