Tough Tmes

Cost of Government Playbook

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A Guide for Public Officials

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Governing in Tough Times

A GUIDE FOR PUBLIC OFFICIALS

Introduction

State and local pension shortfalls. Soaring healthcare costs. Unprecedented levels of public employee layoffs. Acrossthe-board cuts, from law enforcement to infrastructure investment. Overlay on that a political atmosphere variously described as poisonous and toxic, all of which is sitting on a fragile foundation of unprecedented levels of citizen distrust of, and disengagement from, government. That, essentially, was the grim picture that was sketched out by Paul Taylor, Governings editor-at-large, as he opened the Governing Cost of Government Summit in September, bringing top state and local officials together to work through issues and problems facing states and localities in the toughest times many of them have ever seen. Taylors first question for the group was simple enough: Glass half empty or half full, and why do you
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feel that way? Half full was the predominate response, with some very pointed dissension, including participants like Howard Schussler, assistant director for public works in Lane County, Ore., who said, simply, I think people have lost the will to work together. Linda Millsaps, chief operating officer for the North Carolina Department of Revenue, talked about the consequences of reduced staff: I have staff who are now getting yelled at regularly by citizens. With all our personnel cuts, we just cant provide services at previous levels. Joe Adler, director of human resources for Montgomery County, Md., noted, Theres this huge antigovernment, antipublic employee sentiment out there right now that gets in the way of solving problems. On that score, Louie Wright, president of the Kansas City, Mo., firefight-

ers union, added what would become something of a theme over the course of the summit: There are solutions, but too many communities seem to want services for free. But for plenty of participants, hard timeswhile daunting and challengingalso meant an environment of opportunity, including wholesale re-evaluation of what government does, how government is structured and how it has had to adapt to the fiscal realities wrought by the Great Recession. I see the glass as half full, said Ben Duncan, deputy director of administration at South Carolinas Department of Insurance, We were running on a 1968 model of government and this has given us the impetus to modernize. Kelly Harder, director of community services for Dakota County, Minn., has been busy using hard times to push for smarter ways to operate in what is one of the most expensive areas of government. This is a ripe environment to move initiatives forward, she explained. Added Nancy Style, a manager with New Jerseys Office of Management and Budget, I am concerned about revenues versus costs; were one bad thing away from disaster, but this has forced us to look at what we have to do versus whats nice to do. Participants spent the next day and a half exploring that environment, and to coming up with ideas for how to make progress in tough times. As with last years summit, we at Governing are setting those ideas out in the form of plays in this, our second annual 2011 Cost of Government Playbook. What can governments do to stay in the game and actually advance the cause of government when it seems like the opposing forces are aligned and arrayed in a formation too powerful to allow anyone to pick up yardage?

Governing in Tough Times

A GUIDE FOR PUBLIC OFFICIALS

The Plays
Put Civility Back in Civic Discourse
Capitol Hill has to change the tenor of their debates, said Chris Hoene, director of the Center for Research & Innovation with the National League of Cities, referring to the almost endless rancor and gridlock were now seeing in Congress. That tone is not only damaging Washingtons ability to function, he said, its also trickling down to states and its hard to make tough decisions when government is being characterized as the problem.

Take a Hard Look at Long-Range Pension and Health Care Costs

A regular theme throughout the conference was how to deal with future fiscal liabilities due to public-sector pension obligations. Some at the conference suggested that governments need to re-examine the promises they make to retirees by way of pension levels. Others argued that the health of public-sector pensions simply hinge on states and localities making their annual actuarially required contributions, which many havent been for years. Wright suggested that instead of putting the blame for the pension crisis on public employees, governments can lead the way by defining what it means to have a decent and dignified retirement and what the components of the benefit are. Health-care costs, both for current employees and retirees are not only an acute problem, but also a chronic one. Costs for insuring current employees are steadily cranking upward; the cost of providing health-care services to retirees is, to some, a huge ticking time bomb waiting to go off. In many ways, the recommendations for how to reduce usage and contain costs are the same for public employees as they are for those on Medicaid and Medicare: David Osborne, author of Reinventing Government, who has been analyzing the U.S. health-care system argues for global payments, whereby those practicing medicine in

