Last month I discussed methods to control skyrocketing health care costs. This month I look at the best strategies to squeeze more for less out of the rest of government. Next month I’ll offer the third installment: How to light a fire under education reform.
Nov. 13, 2006
To: Newly Elected Officials
From: David Osborne, Senior Partner at the Public Strategies Group
Re: What To Do When the Cupboard Is Bare
If you’re like most newly elected executives and legislators, you’re chock full of new ideas. And most of them cost money, whether of the program spending or the tax cut variety.
But there’s little to spare in most of your jurisdictions, and across-the-board cuts have already weakened too many programs. The only viable source of new money is making the old money more productive, so it can deliver better results for less.
I suggest you look at five proven methods to deliver more with less:
1. Budgeting for Outcomes (BFO).
Budgeting for Outcomes combines strategic planning, zero-based budgeting and performance budgeting in a new package that is practical enough to have already been adopted in 15 different states, cities, counties, and school districts. (See my March 2006 Osborne Letter.) It pushes leaders to rethink their priorities and managers to rethink the way they deliver services. There are often cheaper and better ways to achieve the same (or better) results, but the normal budget processes don’t ask people to look for them. Budgeting for Outcomes does.
BFO is also designed to pinpoint the lowest-value programs or activities and drop them from your budget, freeing up money for more promising investments. It helps overcome special interests that fight for their favorite program or subsidy by making the trade-offs involved in any budget very clear. Those arguing for ineffective spending must demonstrate that it delivers better results than the alternatives.
BFO also helps ensure accountability for performance. If you don’t deliver results, you don’t get funded. What higher form of accountability is there?
Finally, it helps leaders talk about the budget in common sense terms. If you’ve ever tried to read traditional budget documents, you know that to most of us they’re Greek. But anyone can understand a BFO budget. Organized around results, not departments, it makes crystal clear what results you’re trying to produce, what programs you’re funding to produce them, and what you’ve decided not to fund. (For more on BFO, see The Price of Government.)
2. Competition.
Forcing public agencies to compete with other organizations—public, private, and/or non-profit—is still the fastest way to improve their efficiency. When public agencies are required to compete they unleash the creative potential of their employees, because the incentives for success and penalties for failure are so direct.
One method, called managed competition, uses a contracting process but lets public agencies compete. This has been done all over the world and studied almost as often, and on average, it yields 20-30 percent savings the first time you do it, no matter who wins. Typically the public sector wins about half of these contests—after figuring out how to lower costs.
If you don’t want to go through the actual contracting process, you can use a model San Diego invented in 1997, called “Bid to Goal.” The city hires an independent consultant with experience in the industry to prepare a “mock bid” (which is verified by a second consultant), and the public agency has to match the price and quality or see the service contracted out. A labor-management committee develops the agency’s proposal.
If the proposal is accepted, results are monitored and audited annually by the Audit Division. If the labor-management partnership fails to deliver the promised savings, the city manager can issue a request for proposals for private bids the next day. (Leaders of the effort called this provision the “shark in the tank.”) San Diego’s Metropolitan Wastewater Department saved $109 million over six years on their first “Bid-to-Goal” deal. (For more information, see The Price of Government, chapter 7.)
If a service can be charged to its customers—such as a recreation program, a golf course, internal vehicle fleets, telecommunications, and maintenance operations—an even better method is “enterprise management.” You turn the service into an enterprise fund and give it as many management flexibilities as possible, so it can operate much like a business. It must then earn its money by charging its customers. Unless there is a good reason to maintain a monopoly, you allow buyers to purchase the service wherever they choose.
Such enterprises find themselves in a sink or swim situation, and most of them learn to swim quite rapidly. Many improve their service so much that they begin to attract other customers, often from other public sector organizations. (For more on enterprise management, see The Reinventor’s Fieldbook, chapter 4.)
3. An Accountability-for-Flexibility Trade.
As I have argued in previous letters, the greatest obstacle to efficiency and effectiveness in the public sector is red tape: rules and regulations that make it impossible for managers and employees to do what common sense suggests. Managers can’t hire good people, reward high performers, and fire poor performers. Employees can’t use money budgeted for one line item in a new way to reduce costs or improve service.
Yet elected officials are always nervous about giving managers and employees more discretion. What if someone abuses it? What if the newspaper gets hold of the story?
There is a powerful solution to this dilemma: Give agencies increased management flexibility, but only in return for increased accountability for performance. Governor Tom Vilsack and the Iowa legislature did this a few years ago with the Departments of Revenue, Corrections, Natural Resources, and Human Services, plus the Alcoholic Beverages Division of the Commerce Department and the Iowa Veterans’ Home.
