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Competitive State Government Saving Taxpayers’ Money Without Cutting Services

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The Thomas Jefferson Institute for Public Policy is anon-partisan research and education organization devoted to improving the lives of the people in Virginia. The Institute was organized in 1996, and was the only state and local government focused public policy foundation in Virginia based on a philosophy of limited government, free enterprise and individual responsibility. It is a “solutions tank” seeking better ways to accomplish the policies and programs currently being undertaken by state and local government – always based on the Institute’s underlying philosophy. The first study was published in February 1997.

The work of the Thomas Jefferson Institute for Public Policy is geared toward educating our political, business and community leadership about the issues facing our society here in Virginia. The Institute offers suggested solutions to these problems in a non-partisan manner.

The Thomas Jefferson Institute is a fully approved foundation by the Internal Revenue Service. It is designated a 501 ( c ) 3 organization and contributions are tax-deductible under the law. Individuals, corporations, associations and foundations are invited to contribute to the Thomas Jefferson Institute and participate in our programs.

For more information on the programs and publications of the Thomas Jefferson Institute, please contact:

Thomas Jefferson Institute for Public Policy

9035 Golden Sunset Lane Springfield, Virginia 22153


email: website:

This preliminary study, “Competitive State Government – Saving Taxpayers’ Money Without Cutting Services,” is published by the Thomas Jefferson Institute for Public Policy. This study does not necessarily reflect the views of the Thomas Jefferson Institute or its Board of Directors. Nothing in this study should be construed as an attempt to hinder or aid any legislation.


The Thomas Jefferson Institute is researching various ways that our state government can save money through using more business-like practices.

This concept is called, “Competitive Government” and the preliminary results of our study show a savings can be realized over two years of $1.159 billion! Additional work is being done and this figure will be larger when our final report is released in a few weeks.

The issue that the Jefferson Institute is confronting is that our state government can do its job more efficiently and at a significantly less cost to the taxpayers. Services do not need to be reduced. Infrastructure needs do not need to be put on hold.

For instance, the incredible amount of accounts receivable due our state is at least $720.4 million and may by significantly higher. This is an incredibly large number. It seems reasonable to suggest that the private sector be brought in to collect these receivables. The suggestion is to “sell” these to the private sector, let it collect them and let is write off any “bad debts” once it takes responsibility for collection. This will produce immediate cash to the state and our report shows that this cash could easily be $170 million to $200 million. This amount covers the needed $189 million in this fiscal year’s budget. The state should go ahead and do this now.

Other savings outlined in this preliminary report will take some time to realize, but by beginning today some of those savings could be “on the books” by June 30th of this year.

The current budget crisis in Richmond will hopefully open the discussions in the Governor’s office and in the General Assembly to find savings through good government practices as are outlined in the attached report.

This report is offered in an effort to bring the idea of “competitive government” to the table of public discussion. It is not meant to influence legislation, but to bring ideas to our elected leaders so they can better serve our citizens.

Michael W. Thompson Chairman and President Thomas Jefferson Institute for Public Policy February 27,2001

By: Dana Joel Gattuso

Senior Fellow for Government Reform Thomas Jefferson Institute for Public Policy

List of Potential Savings in 2000-2002 Biennium Budget

(Preliminary List Only. Full report in progress.)

> Contract out the state’s commercial activities. Those activities were listed by the state agencies in a survey conducted by the Commonwealth Competition Council

Savings of $675,990,000

These activities come directly from survey responses to Virginia state agencies requesting information on what commercial activities could be outsourced for a savings to the state. It assumes a savings rate of 30 percent and does not include revenues generated by taxes paid by private vendors and operators. The 30% savings is used because the federal government has found over a 10-year period that this is the average savings realized from competitive government practices. See OMB Circular A-76 to confirm this savings rate.

Attached is the listing of commercial Activities in the Virginia Community College System from 1999 as an example of the activities that can be contracted out to the private sector.

> Outsource state agency collections

Savings of $340,000,000

Virginia has at least $720,390,351 in accounts receivable with 10 state agencies comprising $1.2 billion in past due accounts, according to the Commonwealth Competition Council. Outsourcing collection to the private sector would achieve an additional annual income to the state of $ 170 to $200 million as estimated by the Commonwealth Competition Council. Assuming the conservative figure of $ 170 million, this would amount to $340 million for the biennium. The private sector can collect these receivables more successfully than the state, and the advantages of using the private sector are many. The General Assembly should pass legislation requiring all receivables collected by the private sector to be deposited into the General Fund.

This outsourcing of accounts receivable by the state can produce the cash needed to balance99 the budget BEFORE June 30th as the Governor and General Assembly are trying to do right now as each prepares for the Special Session in a few weeks.