Invest in infrastructure, Education and Research

It may seem counterintuitive, but with interest rates at record lows, its time to invest in infrastructure even if that means borrowing money, argued John Thomasian, who recently retired as head of the National Governors Associations Center for Best Practices. Investing in things like Internet access, rail, ports and other key facilities will not only generate jobs, but also ensure that the U.S. is in a globally competitive position as the country comes out the recession. But it needs to be done now. Besides slipping in job growth and global competitiveness, putting off investing in infrastructure will only mean higher costs down the road as existing infrastructure continues to deteriorate, argued Hoene. Too few governments have done the critical calculations involved in delaying such investments. Infrastructure isnt the only sector that has seen underinvestment. Thomasian pointed out that scrimping on investments that directly impact our ability to compete effectively in the global economy, will only put us in worse economic shape down the road. Disinvesting in education, he noted, is probably one of the single most shortsighted actions that government can take right now.
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the U.S. are paid not for doing procedures but for results, said Osborne. His prime example: Blue Cross Blue Shield of Massachusetts, which is now accepting a global perperson payment for coverage, and then focusing on getting and keeping clients healthy versus simply paying for office or emergency room visits and tests. Other ideas included more intense case management for heavy users of the medical system, along with incentives for pursuing wellness (e.g., quitting smoking, losing weight, getting regular exercise, etc.).

Focus on Future Treasury Busters: Medicare and Medicaid

Among the more frightening features of the future fiscal picture for the U.S. is the looming and crushing cost of paying for Medicare and Medicaid. Again, argued Osborne and others, the system must be refocused on keeping people healthy in the first place and not on running them through every imaginable medical procedure after theyre sick. Meanwhile, the federal government right now seems especially interested in granting waivers to states that want to try different ways of delivering Medicare and Medicaid, and are also investing significant amounts of money in helping states and localities upgrade health-care IT systems.

Stay Disciplined and Smart

Too often the pattern with government has been to expand services (and size) during good times and then have to retrench when the economy weakens. If any lesson ought to be learned from the current crisis, said Sharon Erickson, auditor for San Jose, Calif., it is that as states and localities come out of the recession, they should maintain the tight and disciplined fiscal practices they are now being forced to adopt. Way too many governments have responded to the current crisis not by looking at better and smarter ways of doing business, but by simply enacting blunt, across-theboard cuts. This can have very perverse and unintended although totally predictableconsequences, pointed out several summit goers. Katherine Barrett, management columnist for Governing, pointed out that in making its 2 percent across-the-board cuts, the state of Utah hit state-run liquor stores, which are actually a net state revenue generator, revenues that decreased with store closings. Other states and localities have done similar things, like cutting staff in their taxation and revenue departments, or in deD e c e m b e r 2 0 1 1 | GO V E R N I Ng 5

Governing in Tough Times

A GUIDE FOR PUBLIC OFFICIALS

partments of motor vehicles, both high-profile services that ultimately help bring revenue into state and local coffers. Clearly in tough times theres a premium on operating government in ways that focus on efficiency and effectiveness, and yet one of the first cuts that governments make are in the capacity to do both fiscal and performance audits, noted Mark Funkhouser, formerly auditor and mayor of Kansas City, Mo., and now director of the Governing Institute. Its the intelligence that those people provide that allow you to make smart investment decisions, Funkhouser said.

Carefully Analyze Whats Worth Outsourcing and What Isnt

Often the knee-jerk response of government officials is to think that outsourcing or privatization is an automatic money saver; its not. A string of recent high-profile, highstakes outsourcing efforts, like New York Citys attempts to upgrade its personnel management system, have proved to be expensive disasters. On the other hand, Contra Costa, Calif., recently saved significant dollars by closing down its own police department and contracting with the county sheriffs department for law enforcement services.

Government Restructuring: Take Down Silos, Then Invest

Numerous summit attendees argued that this is the perfect time to start doing things like shared or consolidated services or teaming up with other agencies who may do work that affect the mission of your agency. Now is the

Make Sure Youre Getting What You Pay For

If governments dont track data on performance and results then theyll never be able to figure out whether certain programs or policies are working, said Andrew Kleine, budget director of Baltimore,. For example, we recently cut a program mentoring kids of adults in prison and also a job training program because the evidence was clear that neither was helping.

