A State Shapes Up
With a bureaucracy grown rigid and rule-bound, Iowa is pushing its agencies to act like entrepreneurs.
It was a harrowing highway moment. An official from Iowa's Department of Corrections was driving an agency van when he had a high-speed encounter with a deer. While the official was unhurt, neither the deer nor the van survived. That accident could have resulted in a secondary trauma: a delay of up to eight months to replace the van. Under Iowa's traditional procurement rules, all agencies had to use the state contract to buy vehicles--a process that often added months to the transaction.
Rigid rules such as these can be a major drag on agencies and their ability to do their jobs efficiently. But they can also be something else. In Iowa, they've become the impetus for a movement to shape up state government through entrepreneurship.
One of Iowa's main--and most successful--thrusts is in chartering its agencies. Under this system, which got underway in 2003, agencies were offered a trade-off: If they volunteered for the program, their annual appropriation would be cut, but in return, they would get more flexibility in how they operate. Here was a chance not only to cut red tape but also to break away from a learned helplessness that a government can impart.
Participating agencies are exempt from any mandated across-the-board budget cuts, but they have to commit to producing measurable benefits and to helping close the state's budget gap--either by saving money or earning revenues. To achieve those goals, they are given incentives to act entrepreneurially. They can, for instance, retain proceeds from asset sales as well as 80 percent of new revenues they generate and half their year-end general fund balance. Those are privileges few agencies in any state can lay claim to.
Five Iowa agencies volunteered for the charter movement--corrections, human services, natural resources, revenue, and alcoholic beverages-- as well as the state's veterans home. All totaled, the volunteers represent nearly 30 percent of appropriated state funds and 50 percent of executive-branch employees.
For the corrections department, becoming a charter agency meant taking a $2.5 million cut in funding over five years. But the payback was nearly immediate. A few weeks after the department signed on to become a charter agency, the governor ordered across-the-board cuts in all agencies except those exempted through their charter status. If it weren't a charter agency, corrections would have lost $6 million from its budget right then and there.
Then, when the deer incident happened, the agency enjoyed another benefit. It didn't have to wait months for a state purchaser to get the van deal. DOC buyers marched right down to an auto dealership and made arrangements for quick delivery and at the same price the state had negotiated on the contract.
The charter privileges have jolted participating agencies into thinking differently. For example, the Department of Human Services had no impetus to sell residential facilities that were sitting idle and were likely to stay that way. As department officials saw it, the only thing they had to gain from a sale was a potentially large political headache. But as a charter agency, DHS had the chance to keep some of the money from the sale. That put the agency into a deal- making mindset.
Similar activities are going on in the other charter agencies. The director of the Department of Natural Resources is heartened by the exemption from legislatively set staff limits. Under normal budget appropriations, the department would be given a ceiling for the number of full-time-equivalent employees it can hire. Even if the department got additional funding through federal grants, once it hit its staffing limit that was that. Not so anymore. "The beauty of it is we now hire based on the ability to deliver a product, whereas before it was artificially limited," says Jeff Vonk, DNR's director.
The agencies now are looking at results rather than rules. "It's got them thinking about what they can do, not what they can't do," Jim Chrisinger, a team leader at the Department of Management.
Two years ago, as part of its experiment in entrepreneurial government, Iowa combined four agencies that provide services to other agencies and changed the rules about who has to buy services from those providers. State agencies still have to purchase "utility services," such as heat, rental space and custodial services from the state provider, but they can buy other "marketplace services"--such as conference planning, surplus property, motor pool and repair services- -either from the state or elsewhere.
What this means is that service divisions that used to automatically get business from other government agencies have to prove they are worth using. Their survival depends on it: Those agencies no longer receive legislative appropriations to provide their services. In trying to woo customers, the agencies will have to improve the quality and prices of what they offer--or go out of business.
That pressure has radically altered the business practices of the state print shop, which had been losing money on an annual basis. In order to be more competitive, the shop halved the number of employees and sold an underperforming offset printing operation to the state's prison industries. The print shop appears to be headed for a bottom line in the black this year--and it is attracting customers.
THE REPLICATION ROUTE
Iowa is borrowing a page from Washington State's budgeting playbook and purchasing results rather than funding departments. Administration officials look at the entire budget, set priorities and apportion spending by starting at the top of the list. When money runs out, funding is cut off and whatever was at the lower end of the list is out of luck. The idea is to get away from the "we're funding because it's always been funded" attitude.
To assess quality and progress, Iowa holds quarterly meetings during which departments meet with the governor and lieutenant governor. Discussions revolve around specifics: how things are going and what the department can do better. That's an idea borrowed from Baltimore, where the mayor holds regular meetings with agency heads to grill them on the progress of specific performance measures.
The state hasn't only turned to other governments for ideas. In its use of something called "kaizen," it is emulating business practices. The Japanese word means "continuous improvement," and the practice started in the manufacturing world as a way to boost productivity. In Iowa, it has meant putting agency people in a room and having them examine how they conduct their business. The point is to find ways to cut waste so money can be redirected to areas that are causing public dissatisfaction or frustrating agency personnel.
It's not as touchy-feely as it sounds. Before the DNR scrutinized how it was operating, staff took an average of 63 days to turn around a basic air-emissions permit, something businesses need before they get a new construction permit. The department mapped out its process, identifying areas of wasted time and areas of efficiency. "We eliminated dead time in the process," says Vonk. Within a week, the department had a streamlined process, and it now takes less than two weeks to issue a new permit. Similarly, over at Human Resources, officials went into a kaizen huddle and were able to shrink the time it took to renew a social worker license from 21 days to two.
Not all of the administration's flexibility experiments have worked out well. An effort to improve state-local relations, by offering municipal governments more leeway to raise taxes and fees in exchange for cuts in state aid, failed when the legislature reduced aid to localities but granted them almost no new revenue-raising authority.
Meanwhile, some chartered agencies have found that not every rule is meant to be broken. In some cases, the rules that everyone wanted to buck proved to have a useful purpose. That was the case when the DHS wanted to hire top people and pay salaries above the norm for the state. "Salary is a known entity in the public sector," says Mollie Anderson, director of the Department of Administrative Services. If one person is paid a lot more, others can become disgruntled. "There are some reasons why we have the rules we have," she adds.
For the most part, though, the state will be looking at charter agencies to see how the experiment has worked. "If it's good enough for them," Anderson says, "maybe we should think about it for the rest of our customers."
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