[This interview was originally featured in Innovators in Action 2009.]
Louisiana, like most states, is currently in the midst of a fiscal crisis that challenges public officials to seek new and innovative ways to do more with fewer taxpayer dollars. Pelican State policymakers—led by Governor Bobby Jindal—have responded to the challenge by embarking on a wide-ranging set of government reforms designed to reduce the size and cost of government and right the fiscal ship.
As Governor Jindal's budget chief and head of the Division of Administration—the state's general services agency—Louisiana Commissioner of Administration Angele Davis is playing a central role in the current efforts to streamline the state bureaucracy. Clearly this work is already paying off, as the ratings agency Fitch upgraded Louisiana's bond rating in October 2009, specifically citing the state's focus on spending control and government streamlining as influencing factors. This alone will save taxpayers millions in avoided interest costs over time.
Reason Foundation's Director of Government Reform Leonard Gilroy interviewed Commissioner Davis in October 2009 on Louisiana's streamlining efforts and the internal reforms undertaken within the Division.
Leonard Gilroy, Reason Foundation: Nearly every state, and many local governments, are facing a protracted fiscal crisis. What is Louisiana facing on the fiscal front? What's driving the push toward streamlining government in the state?
Angele Davis, Louisiana Commissioner of Administration: Like most other states, we're facing budget deficits projected over the next several years, including a $948.7 million shortfall for FY 2010–11 alone. Given these challenges, we're aggressively putting fiscal reforms in place. Primarily we're focused on reducing the cost and size of government by evaluating program effectiveness and getting rid of those that don't measure up through elimination, consolidation, privatization or the strategic use of technology. We're expanding our use of performance measurement to drive accountability and to see what works and what needs improvement. We don't have enough money to get the outcomes we want for citizens if we spend it in the same ways we spent it last year and the year before.
Gilroy: What's been the impact of the stimulus, and how has it influenced the budgeting process?
Davis: In FY 2009–10, Louisiana was faced with a $1.3 billion shortfall compared to the prior fiscal year. Instead of using the entire amount of federal stimulus available, we funded programs that would not strap the state with more financial commitments in the future, and we strategically spread the use of the stimulus over a two-year period. We directed agencies to avoid using this one-time stimulus money as though it was a permanent source of revenue by starting new programs or hiring additional permanent employees. We also required agencies to track all stimulus funds through our accountability Web portal, LaTrac. To prepare responsibly for future years, we used stimulus funds to transition us into a smaller and more sustainable, right-sized government while still supporting health care, education, workforce development and public safety.
Gilroy: What was the outcome of the legislative session, in terms of offering more flexibility and tools to address the looming budget deficits?
Davis: The legislature passed SB 2 that ended the two-year limit on dedicated fund reductions. Now the state can find savings in dedicated funding in back-to-back years during multiyear budget shortfalls. The legislature also passed SB 267, which mandates yearly reporting and biennial reviews of statutorily created funds. This makes state spending more transparent by showing the performance of statutorily dedicated activities similar to what we require for agency budgets supported by the general fund.
We also created the Commission on Streamlining Government (CSG) to examine each agency's constitutional and legal duties to gain efficiency and lower costs by reducing the size of state government. This commission is charged with making real reforms to reduce the size of government by finding and getting rid of duplicative services and low-performing programs.
We're also working on long-overdue reforms to the civil service through HCR 6. Our state government employment system needs to be more efficient and effective, so this legislation ties pay, merit raises and promotions to an employee's performance at work, rather than just the amount of time on the job.
Gilroy: What role will the new Commission on Streamlining Government play in addressing the state's looming fiscal crisis? And how does the CSG's work dovetail with the streamlining work you're undertaking in the Division of Administration?
Davis: The CSG will examine each agency's constitutional and statutory activities, funding, programs, services, powers, duties and responsibilities to determine what we can eliminate, streamline, consolidate, privatize or outsource to shrink state government. It's formed several advisory groups to focus on areas where we expect to get the most bang for the buck: efficiency and benchmarking, outsourcing and privatization, information technology integration, elimination of duplicative and non-essential services, and civil service and employee benefits. The commission has been working hard for months to research and prepare our recommendations, and we will be releasing our final report in December 2009.
