Foundation greater Opportunity Through Innovative Change
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- Gov. Hutchinsons First Year Efficiency Initiatives
- Gov. Hutchinson Announces Efficiency Project
- Methodology Department Organizational Charts
- Citizen Tip Line Media Column
- Other State Efficiency Projects
- Involvement of Other Research Organizations
- Departmental Questionnaires
- Interviews with Department Officials
- Arkansas Department of Finance and Administration
- Agency Summaries Agency summaries and recommendations were discussed with staff in 3Q-2016. Limitations
| Arkansas Efficiency Project
ARKANSAS POLICY FOUNDATION Greater Opportunity Through Innovative Change Author's Acknowledgement Page The author wishes to thank the Policy Foundation Board members whose dedication, support and loyalty made the Efficiency Project possible: Dr. Glenn Davis; George Dunklin, Jr.; Donald Fitz; Gregory Hartz; Blant Hurt; Dorothy Morris; Madison Murphy; Dr. Wendell Pahls; Bob Ratchford; and Will Rockefeller. Scott and Marshall Harmon are extraordinary volunteers engaged in citizenship. The author wishes to thank Arkansas Gov. Asa Hutchinson, whose vision made the Efficiency Project possible. The cooperation of the following Arkansas state government officials has been essential to the Efficiency Project: Lt. Gov. Tim Griffin; (Executive Branch) Vu Ritchie; (Aeronautics) Jerry Chism; (Agriculture) Wes Ward; (Arkansas Heritage) Stacy Hurst, Rebecca Burkes; (Assessment Coordination) Bear Chaney, John Nichols; (Career Education) Charisse Childers; (Community Correction) Sheila Sharp; (Correction) Mike Carraway; Tiffanye Compton; (Economic Development) Mike Preston, Betty Anderson; (Education) Johnny Key, Susan Harriman; (Emergency Management) Tina Owens; (Environmental Quality) Becky Keogh; Timothy Cain; (Finance & Administration) Larry Walther; Timothy Leathers; Duncan Baird; Jake Bleed; Walter Anger; (Health) Ann Purvis; (Higher Education) Nichole Abernathy; (Highway & Transportation) Randy Ort; (Insurance) Allen W. Kerr, Russ Galbraith; (Labor) Leon Jones, Jr.; Ms. Veronica Alexander; (National Guard) Major General Mark H. Berry; Col. Don Mabry; (Parks & Tourism) Kane Webb; Kris Richardson; (State Bank) Candace A. Franks; Susannah Marshall; (Veterans Affairs) Karen Watkins; (Workforce Services) Daryl E. Bassett; Dorothy Tilley; and Anita Chance. The author is solely responsible for any errors or omissions. Author: Greg Kaza, M.S.F. Introduction The economic literature includes numerous references to efficiency.1 Posner (2007) notes a foundational claim of law and economics is "the common law tends to the promotion of economic efficiency."2 The Arkansas Constitution (Article 14) also uses the word "efficient" in terms of the public education system: "Intelligence and virtue being the safeguards of liberty and the bulwark of a free and good government, the State shall ever maintain a general, suitable and efficient system of free public schools and shall adopt all suitable means to secure to the people the advantages and opportunities of education." Efficiency is also a topic in non-academic publications. Governing magazine has published columns3 including several written by Harvard University researchers.4 One 2013 Governing explains, "(W)hat we once thought of as trade-offs -- "I can only do so much, so let's concentrate on the big items" -- is really a false choice." Harvard Kennedy School professor Steven Goldsmith observes: "The right answer incorporates both: completely rebuilding some program budgets while transforming others through incremental efficiency improvements. Officials who force attention to harvesting small savings develop a culture intolerant of waste at any level, building a consciousness that every dollar spent comes out of someone else's pocket. A culture of efficiency induces changes throughout the governmental entity that not only build up to real money but also increase the likelihood of big ideas emerging from emboldened employees." Goldsmith explains that through "partnerships and bottom-up initiatives, government can do more with less in ways that might have been impossible to push through without the mandate of lower tax revenues. As these small improvements set a new norm of constant reinvention, they will produce substantial savings and better services, culminating in better, faster, cheaper government."5 Gov. Hutchinson's First Year Efficiency Initiatives One common sense explanation of efficiency is that it involves doing more with less. Individual households and commercial enterprises face this challenge on a daily basis. Technological advances that generate productivity increases6 help meet this challenge. But can these increase efficiency within state government? Elected officials in a democratic republic are not oblivious to this process. Officials answer to their constituents, and are responsible for the delivery of public services. One idea is that these outputs can be delivered in a more efficient manner using fewer inputs such as state employees and tax dollars. Gov. Asa Hutchinson, after being sworn in as Arkansas' 46th chief executive in January 2015, ordered a hiring freeze7 in his first executive order. Gov. Hutchinson referred to efficiency in the order and in a statement: "That a moratorium on hiring is