Analyze Citizen Wants Versus Needs

time to investigate working cooperatively with and among agencies that have overlapping missions. We need more cross pollination and cooperation, noted North Carolinas Linda Millsaps. If governments are serious about restructuring and improving efficiency than they may have to make the investment required to implement new ways of doing business. For example, too many governments have put together lofty and high-profile blue-ribbon commissions on efficient, effective government and then invested nothing in trying to effect the recommendations those commissions make. Blue-ribbon commissions dont change how governments operate; its those who follow up on a commissions recommendations who do, noted Richard Greene, management columnist for Governing.
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When Colorado Springs started taking such stark measures to budget cutting as not mowing median strips and shutting off streetlamps, government officials actually discovered some of what they were delivering wasnt actually popular with residents. When we turned some of the street lights back on, people actually said they like it better dark, said Jan Martin, president pro tem of the Colorado Springs City Council.

Support Your Staff

In rough budget times, and when public employees are being routinely attacked by certain media outlets, its vital to try to keep your staffs morale up. Commit to your vision and to your people, said Jim Payne, director of the Indiana Department of Child Services, which is overhauling how it serves children and families. Push for positive change, and then back your people up.

Dont Just Cut, but Tax Responsibly

States and localities have been cutting personnel and services at an unprecedented rate. Even the usually sacrosanct area of public safety has been hit hard, with summit partici-

pants talking about huge reductions even in police and fire services. As cuts in state and local government move from fat to muscle to bone, many at the summit argued that it was time to push back on the no new taxes rhetoric of the far right. In Connecticut, says Assembly Rep. Diana Urban, Gov. Dannel Malloy included a mix of cuts, caps and tax increases to close the highest per capita budget deficit of any state in the U.S. It was clear to the governor and the legislature that what we werent going to cut our way out of this crisis. It was also clear to us that the threat that highincome residents would leave the state if we taxed them at a slightly higher rate than we had been was unfounded.

Help Citizens Tune in and Understand Government

This may be the most important play, because the problem of citizen disengagement is, in many ways, making the current crisis all that more serious and intractable. Funk-

housers characterization of the problem is mind the gap. Many of those at the summit viewed the current crisis as all the more disturbing because citizens simultaneously seem ignorant of what government actually does, while at the same time blaming government for the current fiscal crisis, thus the seemingly virulent anti-tax sentiment now gripping the nation. Im surprised at how uninterested citizens are in government, said former New York Lt. Gov. Richard Ravitch, during the summits final session on leadership. Part of that, though, is due to the fact that government frequently does a particularly bad job of communicating to citizens what it does. Government is very opaque, added Ravitch. Richard Greene noted that governments need to think about the relative value of public hearings where the same 14 people show up because none of them has anything better to do on Thursday night. Social media, cable television, voter satisfaction surveys and focus groups are all ways to think beyond old-school communication. We know that people are willing to support tax and fee increases and bond initiatives when they understand what the money will being going toward, Greene said. This is why all state and local governments ought to be following the Governmental Accounting Standards Boards recommendation that each produce a service efforts and accomplishments (SEA) report, added Sharon Erickson. Such annual reports, noted Erickson, allow governments to report directly to citizens what theyre getting for their taxes and fees.

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Governing in Tough Times

A GUIDE FOR PUBLIC OFFICIALS

The Next Step

The Cost of Government Summit began on an optimistic note: Attendees saw the glass as half full when it came to viewing the current situation. However, that attitude was tempered by pragmatic concerns about working in an environment that has seen revenue and budgets plummet, and where the public has an extremely negative view toward government overall. For state and local public officials, the double dose of negativity has made the public sector extremely challenging. Yet much can be done to control and leverage the cost of government through innovation, disciplined work and savvy leadership. To start, view todays environment as an opportunity rather than a time to retrench. With record low borrowing rates, a growing chorus of experts believe now is the time to invest in infrastructure, everything from rails and ports to broadband networks. Investments in education will also pay dividends down the road in establishing an educated workforce that can compete in the global economy. Just as important, state and local leaders need to devote time and energy into restructuring internal operations so they can become more efficient, and to support a demoralized workforce with positive feedback and reinforcement. At the same time, government leaders need to be smart but disciplined about controlling the costs of the big tickets health care and pensionswhile becoming more innovative and aggressive when it comes to generating revenue. Ultimately the payoff will be the ability to re-engage citizens who have lost faith in government. Help them to understand the purpose and value of what government does, because government is not another cost that taxpayers have to bear, but an invaluable service that helps us all.

Save the Date!

GOVERNING Summit on the Cost of Government September 18-19, 2012 Washington, DC Registration is free for public sector attendees Learn more and register now at www.governing.com/events

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