Reducing the State Budget by $2 Billion – It Can be Done
By Mike Thompson • Feb 3rd, 2010 • Category: Government Reform, Top Story
The General Assembly is struggling with how to close another $2 billion in the next two year budget. Hopefully they are also concerned about how to avoid these huge problems in the future.
Let’s look at the personnel side of the equation just as any business - large or small – would when faced with our current financial headache. Two revealing studies (here and here) publicized in USA Today show that public employees across the country get a very good deal from the taxpayers. Those who did these studies should be asked to do the same here in Virginia. But before that is done, let’s look at what we can do now in Virginia to reduce the next two year budget by $2 billion.
Governor Kaine wanted to lop off 700 VDOT employees. Maybe this is a good idea but it ought to be done only after it is determined how VDOT can reach its ends with fewer people. Keeping those 700 employees doesn’t help close the budget deficit, but the following actions can help tremendously.
The following numbers are based on total state employees of between 73,600 and 91,000 depending on whether higher education employees are tossed into the figuring. It seems to this author that everyone receiving a state salary needs to be part of the solution.
First, an across the board five to seven percent reduction in every state employee’s salary and benefit package should be instituted. Why put 700 folks out on the street during the worst recession in 25 years to save something like $46,400,000 a year when every state employee can take a reasonably small “hit” and the state can save between $244 million and $422 million? And since Virginia does its budget on a biannual basis, you double these savings to between $488 million and $844 million. That’s 20 to 40 percent of the reductions required to balance the budget. Nothing else can generate such a large savings, save cutting additional state programs.
Second, in 1999 the Commonwealth Competition Council – a small but important agency that was gutted over the past eight years and which should be reconstituted to help reform, reduce and renew state government – surveyed state agencies and asked each to identify those Full Time Employee (FTE) positions that are tied to commercial activities and might be transferred to the private sector. Such privatization of government jobs, according to the federal government’s Office of Management and Budget’s Circular A-76, can save the government 30 percent. This survey identified 37,555 state jobs that should be analyzed for possible private sector transfer. But nothing was done with the study. It sits there waiting to be used to this day. If all 37,555 jobs were privatized, the total savings would be $2.5 billion each year. If only 20 percent of these jobs could be privatized, that would produce an additional savings of $500 million a year. That’s a savings of $1 billion in the next two year budget currently being debated by the General Assembly – half of the cuts required at this time.
The new administration could take the 1999 listing of state employees that were identified as qualifying for possible transfer to the private sector, and ask the agency heads to renew the list –improve upon it and make it current. Then the state government needs to have a goal of shedding at least 10 percent of these jobs and quite possibly 20 percent.
The annual turnover of government employees is about 10 percent due to retirements, deaths, transfers to jobs in the private sector, etc. This gives the government the ability to reduce state employees by 7360 to 9100 each year (3700 to 4550 employees every six months) without firing one person or taking a dull hatchet and making across the board cuts that reduce good and lousy programs equally. Such a strategy doesn’t make sense to taxpayers yearning for effective, efficient government. Properly managing this natural turnover of employees would allow government to shed less important programs and keep those programs that fulfill the core mission of government fully operational.
With this information as background, the logical next step would be to ask every agency of state government to prioritize its programs. Every manager knows that state government faces a large deficit and every manager is expecting cuts to their department. Every manager also knows what works and what does not in their given area of responsibility. Those managers should be brought into the process of carving down state government. They should provide the Governor with their own listing of programs and activities in priority order of what that agency or department does with public monies.
All of these actions should be overseen by those from the private sector and the public sector who have participated in this kind of reorganization of a large corporation or government. This expertise from the government and from those who have done this in the past will provide Virginia with a reasonable outcome.
The first step should be a five to seven percent across the board reduction in salary and benefits for every person who receives that compensation from the state budget. That would be an impressive first step for sure.
Mike Thompson is the chairman and president of the Thomas Jefferson Institute for Public Policy, Virginia’s premier non-partisan public policy foundation.
For 24 years Mr. Thompson owned his own marketing company in Springfield. During 11 of those years he was also president of a family owned group of furniture stores in Georgia. After selling his company he started the Thomas Jefferson Institute.
He has been very active in national, state and local politics and has been a member of a number of community organizations, commissions, and committees. He is the Past Chairman of the Virginia Leadership Council for the National Federation of Independent Business (NFIB) and serves as Vice Chairman of the internationally acclaimed Fund for American Studies.
These views are his and do not necessarily reflect those the Institute or its Board of Directors.