necessary to promote the fiscal efficiency and financial integrity of the State of Arkansas." "The executive orders8 I signed today will help provide that new perspective, which is critically important as we find new ways to make state government work more efficiently for all Arkansans." Six months later, Gov. Hutchinson cited efficiency in a statement about the hiring freeze: "We want to be good stewards of the taxpayers' money, and this is an example of carrying out that philosophy. My first act on my first day in office was to institute a hiring freeze so that we could be more efficient and prudent in how we staffed state government."9 Several state agencies were merged during the General Assembly's 2015 fiscal session. These were the Department of Rural Services and Science and Technology Authority into the Economic Development Commission; the Division of Land Survey into the Geographic Information Office; and the Building Authority into the Department of Finance and Administration.10 According to officials, a cultural change must occur within state government to increase efficiency. "This governor's aim is to inspire people to change," an official explained. "Every department has employees with ideas about improving efficiency. The challenge is getting them to come forward with ideas because not all of them will happen."11 Gov. Hutchinson Announces Efficiency Project Gov. Hutchinson announced an Efficiency Project in December 2015 near the end of his first year, noting his interest in the topic and "a very willing leadership team (of) cabinet officials." He defined the challenge in two sentences: "How can we best deliver services for the taxpayers in the most cost-efficient manner. That is the objective." Gov. Hutchinson explained the objective is "not cost savings at any measure. It is effective delivery of services in the most cost-efficient manner."12 In announcing the Project, Gov. Hutchinson issued the following memorandum: "As Governor of the State of Arkansas, I am committed to preserving and protecting the financial integrity of our state. Transparency, accountability, and efficiency promote the people's faith in good government. The citizens of Arkansas deserve a critical evaluation of their state government to ensure the cost-effective delivery of services and to ensure that state employees have every possible means necessary to maximize their effectiveness. "The Arkansas Policy Foundation (the "Foundation") was established in 1995 as an independent research organization. It has conducted efficiency reviews of our state government using citizen volunteers, academics, and others with specialized knowledge in certain areas of interest that facilitate in the Foundation's research. The Foundation has established the Efficiency Project, which will review our state government in the upcoming months. The Efficiency Project is supported by some of Arkansas's leading business people and professionals, and it is charged with developing recommendations to streamline our state government in order to make it more cost-effective and citizen accountable. The Efficiency Project allows a nonpartisan, independent group of citizens to volunteer their time and efforts to directly impact the improvement of state government. Upon completion of its review, the Foundation will publicly report its findings and recommendations. "In light of the foregoing, I hereby direct all directors of state offices, departments and agencies to assist the Foundation in its evaluation of our state government and in its development of recommendations to streamline state government and make it more cost-effective and citizen accountable. In facilitating with this necessary review of state government, each director shall designate one of his or her employees to coordinate with the Foundation and to ensure that it receives all pertinent requested information pertaining to its review."13 Methodology Department Organizational Charts The Project began the day after Gov. Hutchinson's announcement. Organizational charts were requested from designated contacts at each state agency. A high level of cooperation was encountered, and analysis of the charts concluded in early 1Q-2016. Citizen Tip Line & Media Column A citizen tip line was created on the Policy Foundation's home page after the charts were assembled. Talk Business published a column in 1Q-2016 that noted the Project "seeks to identify potential cost savings in state government with the help of citizens, state employees, analysts and other stakeholders committed to Arkansas' future."14 These steps produced numerous suggestions:
