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A Rage to Reorganize

Governors are bent on reshaping and updating the way their governments work.

They tell their own version of the Goldilocks story at the California Department of Corrections. The state runs three neighboring prisons in Chino but because they are managed separately, they buy their own supplies. As a result, depending on how good a shopper each warden is, the men's prison may pay too much for oatmeal, the juvenile facility too little and the women's prison just the right amount. "They all get the same oatmeal," says J.P. Tremblay, a CDC spokesman. And all 32 adult and eight juvenile facilities in the state need oatmeal. If they could consolidate the purchase, they could get better prices for everyone. But the CDC is too decentralized to allow for such economies of scale.

Shortly after taking office as governor, Arnold Schwarzenegger made a famous pledge to "blow up the boxes" of state government. His plan to merge the adult and youth corrections systems, and make purchasing and other decisions more centralized within the new structure, is just one of the opening salvos in his bid to reshape California government. Last year, his California Performance Review came up with plans to restructure much of the state government, merging agencies and eliminating hundreds of boards and commissions and promising savings of $32 billion.

Schwarzenegger is not alone in his effort to reshape his state's government. Governors all over the country have drawn up reorganization plans. Some are more ambitious overhauls than others, but money is usually at the heart of the effort. The reorganization is often pegged as a potential cure for budget strains. And there have been some recent success stories, notably in Illinois, where Governor Rod Blagojevich claims savings of $3 billion over the past two years, through consolidation of agency functions and basic management areas such as technology and purchasing--and plain old layoffs.

For the most part, though, restructuring is far from fulfilling its promise, fiscal or otherwise. For one thing, it's very difficult to do. Collapsing functions and moving around personnel are politically dicey, which is why recent government-wide consolidation plans in states such as Texas and Arkansas never got off the ground. For another, the mere shifting of people and programs on an organizational chart doesn't--Illinois' experience to the contrary--do much to save money. In California, only about one out of every seven dollars that the state spends pays for the government's internal functions. The main expenses for the state come in the form of checks to the likes of school districts, hospitals, nursing homes and road builders. So, even laying off every state employee wouldn't balance the budget.

Finally, there is resistance to mergers even after agencies are consolidated. Just because you put the health folks and the human services folks together in the same building doesn't mean that they'll get along. They will bring with them conflicting institutional cultures and may spend more time fussing about pay, parking and perks than in learning to play nice. "There's an illusion involved with changing organizational charts--it seems bold, but the results are almost universally not good," says Peter Hutchinson, a former Minnesota finance director who now consults with states on budget issues. "The people who get reorganized don't focus on the work but on the workplace--who's got a door, who sits next to who."

None of which is to say that streamlining and rethinking government functions is hopeless. But the states that have had the most success are not the ones fighting political battles to merge their programs. Instead, some governors are simply rethinking their overall goals and then trying to achieve them with the tools and structure that they already have in place. This gets done either through interagency cooperation on a sustained, albeit ad hoc basis, or through the budgeting process.


It's common right now for states to move their workforce-training squads into their economic development agencies. A few years ago, it was trendy to put them in the welfare department. The changing view of where workforce training belongs speaks to a confusion that exists about many programs: Is their mission to serve the individuals they are helping out or the overall economy of the state? What Tennessee, Ohio and a few other states are recognizing is that a program such as workforce development may need to serve many masters, which is why they've stopped moving it around from pillar to post. Instead, what they've done is create jobs cabinets that pull together the best resources and programs from all the relevant agencies. The idea is that all hands, regardless of agency, will pull together to achieve their governor's goal of building the economy by helping citizens become more able workers.

Similarly, numerous states have created children's cabinets so that common ground can be found among officials from the education, health, welfare and other relevant departments. Maine, which created one of the first children's cabinets back in 1995, has enjoyed a fair amount of success in getting agency heads together to work on shared problems. Commissioners of several departments meet monthly but, perhaps more important, senior staff, such as program managers and deputy commissioners, meet weekly and are able on an ongoing basis to sort out not just problems but differences of jargon and agency cultures.