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Your points are well taken, especially with respect to attrition. I also understand that cuts must be made. But why should state employees take the full hit? (I don’t work for the state, by the way.) They didn’t create these economic conditions. Many are already stretched thin. (Do those 37,000 people who’ve been targeted as prospects to be spun off to private industry know they’re considered expendable?) State workers work under a different social contract that most private sector workers. Most career state employees I’ve known, particularly managers and directors, agreed to move into the public sector for far less pay than they could have made in the private sector in return for the assurance of a fair workplace, the pride of important public work done well and a state pension upon retirement. To ask them to take the full hit of circumstances beyond their control may be completely legal, but also completely unfair.
Why don’t the taxpapers agree to split the difference with state workers? State workers take a 3% cut , or perhaps a week of furlough, and taxpayers make up the difference. The additional burden on individual taxpayers would be much less than that on the average state employee, probably not even noticeable to most.
I’m also not so sure about the wisdom of bringing in corporate execs with large-scale reduction-in-force experience. What do you mean by this expertise providing Virginia “with a reasonable outcome”? There’s nothing reasonable or easy or smooth about this if you’re the person being laid off. Anyone who believes that has been to see “Up In The Air” too many times.
The jury’s still out on the long-term social, moral and economic benefits of massive layoffs, as well as the people who make them. Improved shareholder value isn’t necessarily sustainable, and I don’t know of a single workplace where massive layoffs have occurred where the loyalty, productivity and morale of those who remain has rebounded to pre-layoff levels.
Chris:
The Commonwealth Competition Council work with the state agencies was not based on letting anyone go but only moving those jobs to the private sector.
If the two USA Today studies are reflective of the differential between the public and private sector in VA, then the public employees have a better deal than those in the private sector.
If there is a 10% turnover in state employees each year, careful management of this employee turnover could reduce government employment without laying people off.
My proposal above could well protect all state jobs and leave no one without a job. Sure, some of those jobs may go to the private sector but we are finding all over the country that some of what governments do can be done more efficiently in the private sector. Let’s do so here in VA as well.
Your “massive layoffs” comments simply have nothing to do with what I am proposing in my article. However, the private sector has seen and is seeing massive layoffs. And the private sector funds the public sector. We must keep that in mind as we tackle the current budget deficits.
I disagree with the way Chris seems to be framing the issue. No one in state government is promised lifetime employment or protection from the real world of change. None of the over 10% unemployed who lost private sector jobs created these terrible economic conditions, either, but they are paying a price . Isn’t it odd that in the midst of a major recession it is the public sector that has been so immune from the downturn? The reality is that we have more government than we can afford.
the employees that would be converted to private sector positions. Would they still be providing services to the state – fee for service?
36000 employees sounds like a substantial number.
VDOT is around 7-8K and the biggest is the Dept of Corrections at 10k+ so I don’t see how they get to 30K+ without VDOT and the DCOR involved in a big way.
Larry:
You can find the listing from the Commonwealth Competition Council’s findings at the back of a 2001 study by the Thomas Jefferson Institute at http://www.thomasjeffersoninst.org/pdf/articles/state_gov.pdf. Look at Appendix I. These were FTE positions identified by the agency heads, not by the Jefferson Institute or some outside group. And my column above only talks about the savings if 20% of this total could be privatized. And the services continue. So these are savings that can be realized BEFORE programs are consolidated, reduced or eliminated. It seems to me that if government identifies 37,550 jobs that should be considered for privatizing, then actually doing so with 20% of that number is a reasonable goal.
Also …
– stop increasing public college spending three times faster than enrollment and inflation
– stop increasing public school spending four times faster than enrollment and inflation
– stop increasing public school staff five times faster than enrollment
– stop increasing Medicaid inflation-adjusted spending five times faster than population (that’s adjusted for medical inflation)
Arthur, not sure what school district you are referring to but the one I am familar with has cut spending and number of employees while the student enrollment is going up. Next year’s budget looks like significant cuts again with no decrease in enrollment. Maybe you should get your facts straight before you post.
not sure how converting govt employees to private sector employees – who continue to do the same work and the state still has to budget for the cost of that work – saves significant money – certainly not FTE positions unless I don’t understand this.
VDOT did things like this during George Allen’s tenure and it turned out that some of the folks that they turned loose to the private sector ended up costing them more as contract personnel because of their expertise which was a valuable skill in the marketplace.
I’m not arguing for or against the proposition itself – only that it and it’s impacts be fairly characterized.
“cutting” positions by outsourcing them does not save significant FTEs.
Larry: The savings is detailed in paragraph six of my article above. I did not say these positions would be eliminated altogether, only that they would leave the government sector and move to the private sector. The federal government, as I mention in my article, has said that such outsourcing of jobs can save government 30%. Even if that savings were only halve of that (and there is no reason to believe that except for this discussion) the savings would be significant. Look at the listing of FTE positions I mentioned in my earlier answer to you and you will see that many of these jobs are easily completed in the private sector. And remember, these FTE positions were identified by agency heads and not some outside group of “experts” who would not know the day-to-day work going on in each department.