Other State Efficiency Projects Simultaneously, the Efficiency Project reviewed recent efficiency initiatives in other states. The Project learned of three initiatives (Kansas, Louisiana, North Carolina) and placed information into the following memorandum: "The following memo describes four efficiency projects conducted in three other states, and was based on interviews with project participants, public records, and media reports. The memo notes three projects cost between $2.8 million and $4.2 million each in tax dollars, while a fourth relied heavily on volunteers. One conclusion is that other research organizations have specialized knowledge. The Project should consider both factors to increase efficiencies and reduce costs. North Carolina "According to sources at several research organizations, Joseph Coletti served as deputy director of a recent efficiency project in North Carolina.15 The project was known as North Carolina Government Efficiency and Reform (NC GEAR). Prior to this role, Mr. Coletti served as an analyst for the John Locke Foundation, a North Carolina research group affiliated with the State Policy Network (SPN).16 "Mr. Coletti advised in several interviews that North Carolina appropriated $4 million over a two-year period. The initial $3 million contract was with Deloitte & Touche, with "amendments totaling $1 million from other budget sources" for information technology and human resource projects. The original 25-page RFP is available. The NC GEAR project maintains a website at: http://ncgear.nc.gov/ "The site's homepage includes the original Request For Information (RFI) responses from national and local management consulting firms, a 241-page document. It also includes the interim report and summary, final report; and legislation creating the NC GEAR project. North Carolina news media reported widely on the project. Louisiana "Louisiana awarded $4.2 million to Manhattan-based Alvarez & Marsal to conduct a state government efficiency review. Following is a link to the press release announcing the project: https://wwwprd.doa.louisiana.gov/doa/PressReleases/Govtl_Efficiencies_Mgmt_Suppt_Contract.htm "The final report was released in mid-2014, and produced 72 recommendations that were estimated to generate $2.7 billion in savings for the state over a five-year period.17 Kansas "According to sources at several academic and research organizations, two initiatives also occurred in Kansas. "The first initiative, conducted a decade ago, was a volunteer effort headed by a former private sector official. The project made several "general findings" about Kansas government:
"The second initiative, announced in October 2015, awarded $2.6 million to Alvarez & Marsal.18 The efficiency review is ongoing, though preliminary findings, released last week, estimate $2 billion in savings."19 The review of initiatives in other states led to the following conclusions:
Involvement of Other Research Organizations Analysts affiliated with instate and outstate research organizations participated on a volunteer basis to reduce Project costs and provide specialized knowledge The Arkansas Efficiency Project was a large venture for a state-based research organization. The Policy Foundation has working relationships with national think tanks with specialized knowledge. These include the California-based Reason Foundation, which maintains a state-by-state privatization inventory; and the Pew Charitable Trusts in Philadelphia, which analyzes corrections at the state level. The Policy Foundation also relied on scholars within the University of Arkansas system who have published peer-reviewed research. The Efficiency Project's objective was explained in a sentence: "The Project seeks to identify cost savings from efficiency reforms such as consolidation and privatization." Precedent for the Efficiency Project was explained in a paragraph: "Consolidation and privatization have occurred to a limited extent in Arkansas. Restructuring or consolidation has occurred in nearly 70 school districts since the Lake View school finance decision. The merger of the Arkansas State Police and Arkansas Public Employees retirement systems (2009) is another example. The General Assembly enacted an educational voucher program, (PA 1178) in the 2015 session. The program will be administered by the state Department of Education, and serve students with disabilities and the children of active-duty military. In August 2015, the state Department of Health announced it would privatize its in-home services program. Arkansas Gov. Asa Hutchinson noted, "This is an example of a government program that is no longer sustainable and can be ended because the private sector has stepped in to meet demand." This report includes references to research conducted by these organizations. Departmental Questionnaires The Policy Foundation distributed a two-page questionnaire to agency contacts in 1Q-2016. The questionnaires asked agencies to respond to seven questions:
Twenty-one (21) executive branch20 agencies were included in the review:
A high level of cooperation was encountered, and answers to the questionnaires were assembled in 2Q-2016. They are presented elsewhere in this report. Interviews with Department Officials The Policy Foundation conducted interviews with department officials and senior staff when deemed necessary. Interviews were conducted in-person or via telephone in 2Q and 3Q-2016. A high level of cooperation was encountered, and the interviews underscored the idea that state personnel are "an untapped source of creativity and passion." Arkansas Department of Finance and Administration The Arkansas Department of Finance and Administration was crucial to the Efficiency Project. DFA senior staff provided data for analysis of total operational expenditures, full-time employees (FTEs) and other agency metrics.21 Agency Summaries Agency summaries and recommendations were discussed with staff in 3Q-2016. Limitations
Summary of Findings The following chart summarizes agency responses to the questionnaire.