Between the six of them they volunteered savings or new revenues of $15 million a year. In return for this and a commitment to specific performance levels, they earned the freedom to waive administrative, personnel, and procurement rules that didn’t make sense, to keep half of any money they didn’t spend in a fiscal year, to move money between budget accounts, and to apply to a $3 million Transformation Grant Fund. Each agency worked out a five-year agreement with the governor, specifying the results it would produce, special projects it would complete, which of 40 potential freedoms it would be granted, and the consequences for its level of performance.
In their first two years, the Charter Agencies generated $20 million a year in savings and new revenues while improving their results. Last spring the initiative won a prestigious Innovation in American Government Award.
Great Britain organizes 75 percent of its civil service in “Executive Agencies” with these kinds of flexibilities and performance agreements; indeed, they were the inspiration for Iowa’s Charter Agencies. In 1994 Parliament declared them “the single most successful Civil Service reform program of recent decades.”
The bottom line? When public managers and employees are freed up to use their heads, they can produce extraordinary results.
4. Using Technology to Drive Customer Service.
When today’s citizens arrive at the Department of Motor Vehicles bureau or the permit office, they want to be in the driver’s seat. They want choice, they want control, and they don’t want government wasting their time.
Technology offers many solutions. When citizens are in the driver’s seat, they’ll actually take more responsibility for the driving. In the same way that ATMs made customers into their own bank tellers, citizens will, when given the opportunity, fill out forms, do data entry, arrange for payment, and do the scheduling connected with services. In the end, they’ll get better service, be more satisfied, and save their governments both time and money.
States, cities, counties have used the Internet for driver's license renewals, vehicle registration renewals, income tax payments, uniform commercial code filings, vital statistics, business licensing and registration, professional license renewals, campsite registrations, and parking ticket payments.
The savings are huge. Arizonans can renew their drivers’ licenses in less than three minutes by connecting to a web page or dialing a toll free number. A traditional license renewal costs $6.60 to process; online, the cost is $1.60—a savings of 76 percent. Another advantage is that instant data entry makes up-to-date information available to law enforcement in real time. And even for those who continue to visit the DMV, shorter lines mean shorter waits.
Utah saves 75 percent on each on-line license lookup & verification; Maine saves 50 percent on every on-line vehicle registration; Tennessee saves 36 percent on every driver’s license renewal; and Kansas saves 66 percent on on-line uniform commercial code (UCC) filings. In 2003,11 state initiatives alone saved $1.7 billion.
5. Reducing the Cost of Mistrust
Traditional public bureaucracies are built on the assumption that most of us, if given the opportunity, will lie, cheat and steal. Consider special education, where teachers spend up to 50 percent of their time filling out forms to demonstrate compliance with federal and state regulations. Or child welfare, where caseworkers report spending up to 80 percent of their time on paperwork and documentation.
All these rules were inspired by specific problems and instituted to keep them from reoccurring. But the cost of this mistrust is enormous.
There is a better way. By building support for the rules, working in partnership with compliers, making the process of compliance easier, and creating incentives to reward compliance, leaders can often win voluntary compliance at a fraction of what they now spend, while achieving equal or higher compliance rates.
Most compliance processes can be streamlined without lowering standards at all. If government can make it a snap to pay our taxes, ensure a safe workplace, and meet our legal obligations when we employ nannies and after-school babysitters, more of us will comply with the law. In the 1990s, for instance, the Minnesota Department of Revenue realized that half of its non-compliance was the result of taxpayer errors, so it radically simplified its short form, down from some 50 lines to nine, and rewrote each line in plain language. Then it invested in more taxpayer assistance rather than more auditors. The result was greater compliance and a $20 million increase in tax receipts.
OSHA, EPA, the IRS, and other federal agencies--as well as similar agencies in states, cities and counties--have begun creating one-stop permitting processes, consolidating related processes into single applications, and waiving rules for businesses that are already performing well.
Public organizations can also save money by simplifying their internal rules and processes. Milwaukee simplified its procurement rules, gave managers higher purchase limits, streamlined purchasing processes, and put simplified procedure manuals on an intranet, so managers could always find them. All this allowed the city to cut the department’s budget by more than 55 percent.
Finally, governments can use carrots as well as sticks to ensure compliance. When some states required five cent deposits on bottles and cans—to be returned when the empty bottle or can was turned in for recycling—they were using a simple incentive. Without a single public program or employee, these “bottle bills” significantly reduced litter and broken glass in streets and parks.
Compliance is a crucial foundation of any society, but not at any price. In an era of permanent fiscal crisis, winning compliance is no longer simply a nice idea. It is a necessity.
David Osborne
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