By statute, I serve as a member of the CSG, so this gives us an opportunity to advance some of the reforms and showcase innovations that are underway at the division. And the diverse makeup of the commission provides us with direct access to the expertise, knowledge and influence of lawmakers, business executives and public policy think tanks, adding tremendous value to the streamlining efforts we are pursuing. The CSG is really bringing attention to the tough fiscal decisions that will be necessary to address the shortfall for the next fiscal year.
Gilroy: Can you describe some of the internal cost-cutting and efficiency strategies you're pursuing in the division?
Davis: In terms of the division's streamlining work in progress, our major efforts to streamline government involve systematically reducing the size of the state government's workforce while protecting critical services. And we're achieving this in a variety of different ways.
Based on figures between December 31, 2007, and October 2, 2009, the number of executive branch fulltime employees has fallen by 1,703.
But we need to do more to make our state government live within its means. Through budgetary actions in FY 09 and FY 10, in total there have been 3,325 fulltime appropriated positions reduced in the executive branch since the beginning of the Jindal administration less than two years ago, bringing with it an estimated savings of more than $216 million.
We have also made a preliminary recommendation to eliminate the frozen vacant positions associated with our current—and third—hiring freeze, for another 795 positions eliminated along with additional savings of $52.5 million. If this recommendation is implemented during the next legislative session, it will mean a total of 4,120 fulltime government positions cut since January of 2008, and a total savings of more than $268 million.
We're also looking at how to improve our budget decisions. We need to first fund what's most critical to our state, and that can only be determined through outcome-based budgeting. We know that we need to change the way we've always done business, so our reforms shift the budget's focus away from adding or subtracting from previous budgets and reevaluating what outcomes matter most to our citizens. We're using outcome-based budgeting to address projected budget shortfalls of close to $1 billion for FY 11 and close to $2 billion for FY 12, all while achieving better results.
As you know, we're also in a privatization partnership with Reason Foundation to assist the DOA in a department-wide review of its activities and functions to find potential outsourcing and privatization opportunities where they make sense. We've also established an internal Efficiency Council that meets regularly to develop and carry out cost-saving ideas. The council's initial work plan includes:
- evaluating the DOA to explore opportunities for privatizing or outsourcing for better service at a better price;
- creating a statewide program for competitive sourcing that includes improved performance-based contracting in all state procurements;
- conducting a statewide inventory (beginning with the DOA functions and activities) to sort commercial activities from inherently government activities;
- assessing the contracting and purchasing processes and recommending improvements to create a national model for efficiency and flexibility;
- designing and implementing a new, lean business model in conjunction with our new enterprise resource planning initiative, LaGov.
The DOA has already outsourced mail services presorting and bar-coding services, auctioneer services for the live public auction to sell surplus property, and vehicle fuel, maintenance and service repairs. We have a just-in-time delivery contract with Staples for office supplies, reducing the need for warehousing. Our Office of Risk Management annually outsources approximately $18 million of its operations (approximately 42 percent of its operating cost), and it recently issued a request for proposals for the potential additional outsourcing of its claims administration and loss-prevention services. Also, we may outsource the Louisiana Payment Gateway (LPGW)—an electronic payments system for state entities—for a potential cost savings of $660,476 per year.
We are also inventorying and analyzing all state buildings and lands to find underused property to return to commerce by public bid. We expect to complete this review in 2010.
We're also working to downsize our vehicle fleet by placing a moratorium on the acquisition of new vehicles (with limited exceptions for critical needs) and increasing our use of rental cars from private vendors. We're also reviewing policies to reduce the number of vehicles approved for home storage.
Technology is another area we're focused on. Our new enterprise resource planning project, LaGov, will replace the state's current financial system. The LaGov project aims to increase government efficiency by replacing more than 40 financial and administrative systems and by redesigning more than 125 business processes statewide, and, according to a cost-benefit analysis, is estimated to bring $286 million in total savings from avoided system costs and process-improvement benefits within 10 years of "going live" statewide. As part of that savings, it is estimated that $38.6 million, or 13.5 percent, would come from employee-reduction costs associated with improved technology.
On another front, and a separate initiative, we are looking at a consolidation of the state's information technology infrastructure. Currently the state spends more than $500 million a year on IT services, with duplicative functions that are not efficient. We intend to move forward on a plan to consolidate IT infrastructure and increase shared services—and as a result estimate that we will save the state about $100 million over a three-year period.