4 Yes, 17 No
6 Yes, 15 No
11 No, 9 Yes, 1 similar
6 Yes, 13 No, 1 varies
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$7.3 million-to-$13.5 million Recommendations The Efficiency Project makes 60 policy recommendations that will save Arkansas taxpayers more than $50 million. The first 20 recommendations will advance a culture of efficiency within Arkansas state government: 1) Mission Statements. Agency officials expressed support for efficiency as a concept, though few mission statements include the term. Each agency should include the word efficiency in their mission statement and post it online in an easily accessible format. 2) Overall State Strategic Plan. A statewide strategic plan is critical to align state budgets and operations. 3) Agency Strategic Plans. Only five state agencies post a strategic plan. This culture runs counter to a Government Finance Officers Association recommendation that "all government entities use some form of strategic planning to provide a long-term perspective for service delivery and budgeting, thus establishing logical links between authorized spending and broad organizational goals."30 Each agency should have a strategic plan and post it online so it is accessible to citizens. 4) Efficiency Section. Each strategic plan should include a section explaining how the agency will advance efficiency. 5) CPI-Expenditures Link. A short-term budgetary link should be established between the Consumer Price Index (CPI)31 and total operational expenditures by agencies. 6) Performance Measures. All agency performance measures should be quantifiable. 7) Taxpayers as Customers. Taxpayers should be formally recognized as part of the customer base of each agency. Several departments currently recognize taxpayers in such a manner. 8) Publicize Employee Suggestion System. The program was established to incentive state employees to make suggestions; yet records and agency responses to the questionnaire show few employees participate. There is anecdotal evidence that employees do not understand the program or its potential to identify additional efficiencies. 9) Incentivize State Employees. Compensation was a recurring theme during interviews. Some departments have voluntarily eliminated positions, and are operating with fewer employees. Remaining employees should be eligible for increased compensation if they are productive32, and the agency returns savings. 10) Incentivize Cross-Agency Collaboration. Silos were a recurring theme during interviews. Agencies should be incentivized to collaborate and share strategies. 11) Identify Internal and External Silos. Silos should be identified within agencies as self-imposed (internal) or external. 12) Employee workshops. The Efficiency Project should be explained to state employees in workshops or meetings. 13) Senior staff briefings. Senior agency staff should be briefed on efficiency initiatives in Arkansas and other states. 14) Privatization inventory. Interviews revealed privatization is being used by some agencies to drive efficiencies, though this action is not always recognized. An inventory should be created for purposes of reducing external silos. 15) Privatization as a management strategy. Privatization describes the process whereby nonprofit or private sector units perform functions previously provided by a public sector unit. Several types of privatization are:
Senior staff and interested employees should be briefed on these strategies. 16) Other Management Strategy: Lean Six Sigma. Lean Six Sigma is a management strategy that seeks to eliminate waste. One agency has successfully used the strategy. Senior staff should be briefed on this agency's efforts. 17) Other Management Strategy: Theory of Constraints. TOC is a management strategy used by some state budget departments including Utah. Several employees expressed interest in TOC during interviews and should be encouraged to learn more about the strategy. 18) Other Strategies. Agency officials should be briefed on Pay for Success Contracts (also known as Social Impact Bonds) and Public Private Partnerships 19) Paperwork Reduction. Excessive paperwork was a recurring theme during interviews. The abundance of government red-tape is also a frequent complaint in the commercial world. Concerted efforts should be made to reduce paperwork requirements in both spheres. 20) Oversight Authority. Formal or informal oversight for these recommendations and others should rest with an individual or team that shall work in a collaborative manner with the executive branch to advance efficiencies. Twenty-seven (27) recommendations are unique to specific agencies:33 21) Agriculture: Department-identified consolidation and restructuring initiatives should be encouraged. 22) Aeronautics: The department's self-described "K.I.S.S." method for managing grants should be shared with other state agencies. 23) Career Education: Public-Private Partnerships undertaken by other states in the region should be analyzed for their potential to reduce costs and increase efficiencies in Arkansas. 24) Community Corrections: A future Efficiency Review should identify efficiencies in states outside the region. The Review should focus on three of ACC's five largest program areas. These are: 1) Parole and Probation Field Services; 2) Residential Community Correction Treatment Facilities; and 3) Reentry Programs. 25) Corrections: A future Efficiency Review should identify efficiencies in states outside the region, and focus on ADC's largest program areas in terms of budgetary size: Inmate Care and Custody; Farm; Industry; and Work Release. 26) Education: The department's performance measures are inadequate and must be strengthened. 27) Education: Legal guardians should be added to the customer base. 28) Education: Public-private partnerships have the potential to increase efficiencies within K-12 education. 29) Education: A future Efficiency Review should identify efficiencies in states outside the region. 