That's true even where federal mandates, the source of much state- level silo building, are involved. For instance, for years Maine had four different agencies--mental health, education, substance abuse and corrections--with mandates from the feds to help young people who are either leaving or returning to a treatment facility or correctional institute. Not all these departments necessarily talked to each other about individual cases, so a school principal might not know that a former felon was about to enroll. Through the children's cabinet, the state has created a uniform process so there is a point person on a regional level who speaks to the school, the warden and the drug counselors. "It's less about renaming something and more about the culture to identify where there are opportunities to create one system or one initiative to get the outcomes required by each of those mandates," says Lauren Sterling, program coordinator for the children's cabinet.

Even in Maine, officials haven't been able to resist the idea of combining agencies with shared purposes into one. (The state is now in the process of merging two big social service bureaucracies.) There, as elsewhere, many policy makers continue to believe that combining agencies not only makes government more efficient, with less duplication of effort, but also helps formerly disparate parts of the bureaucracy focus on important priorities. In South Dakota, Governor Mike Rounds has followed the popular post-9/11 trend of putting public safety and emergency services together under one roof, and also has merged economic development, tourism, housing, tribal relations and historic preservation into one big unit. All of these formerly disparate agencies can now more easily share a common purpose of promoting economic activity in the state. But the fact remains that they still have some other separate and distinct missions, and it's not clear that converting a bunch of departments into a set of divisions within one large department will do much to enhance performance on all the countless projects that fall below a governor's radar.


There's plenty of agreement in Sacramento that the state government is badly in need of taming. The budget shortfall is creeping toward the $20 billion mark and any reshuffling that looks like it can save a few dollars is welcome. As a first move, Schwarzenegger decided he would not only centralize prison administration but eliminate 88 boards and commissions and move their still-relevant functions into existing agencies. In January, Schwarzenegger submitted these twin plans to to the state's Little Hoover Commission, which planned to issue a response in March, then send them to the legislature for an up-or-down vote, with no amendments possible. But in mid-February, with little enthusiasm for elimination of the 88 boards evident either on the commission or in the legislature, Schwarzenegger simply withdrew that part of the plan. "I have concluded," the governor said, "that this proposal will benefit from further reviews." That decision had no effect on the prison reorganization program, which appeared to have a better chance for acceptance.

As governor, Schwarzenegger has developed the knack of working on one big issue at a time, using his celebrity and popularity to focus attention on it, and then using the momentum from his victories to help push forward his next big thing. That's the strategy he's employing with his government-wide reorganization effort, which is going to be a 12- or 15-round game. It's simply better politics not to take on too many constituencies at one time.

"I applaud the governor's efforts to reorganize state government," says state Representative Joe Nation, who serves on a Speaker's task force charged with examining Schwarzenegger's proposals. "It's not something state government does very often, because there aren't the market forces that make businesses more efficient."

The question remains, though, whether Schwarzenegger's government reorganization plans will gather momentum as they go along, or whether they'll be scuttled amidst the wreckage caused by other political arguments. Restructuring, after all, is just one component of Schwarzenegger's high-profile complaint that the whole political system of California needs to be rethought. He has announced ambitious plans to change the state pension system and the way in which teachers get paid, and he also wants to move the redistricting process out of the hands of legislators. Given that backdrop, legislators are naturally wary of restructuring plans that, as Nation says, "attempt to consolidate power in the governor's office."

The legislators seemed particularly incensed by Schwarzenegger's proposal to eliminate the 88 boards and commissions. Some of these deliberative bodies simply issue reports-their budgets are so small that they're really just rounding errors for a state that size-but others have real regulatory authority. Consumers can take their complaints to the appropriate board, which can issue fines or other penalties. Schwarzenegger's plan would have abolished the separate boards that police doctors, nurses, contractors, barbers and many other service providers, placing these functions under the purview of the Consumer Services Agency. That raised fears that a smaller number of investigators would be chasing too many different types of problems. "It's qualitatively different to regulate doctors than the people who de-termite your house," said one Democratic Senate aide.

