Efficiency Lessons from Our City Halls and Statehouses

State and local governments are finding ways to cut spending while improving services. There are signs that the federal government is beginning to take notice.
by | May 16, 2012

Hidden beneath Washington's acrimonious debate about spending and the very role of government is an increasing realization that innovation can in fact reduce government's size while increasing its effectiveness.

At the federal level, the extent of Washington's budgetary and regulatory overreach seems finally to have sunk in: Mark Warner, the Democratic senator and former Virginia governor, has proposed eliminating duplicative bureaucracy that hamstrings civil servants and limits their impact. And the budget proposed by Republican Paul Ryan, chairman of the House Budget Committee, lays out a plan for an easily achievable 10 percent reduction in the federal workforce over the next 10 years.

These ideas are an order of magnitude better than the politics-as-usual approach to budget debates, where voices on one side demand the swift elimination of entire government departments and those on the other insist on the maintenance of each and every one.

The model for this kind of pragmatic spending reform originates at the local and state level, led by officials who are finding ways to balance their budgets without settling for diminished services. They are rejecting false, hot-button choices — between efficiency and organized labor or between public- and private-service providers. Public-sector workers and government vendors are being challenged to increase productivity, reduce costs and root out entrenched processes that compromise service quality. Productivity is the issue, not whether workers belong to a union or how much they are paid.

For example, San Diego Mayor Jerry Sanders, a Republican, and Chicago Mayor Rahm Emanuel, a Democrat, both have utilized a process known as "managed competition" to engender innovation, savings and performance in the delivery of key services. In managed competition, city workers and private providers compete — and sometimes collaborate — to win contracts to provide services.

Sanders initiated a public-private competition that resulted in public employees prevailing over private fleet-services operators and saving the city $22 million in the process. Emanuel applied managed competition to the city's expanded recycling programs, realizing $1 million in cost reductions in just the first three months.

Putting government on a diet requires both the public and the private sectors to execute their roles well. Every service requires high-quality, open-minded government program management and effective private technology and responsiveness. For example, the New York Department of Environmental Protection, one of the country's best, had the confidence to issue a broad request for proposals asking for ways it could become even better in such areas as management, capital and technology. The winning team, in partnership with city employees, is expected to produce tens of millions of dollars in annual savings.

And no approach can succeed without leaders willing to deploy political capital and dedicated teams working with the executive's personal commitment and authority. Upon taking office, Indiana Gov. Mitch Daniels created an Efficiency Division within the state Office of Management and Budget, tasked with constant performance improvement. Seven years later, after dozens of completed transactions ranging from aggressive fleet reduction to outsourcing prison food service, Daniels can claim hundreds of millions of dollars in compounding savings. Cris Johnston, who heads the effort, tells me that he finds another area ripe for improvement on an almost-weekly basis.

Similarly, New York Mayor Michael Bloomberg used his Office of Operations to break through bureaucratic opposition and produce savings, particularly by establishing shared services across agencies. Areas such as data centers, accounts receivable, human-resources management and real estate were rife with overlap and more than ready for attention.

Budget leadership requires both a culture in which every dollar counts and the right structural tools, such as performance management, true activity costing, analytics, revolving funds that allow agencies to keep part of what they save, and at least some measure of pay for performance.

The savings that can be realized from applying these principles can be truly transformative. When I was mayor of Indianapolis, we took a government that already was comparatively lean and saved $400 million, reducing the cost of each service we touched by 20 percent. Over eight years, the city's non-public-safety workforce shrank by 40 percent without a single union worker being laid off. The city's current mayor, Greg Ballard, has identified another $60 million in savings from transferring the city's water and wastewater systems to the city's not-for-profit gas utility.

By avoiding false choices and undertaking the tough work of increasing productivity and innovation, thinning the bureaucracy and managing down large unfunded obligations, these leaders are setting an example not only for other local and state governments but for Washington. We can indeed produce better and cheaper government.

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