30) Emergency Management: ADEM receives a high percentage of total operating funds from federal revenue sources, though these funds have declined significantly in recent years. It would be prudent to develop a contingency plan based on a scenario of further reductions in federal revenues. 31) Environmental Quality: ADEQ’s Complaints application, available for iOS and Android operating systems, should be studied by other state agencies to determine if other apps might advance efficiencies. 32) Environmental Quality: ADEQ's consolidation of its Melbourne and Batesville field offices, as well as the closing of its Jasper field office should be studied by other state agencies and adapted if economically feasible. 33) Finance and Administration: DFA interacts with and drives processes for a large proportion of Arkansas state government, including revenue and personnel management. The department should serve as a catalyst for advancing future efficiency initiatives within state government. 34) Finance and Administration: The relationship between taxpayers who pay their taxes in a timely manner and those who do not should be clarified by DFA. 35) Finance and Administration: The feasibility of consolidating revenue offices should undergo formal review. The review should include multi-year customer utilization data. 36) Finance and Administration: The collection of some outstanding accounts receivable should be privatized if the department is unable to reduce the net balance by 5%. 37) Health: A future Efficiency Review should identify efficiencies in states outside the region and focus on ADH's five largest program areas. 38) Higher Education: New strategies are needed to achieve Arkansas' ambitious post-secondary attainment goals. Public colleges and universities in other states have authority to sponsor charter schools. One reason for this idea is that students become aware of post-secondary options at an earlier age. Another is that the policy increases competition within the educational sector. The department should encourage this innovation. 39) Parks and Tourism: The feasibility of shedding four state parks to non-state nonprofit and/or government units should undergo formal review. All are characterized by low multi-year customer utilization. 40) Veterans Affairs: Public-private partnerships have the potential to increase efficiencies at other state departments. ADVA's use of public-private partnerships should be recognized and explained to administrators at other state departments to reduce silos. 41) Workforce Services: DWS compiles Arkansas labor market information, and it should expand its monthly nonfarm payroll employment report to include private industry sectors engaged in coding and technology-related services. The information should be incorporated into economic development initiatives to reduce silos. 42) Economic Development Commission: AEDC returned unused funds last year, a commendable achievement. Employees should be eligible for performance bonuses as a future incentive. 43) Economic Development Commission: Nonfarm Payroll Employment growth should be adopted as a performance measure. Arkansas' employment growth should be measured against regional and national averages, with the goal of equaling or surpassing these measures on an annual and cyclical basis. 44) Military/National Guard: The agency is unique among state agencies in using a Lean Six Sigma process to advance efficiency. Lean Six Sigma is a management process that seeks to eliminate waste. Management of other state agencies would benefit from understanding this process. 45) Military/National Guard: Other state agencies should review the agency's performance measures. 46) Heritage: Performance measures should be strengthened in several agencies. 47) Heritage: Efficiency initiatives identified by the Heritage department are extensive and should be subjected to cost-benefit analysis when feasible. Five recommendations address unintended economic consequences that waste scarce resources: 48) NSLA funding is distributed in an inefficient manner. 49) Facilities Partnership funding is distributed in an inefficient manner. 50) Certain funds are not being distributed to low-income K-12 school districts as originally intended. 51) The practice of paying for lower quality digital courses through one educational cooperative is inefficient. 52) Annual payments to legacy programs regardless of performance is inefficient. Four recommendations address state practices: 53) Consolidation. State agencies are using consolidation to advance efficiencies. The practice should be applied to other governmental units including educational co-operatives. 54) Performance Pay. Some state agencies are using this strategy to advance efficiencies. The practice should be applied to other agencies. 55) Procurement. The state's procurement system should be analyzed for potential efficiencies. 56) Motor Vehicle Policy. Cost-benefit analysis can determine whether state employees should be reimbursed for driving their own vehicles or use state-owned or leased vehicles if they drive less than 10,000 miles annually. One recommendation addresses citizenship: 57) Arkansas Grace Commission. A citizen panel to advance efficiencies in state government should be established with a two-year sunset clause. Three recommendations are proactive to prevent future crises: 58) Negative Interest Rates and Discount Rates. Discount rates for public retirement systems should be adjusted downward given the prevalence of negative interest rates in today's financial environment. 59) Derivatives Transparency. Any Arkansas governmental unit using a derivative financial instrument should disclose its use. 60) Cyclical Early Warning System-State Revenues. Arkansas revenues are cyclical, i.e., they tend to contract around periods of recession and grow in expansions. An early warning system that uses coincident economic indicators would assist budgetary policymakers. Download 463.86 Kb. Share with your friends:
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