Transforming Government into a 21st Century Institution
Executive Summary - December 2010
Ohio is facing an unprecedented fiscal crisis. Although we’re not
alone, we would be remiss in not taking this opportunity to transform
our state government to one that is sustainable and provides
greater value to our citizens. Getting more for less is both the best
response to our current crisis and a necessary step toward building
a strong state economy that can compete in the 21st century. The
time for action is now. Our state government must become more
flexible, adaptable and innovative – searching constantly for new
ways to improve services and heighten productivity.
Recognizing this need and our responsibility as leading economic development organizations, Ohio’s eight metropolitan chambers of commerce and the Ohio
Chamber of Commerce joined together to produce this report. It offers a road map for long-term, transformational change as well as meaningful recommendations for tackling our current fiscal crisis. This report includes an analysis of our existing economic situation, a review of best practices from other states and recommendations that range from the way our state budget is developed to specific productivity improvements.
Our recommendations are offered as a look forward, not a condemnation of the past. After all, it has taken many years—decades, in fact—to arrive at this point. No particular Administration or any one General Assembly can or should be singled out. Incremental changes in the way we govern ourselves have brought us to this point. But it is time to rethink these practices and make bold changes. It will take hard work, difficult decisions and broad consensus to implement the changes required to reinvigorate Ohio’s economy.
This report is not intended to be a proposed solution to the estimated $6-8 billion budget deficit we are facing, although full implementation of these recommendations will result in significant long term savings as well as in the FY 2012-2013 biennium. But, perhaps more importantly, our recommendations target specific ideas in key areas of state government; with a focus on those that are particularly well suited to private sector solutions. That is, by viewing these functions through the lens of the private sector, we believe we can make a meaningful difference. Similarly, this report proposes a market-based approach for reforming the way state government and Ohio’s local political subdivisions work together. Clearly, it is not just our state, but the more than 3,700 local governments as well, that are on an unsustainable path that must be reversed.
Important areas of state spending, such as Medicaid and education, are not addressed here. It is our view that these issues require additional, significant
study and we pledge to collaborate with other groups that have or will undertake additional analysis of these programs.
Underlying all of our recommendations is the management philosophy known as Budgeting for Outcomes, which has been developed and championed by David Osborne of Public Strategies Group. Mr. Osborne is a nationally recognized author and expert in government redesign and streamlining. Working closely with him and with Greg Browning of Capital Partners, who has a vast understanding of Ohio state government and budgets, we have researched selected practices and targeted areas of government for reform.
- Budgeting for Outcomes
- Charter Agencies
- Entrepreneurial Management
- Government Regulations
- Tax Expenditures
- Civil Service
- Pension Benefits
- Health Care
- Criminal Justice
- Local Governments
1. Budgeting for Outcomes
Budgeting for Outcomes is not about incremental change. It turns traditional budgeting on its head and focuses on what matters most: purchasing outcomes that citizens value. Transforming government to get more for less must include redesigning the state budget process itself. We recommend adopting this new budgeting paradigm in three stages:
- FY 2012-2013: In developing the state operating budget, the Office of Budget and Management (OBM) works with the Governor and agency leaders to designate leading agency outcome goals and rank major state programs from most to least cost-effective.
- FY 2012-2013: OBM leads an inclusive effort to develop program performance measures for each major state program.
- FY 2014-2015: Fully implement
Budgeting for Outcomes, including broader stakeholder outreach efforts designed to inform the budget development and prioritization process. We also recommend that the state set aside $20-$40 million in a State Innovation Fund for investment in system reform, redesign and capacity building.
2. Charter Agencies
Charter Agencies are government departments or agencies that accept less funding in exchange for more flexibility and freedom to manage. They deliver measurable improvements in results and contribute savings and/or new revenues to the State. In this section, our recommendations include:
- Enact legislation or issue an executive order to allow the governor and his cabinet members to negotiate charter agency agreements.
- Negotiate biennial written agreements that specify needed management flexibilities, expected reforms and performance targets that will lower costs and improve outcomes.
3. Entrepreneurial Management
Entrepreneurial Management is a strategy for getting more bang for the buck from internal support services. It forces agencies to earn revenue by selling their services to other agencies, often in competition with private-sector providers.
Our recommendations include:
- Reorganize internal support services such as information technology, vehicle/fleet management, and facility management as competitive enterprises that have flexibility to operate like businesses competing for work with both public and private sector providers.
- With utility services (internal services that should be monopolies, like telecommunications), place money in the hands of the customer agencies and give them seats on a customer council. This council would have the power to set rates and approve investment plans in order to improve the value equation.
- Create a public agency customer council to improve the price/value ratio primarily through collaborative efforts to improve purchasing outcomes.
4. Government Regulations
Government Regulations are often overly burdensome and expensive to enforce. Market-based principles provide an effective strategy for moving from expensive command and control regulation to an approach that boosts voluntary compliance. This approach maximizes the regulatory benefits and tax revenues while reducing compliance burdens. Strategies to reform the regulatory climate by winning voluntary compliance include:
- Build support for rules and standards by involving compliers in their creation.
- Make regulations performance-based.
- Educate compliers about what is expected of them.
- Make Compliance easy.
- Make the quality of agency service to compliers consequential.
- Report compliance information.
- Treat different compliers differently.
- Create a continuum of public consequences and rewards.
- Create market incentives to encourage compliance.
5. Tax Expenditures
Tax Expenditures are revenue the state foregoes when it issues tax credits, exemptions and deductions. In Ohio, tax expenditures add up to $7.7 (FY 2008) billion in foregone revenue annually. Tax expenditures are often valuable tools that help create jobs and increase other revenue for the state. But some have been on the books for years without a review to ensure that they are meeting their intended policy outcomes. Recommendations to change this status quo model include:
- Utilize the tax policy principles outlined in this report (neutrality, economic competitiveness, stability, and simplicity) to conduct a thorough review and cost-benefit analysis. This review would include an examination of the 122 existing tax expenditures in the FY 2012-2013 budget development and review process.
- Use both a static and dynamic analysis of the costs and benefits of tax expenditures.
- Improve the quality and scope of Ohio’s current biennial Tax Expenditure Report.
6. Civil Service
Civil Service systems, once an important protection for public employees, often stand in the way of achieving resultsbased public organizations today. In order to reap the benefits of a more efficient, productive workforce, Ohio must liberate its bureaucracies. Specific recommendations to reform the civil service system include:
- Give managers more freedom to manage their employees.
- Shift to broad job classifications and use market-based employee compensation studies, updated regularly, to create broad and competitive pay bands.
- Limit compensation increases beyond these pay bands to merit-based bonuses based on objective performance measures; eliminate automatic pay raises via steps and longevity pay.
- Invest in building employees’ skills and capacities.
7. Pension Benefits
Pension Benefits are crucial to making the right investments in the state’s most important resource – its employees. Consistent with our proposed civil service reforms, market-based reforms should be used to ensure that Ohio has a competitive, highly effective employee benefit system – one that will attract and retain good employees while being fair and affordable for Ohio taxpayers.
- Require a shared, 50-50 employee/employer contribution for state pensions and retiree health insurance.
- Fund any remaining shortfall in pension and retiree health insurance benefits from increased employee contributions, not from taxpayer funds.
- Require uniformity in the percentage of health insurance costs paid by old and new retirees.
- Allow political subdivisions to pay employees’ contributions to their retirement programs only when there are compelling reasons to do so.
- Limit “double dipping” to extraordinary, high-need situations.
- Reduce the number of state pension systems to capture administrative savings.