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January 20, 2011

Challenges for Change: Post Mortem

Lately there has been a lot of talk about Challenges for Change, a joint legislative-executive exercise from last year which was supposed to result in $37.8 million of savings for the general fund in fiscal year 2011 and $72 million in FY12 – such savings to be achieved through greater effectiveness rather than simple cutbacks in services delivered. I was the Douglas administration point person for Challenges so it's fair to blame me for the parts that didn't work, either because I didn't lobby effectively enough for the needed legislative authorization or because execution was faulty. You can read this post as informed or biased or both.

Although much of what we tried to accomplish in Challenges didn't work – often, but not always, because the legislature refused authorization to try, there is much that did work and will make the state government more effective in the future. There's a lot to learn both from the parts that worked – because we ought to do more of them – and from what didn't work. Some of the things that didn't work need to be tried again.

Because I re-retired in September, I don't know the current status of all the Challenges in detail. The final first year results won't be known until the state fiscal year is closed at the end of June. I do know that it is likely that most – but not all of the first year savings goal will be achieved but some through the use of one time funds and some through plain old cuts. The second year goal won't be reached through first year momentum; reaching that goal will require more legislative action this year.

Below is a post I wr0te just after the legislature adjourned giving the status of Challenges as authorized. There are some marked updates based on later events. Next week I'll write more on lessons learned.

Challenge Glass: Half Full or Half Empty?

Before adjourning, the Vermont legislature passed a Challenges for Change Bill which is supposed to result in more effective government while saving $37.8 million in the general fund for fiscal year 2011 and $72 million for FY12. But is the bill adequate to achieve these goals? What happens if the goals are not achieved?

The short answer is that the bill does enable some needed sustainable change in State government; it will save money; but there were also opportunities missed. Moreover, about $5 million of the FY11 savings comes from using one-time federal money (which there is a small probability that we won't get at all and which we won't have in FY12); and there is a huge potential problem in education funding, which was not adequately addressed for FY12.

The administration asked the legislature to authorize actions the administration estimated would save $31 million in FY11 and said that it could find another $7 million in restructuring savings without additional legislation. The legislature actually authorized restructuring which should save about $23.5 million (by my estimate) plus it said to use $5.16 million of federal funds, which leaves the administration the task of finding about $9 million in savings. It's a hard job but not impossible.

If the saving goals are not met for FY11, the administration does have the flexibility it should have – with plenty of notice to the legislature – to make up the difference with plain old cost-cutting. Hopefully that won't be necessary; but this is a better alternative than using rainy day funds as a backstop as some people had suggested.

Performance contracting and grant making: That is fully authorized. We will be able to demand that vendors, service providers, and grantees be held to and paid for measurable results. Update: I hear that at least most human services contracts HAVE been written with clear and enforceable performance requirements. This has enormous potential moving forward to assuring we get the results we pay for and don't pay for results we don't get. Locking in this gain depends on the current administration strictly enforcing these clauses; there'll be pressure not to.

Charter units: Another solid success. Innovative units of state government can be freed from many bureaucratic restrictions and will be able to deliver better services at lower cost. Lots of good ideas here and all that needed legislative authorization received that authorization with the exception of permission to sell off 500,000 square feet of state office and put it back on the local tax rolls. We weren't counting on that for immediate savings; but it makes a lot of sense considering that the state workforce has already shrunk by 8%. Update: Forest and Parks did very well with its flexibility in progress towards increasing park revenue and out-of-state visitors and eliminating dependence on the general fund for park funding. Very significant efforts were underway when I left to reduce printing and mailing costs by going online and reducing travel and phone costs and the time employees spend driving by using online conferencing. Achieving results depends on enforcement by the Secretary of Administration and implementation of changes by Buildings and General Services (BGS) and the Department of Innovation and Information (DII). Former BGS and DII commissioners Gerry Myers and Dave Tucker got these efforts off to a great start. I'm very optimistic that former Representative Michael Obuchowski, who was on the steering committee for Challenges and is now BGS commissioner, will do what needs to be done and more.