We've also done some internal reorganization. We eliminated the Office of Electronic Services and absorbed remaining critical functions into the Chief Information Officer's section. This reduced two positions and saved us $761,000. We saved another $290,000 by consolidating the work of the State Grant Management Office into the state's Community Development Block Grant Program, which is funded from federal dollars. We also merged five state agencies (Louisiana Property Assistance Agency, Louisiana Federal Property Assistance Agency, State Mail, State Forms, and State Printing) into a new Office of General Services. This flattened the management structure—eliminating many middle-management and clerical positions, reducing the amount spent on salaries each year. Several of these functions are currently being reviewed to determine if they're appropriate candidates for outsourcing.
Businesses save money by buying in bulk, and Louisiana could save money by doing the same. Depending on the commodities, we could save hundreds of thousands in the short term and tens of millions long term. Right now we're identifying commonly used goods and services (including information technology hardware and software) and strategic methods and opportunities for bulk buying to reduce the overall cost to state government.
We're also evaluating current cash-management practices and analyzing the outstanding collections and accounts receivable owed to state agencies to improve collection. In addition, we're also exploring legislation to allow maximum offset of amounts owed the state against possible state income tax refunds, as well as screening applications for driver's licenses, motor vehicle registrations, fishing and hunting licenses, professional licenses, etc. to withhold them from anyone with outstanding debts to the state.
These are some of the strategies we're using to save taxpayer dollars and make ourselves more efficient at the division, and we hope to serve as a model for other agencies in terms of how they approach their streamlining initiatives.
Gilroy: What role do you see for privatization in helping solve the fiscal challenges?
Davis: Much of our focus has been on results and outcomes. Privatization and competitive contracting can provide great tools to improving the results and reducing the cost of government. When the private sector can perform functions and services more effectively and at a lower cost than the public sector, then the ability to privatize or outsource those functions can play a significant role in reducing the shortfalls. We are aggressively pursuing these opportunities and will report on the results in the future.
Gilroy: When viewed in the aggregate, it's clear that Louisiana has one of the most—if not the most—comprehensive and aggressive packages of fiscal reforms in the country. What advice could you offer for policymakers in other states on how to start and manage the reform process?
Davis: In light of the fiscal challenges that many of my colleagues are facing in other states, many of them are seeking ways to cut spending and budgets. My advice is to shift the discussion from "cutting" to "producing the outcomes that matter most to citizens and investing in those strategies that best achieve the results" and let all kinds of organizations, public and private, compete to deliver programs. And, learn from those that have gone before us. Reason Foundation is a great resource, and I'd also encourage them to pick up a copy of The Price of Government by David Osborne and Peter Hutchinson and The Reinventor's Fieldbook by David Osborne and Peter Plastrik.
Gilroy: Can you offer some lessons learned thus far in trying to foster internal change?
Davis: In terms of the efficiency council's agenda and the improved budget development process, it's still early in the process, but I can say that leadership starts from the top, and in Louisiana we have a very results-oriented governor who has an aggressive and comprehensive reform agenda. He has put together an impressive cabinet who has demonstrated, like their boss, they aren't interested in the status quo. They have focused their energy on improving the outcomes that Louisianans deserve, even in times of fiscal challenges. In saying that, leadership at the top can't change organizations unless they have leaders throughout who buy into and are committed to change, and it is imperative that our teams accept and initiate even more change.
I believe that one of the most powerful ways to foster internal change is to use your staff. Some of the best innovations come from employees who have never been asked "if you could change anything in order to get better results, what would it be?"
Angele Davis has served as the Louisiana Commissioner of Administration since January 2008. She has earned a unique reputation as a respected public servant and business executive, with more than a decade of leadership applying strategic planning models in both public and private sector environments. Prior to being appointed commissioner, Davis served as secretary of the Louisiana Department of Culture, Recreation & Tourism, where she led policy development and oversight of the offices within the department. Davis also served as deputy commissioner of administration for Governor M.J. "Mike" Foster, Jr., where she was charged with the oversight of state government administration, including budget and planning, capital outlay, information technology, facility planning, purchasing and procurement, risk management, group health insurance, human resources and training.