There's been less argument about Schwarzenegger's prison package, which grew out of the work of yet another expert commission, this one headed by former Governor George Deukmejian. The need for reform was clear: The number of inmates has increased by 554 percent over the past 25 years, while the number of prisons for adults has nearly tripled. But each warden still receives separate confirmation from the state Senate and barely coordinates on any management issue with the Department of Corrections, resulting in fragmented personnel policies, information technology systems and oatmeal purchases.

Even if Schwarzenegger's prison plan stands a good shot at passage, there are some legislators who still question whether the effort will do enough to address the system's underlying problems. The recidivism rate is an alarming 70 percent and, as is the case in so many states, California's juvenile justice system has been the source of numerous complaints and lawsuits. Gloria Romero, the state Senate majority leader, favors moving youth corrections into the human services bureaucracy, where it rests in most states, rather than into the adult system as Schwarzenegger proposes. Regardless of which vision prevails, Romero says, the mere fact that youth offenders are being moved around on some state chart won't do much to rehabilitate them. Alluding to restructuring efforts of the past, Romero says, "Reorganization in and of itself does not automatically mean reform. If it did, we would have been reformed by now."


Much of the history of state government in this country is the story of how power has slowly but steadily moved toward being more and more centralized in the governor's office and a smaller number of agencies. Consolidation has had a lot to overcome. Colonial governors had been high-handed and, following the American Revolution, newly independent Americans preferred to have power disbursed among separately elected individuals, boards and commissions that ran state departments over which the governor had very little say. That is the reason why Texas still elects 25 statewide officials. As recently as the early 1990s, South Carolina's governor had sole appointment power in only 10 of dozens of state agencies and still lacks the kind of broad authority common in most states. "We've got an 1895 government structure," complains Will Folks, spokesman for South Carolina Governor Mark Sanford.

Traditionally, South Carolina governors have not submitted serious budget proposals--just a short wish list of pet programs. Sanford broke that pattern last year, presenting the first gubernatorial budget in South Carolina history that actually could be used to run the state. His new budget is even more ambitious, calling for a reduction in the number of independently elected constitutional officers from nine to four and eliminating 15 of the state's 87 agencies. He wants to squeeze the sprawling health bureaucracy into three departments and put many of the administrative and management functions that are currently spread throughout state government into a new Department of Administration. The newly appointed department heads in all these areas would fall within the governor's cabinet. As in California, some legislators are resisting Sanford's ideas on the grounds that they would consolidate too much power in the governor's office.

But Sanford's budget is a challenge to state agencies--even as they are currently configured--to act more cohesively toward a set of common goals. The budget is activity-based, meaning that instead of looking at each department's budget separately, the entire state apparatus is broken down into hundreds of programs, and whichever of these are most effective in achieving the governor's overarching goals are the ones that get funded. In other words, programs to promote public health are funded regardless of whether they happen to be administered under Medicaid or corrections. Once budgeters "spend" all their money by funding favored programs, other programs are cut off, regardless of which agency they fall under.

The idea of funding government by function rather than by agency, promoted by Peter Hutchinson and his colleagues at Public Strategies Group, has become increasingly popular. "This process really breaks down the silos of the departments of state government," says Greg Bird, a spokesman for the state budget office in Michigan. "You'll have folks from several departments talking about what programs will achieve their goals." The approach, known as "priorities of government," was pioneered two years ago in Washington State, where then-Governor Gary Locke used it to close a $2.6 billion, or 10 percent, budget gap without raising taxes.

There were plenty of skeptics in Washington who thought that the whole exercise was a bit of a ruse, that Locke was using the process to cut the programs he wanted to cut anyway. But even his critics admitted that his method framed the budget debate so that legislators who wanted to spend money differently were forced to offer their own lists of priority programs, rather than simply cheerlead for their favorite departments.

Ted Kulongoski of Oregon is one of several governors who have adopted the model this year. If the idea continues to spread south along the Pacific Coast, it might give Schwarzenegger more political cover to cut spending than any amount of deck chair shuffling he can do through reorganization.

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