> Department of Social Services: Contract out following programs:

Savings of $71,647,789

■ Employment services and daycare operation for the Virginia Initiative for Employment not Welfare (VIEW), the state’s welfare program.

Savings of $12,574,449 – assumes a 30% savings rate

Numerous states, including Indiana, Oregon, Texas, and Wisconsin, are turning to the expertise and specialization of private non-profit and for-profit organizations to operate either portions or the entire state welfare system. Furthermore, the 1996 federal welfare law introduced by former President Clinton enables the state, rather than the federal government, to keep any savings generated by privatizing. Virginia should look into outsourcing the full welfare program, as other states are doing. In the interim, Virginia should experiment by outsourcing two of its functions, the VIEW’S employment services and daycare operations.

■ Collection of Child Support

Savings of $41,637,000 – assumes a 30% savings rate

Among Virginia’s local offices that have had the greatest success in collecting child support from missing fathers have been Hampton and Chesapeake, which contract out collections to private agencies.

■ Foster Care operation

Savings of $17,436,340 – assumes a 15% savings rate

Again, numerous states are outsourcing their foster care operation with better placement results than state operations. Kansas, for example, has completely turned its adoption, foster care, and family preservation programs to private care, placing children in permanent homes at a much faster rate than the state. Based on savings generated from Kansas and other states and localities, this estimate assumes a conservative savings rate of 15 percent.


ent of Health: Contract out following services:

Savings of $20,000,000

■    Child Development Center

■    Community health promotion services and public awareness campaigns

■    Public health education, including surveys, graphics, and specified education campaigns

■    Home health services

■    Development of computer software

The Virginia Department of Health has reduced costs by at least $6 million by privatizing various functions throughout the agency. But there are still many functions and services that should also be outsourced, including these mentioned.

> Office of Education: Merge the VA School for the Deaf, Blind and Multi-

Disabled at Hampton with the VA School for the Deaf and the Blind at Staunton

Savings of $18,766,924

With falling admissions and rising costs, Virginia would do better to merge the two schools together and pool resources.

anagement of low-

> Department of Corrections: Contract out the operation and secure prison facilities

Savings of $12,845,327

■    Private operation and management of VA Correctional Center for Women

Savings of $3,445,327 – 15% of $22,968,850

This savings figure is based on the average nationwide savings achieved by private prison managers.

■    Private operation and management of Corrections’ prison reentry facilities

Savings of $9,400,000, as estimated by the Commonwealth Competition Council

> Department of Information Technology: Outsource the agency’s coi activities.



Savings of $12,000,000

About 44 percent of DIT’s workload is commercial activity which could be performed by the private sector at a much lower cost. For example, computer repairs runs between $40 and $90 an hour with bills for simple tasks running $500 to $1,000. By comparison, costs for private service for these same tasks are typically under $100. The above-suggested savings assumes a very conservative savings rate of 15 percent.

> Replace privately produced capital outlay preplanning studies with privately produced architectural studies.

Savings of $4,500,000

According to the Commonwealth Competition Council, current preplanning studies are costly, and many projects go unfounded. Data shows approximately 150 preplanning studies conducted per biennium at an average cost of $43,000 per study and a total cost of $6.5 million. By comparison, an architectural study would cost approximately $15,000 per study, generating a savings of $4.5 million per biennium.

ent of Corrections

VA Distribution Center: Transfer functions to the Depart

Savings of $3,200,000

Corrections is the Distribution Center’s largest customer. The Center, therefore, should be transferred to Corrections where procurement is already staffed to achieve economies of scale. Contract out food delivery service for the Department of Mental Health, Mental Retardation and Substance Abuse Services, and the Department of Corrections, which negates the need for the Richmond-based warehouse. For savings on sale of warehouse, see below. Further ongoing savings can be achieved by contracting out food delivery service for additional state agencies.

Preliminary Report Total Savings for FY 2000-2002: $1.159 Billion

Additional savings to be outlined in the Thomas Jefferson Institute ’ s final report on Competitive Government.

The sale of various state assets will be outlined in the final report on Competitive Government.

Commercial Activities Conducted by Virginia State Government

These commercial activities were provided to the Commonwealth Competition Council in a survey of government agencies. These are the commercial activities as of 1999.

To determine the savings that the Virginia State Government could realize from bidding out these activities, the FTE hours (37,555) were multiplied by an average state salary of $30,000 (including benefits); this number was then multiplied by a savings of 30% that the Office of Management and Budget’s Circular A-76 states is the average savings when such services are offered for competitive bid to the private sector and allowing the state agency to compete in the process.

Using this reasonable formula, the state would save $337, 995, 000 annually by using a competitive bidding process. Even if the OMB Circular A-76 savings were to be discounted by one-third, the savings to the state would be 20% and the total annual savings would be $225,330,000.

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