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The State Fiscal Calamity and Competitive Sourcing

Problem is spending, not revenue

Geoffrey Segal
December 27, 2002

Nearly every state is facing a budget crunch—not all severe as Minnesota ($4.3 billion of $20+ billion general fund) or California (between $21 and $34 billion of $75+ billion general fund). Tax and fee increases are considered by many as a necessary evil to prevent services from being cut. However some policy makers, including the newly elected governor of Minnesota, Tim Pawlenty, have taken no new tax pledges. They realize that since state government swelled in the fat years of the mid- and late- 90s there has to be room for cuts. Simply getting government back to the mid-90s level will all but solve the current crisis.

Essentially, these policy makers are addressing the budget crunch as a revenue issue. They know that tax revenue collected by state government has more than doubled over the last 10 years, and that expenditures have more than doubled in the same time period. With coffers full, policy makers couldn�t help themselves. Rather than return the money, they funded every pet project they could while giving generous pay raises to state employees. When you or I spend more than we bring in, we tighten our belt and cut unnecessary expenses; its time that state government had to do the same. However, if you listen to California Gov. Gray Davis, the problem is that "millionaires aren't making enough money," a very short-sighted and unrealistic interpretation of the issue.

However, all is not lost. There is a powerful tool available to policy makers as they attempt to tackle this crisis. Competitive sourcing is a proven policy tool that can save upwards of 30 percent off of the provision of government services.

Currently the federal government, under the direction of President Bush is undertaking a massive competitive sourcing plan within the federal government. Recently Bush announced his ambitious plans to competitively source 850,000 federal jobs—nearly half of the non-postal civilian positions in the federal government.

The feds have one advantage. For several years each federal agency has had to classify every job within its agency. The Federal Activities Inventory Reform Act, or FAIR Act, classifies every federal job in several different job categories—the most basic are inherently governmental (activities that can only be provided by government employees) and commercial in nature (activities that can and are provided by the private sector). Having this in tow and knowing exactly what every federal employee does makes the competitive sourcing process easier and more targeted. To date, only one state takes such an inventory—Virginia.

For years the federal budget has been printed by the Government Printing Office (GPO). When President Bush announced his plans, one of his goals was to competitively source the printing of the federal budget. After first objecting, the GPO reevaluated its bid and resubmitted its proposal—which was 30 percent less than the first. The fear of being competed forced the GPO to be innovative and hold itself to a bottom line resulting in savings of 30 percent. Stories like these can be told every day, whether the activity is ultimately outsourced or remains in house.

Competitive sourcing is about injecting competition into the provision of government services. Like the GPO example there are countless other opportunities to save tremendous amounts of money. After conducting an inventory of activities, governments will be able to identify not only the activities that can be competed but also those services that the government can simply stop providing, and return to core governing principles.

Every dollar saved through the competitive sourcing process is one less dollar that needs to be cut from services or one less tax dollar that needs to be raised. Policy makers cannot afford to ignore the tremendous power and opportunity that lies with competitive sourcing. It must play a large role in righting the ship and getting government finances back where they belong. As a taxpayer I value the services that governments provide me—as long as they are provided as efficiently and effectively as possible. The competitive sourcing process is a powerful tool that can help governments achieve that goal.

Geoffrey Segal is director of privatization and government reform at Reason Foundation.



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