Regulatory: The legislature granted considerable freedom to expedite and simplify permits. It encouraged notices of proposed rules to go online but didn't allow them to be completely removed from newspapers. Online applications will save work for both applicants and the State. However, some strange language in this section of the bill says: "It is the intent of the general assembly that permitting and administrative efficiencies created by regulatory reform component of 'Challenges for Change' shall not be used to reduce staffing or resources at the agency of natural resources, the natural resources board, or the agency of agriculture, food and markets." We can be more efficient, but we can't use efficiency in this area to save money!

Four challenges to the Agency of Human Services: Lots of good things are authorized including a clinical utilization and review board to reduce unnecessary (and sometimes dangerous) medical procedures, expansion of the successful Blueprint for Health program to include mental as well as physical health, further integration of different services to children and families across formerly distinct bureaucratic silos, and more. There are small cuts in payments to "designated agencies" - non-profits which have regional state-granted monopolies on delivering certain services to human services clients; even the small cuts were made smaller in a last minute amendment of the floor of the Senate to attempt to assure that the cuts didn't simply result in less client service. In the administration view, this is a lost opportunity to require that the designated agencies restructure themselves to deliver services more effectively.

Corrections: Real progress was made here, too. Less people will be in prison AND public safety will be better protected. Diversion will keep some people out of prison altogether and get them the treatment they need. Better reintegration services including transitional housing and job help will make it possible not only to release some people more quickly but to do a better job of keeping all who are released out of trouble and reducing the danger they pose to others (there are very few people we keep in jail forever so we do have to think about reintegrating most offenders at some point). Rare and expensive prison beds will be reserved for those who should not be let out. Until the last minute, the bill contained a prohibition of closing even a wing of a prison – even if it became empty. This restriction was lifted in a compromise that only allows the closing of a prison while the legislature is in session, presumably so the legislature can prevent the closing. There is an irony here: communities usually object to building a correctional facility nearby; but they also object when there is a possibility of closure and associated loss of jobs and business.

Economic development: This is an opportunity missed. The administration hoped to restructure the web of more than fifty state-supported organizations that work on job creation into nine regional service centers offering one-stop shopping to job-creating businesses and communities which want economic development help. The plan would have introduced competitive bidding for state contracts for job creation and had targeted FY1 and FY12 savings of $3 million. The organizations didn't want to consolidate or to compete for state money; they convinced the legislature that both were bad ideas. In the end there is a token decrease in funding, no consolidation, no competition and less than $1 million/year in savings. There is a baby-step towards performance contracts. The real loss here is that we won't be encouraging job creation more effectively! Update: I was on a committee – established by the legislature – which was supposed to provide guidance for economic development planning and was supposed to work with the state economists to find measures for economic development success. Ably chaired by Steve Morse and with the active participation of very skilled volunteer members, the committee came up with some useful guidance which is about to be published – and put itself out of business (a very good example). But the disappointment is that the state economists basically said that there is no way to measure the success of economic development efforts in terms of jobs created or salaries obtained. IMHO we ought to vastly reduce expenditures whose effects we can't measure.

Education funding: To put it kindly, this challenge was side-stepped. To put it bluntly, the failure to require SUSTAINABLE savings in FY11 and the failure to REQUIRE any savings have set us up for a funding disaster in FY12 for the education fund and for the general fund which helps to support it. The plan relies on voluntary local cuts in a system where the pain of cutting is local but the cost of not cutting is spread statewide. The result of these perverse incentives is that the employment of adults in Vermont school systems continues to rise even though our number of students is steadily declining. Update: As everyone knows, the local districts did NOT make the voluntary cuts and Governor Shumlin said onetime federal money would be used to cushion the blow for FY12. We are headed right for a cliff in FY13. We blew an opportunity to change the trajectory of more staff to less students gently; it'll now have to be done much more abruptly. Too bad!

We will be better off, in my opinion, for having addressed some of the challenges. We will regret, I'm afraid, the challenges we didn't address. The challenge glass is half-full; that's better than empty, worse than full.

More posts I wrote while involved with Challenges are at http://blog.tomevslin.com/challenges-for-change/.

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