No. 651: Efficiency Commission Lights the Path Out of Deficit Spending

When written in Chinese, the word ‘crisis’ is composed of two characters — one represents danger and the other represents opportunity.
— John F. Kennedy

Often quick to ring the alarm over a foundering ship of state and its entrenched programs during an enduring budget crisis, North Carolina’s political class would do well to also consider the alternative in Kennedy’s words of wisdom. Opportunities do exist, and a governor’s commission created to promote government efficiency and savings on state spending shows the way.
The 16-member commission, headed by First Citizens BancShares Vice Chairman James B. Hyler, Jr., released a report in early December that recommends far-reaching changes in state government. Many of these proposals could save North Carolina hundreds of millions of dollars and possibly throttle the state’s deficit spending — without raising taxes or creating new ones.
To get there, however, Gov. Mike Easley and other state leaders first must be willing to change their free-spending ways. Then, they must be patient, a virtue lost in today’s political climate of instant gratification.
Among the commission’s notable recommendations:
• Analyze the current organization of state government. Using the best practices of other state governments as models, North Carolina should conduct a comprehensive examination and reorganization of the core services of the executive branch.
• Reduce the scope, size, and numbers of boards and commissions. Several dozen state boards and commissions have significant budgetary, fee-raising, and rulemaking authority, the commission noted. The public entities are not part of normal budget debate because most of them are supported by revenue other than from the General Fund. According to the commission, all boards and commissions should: (1) establish a sunset provision to ensure that the need for their function is examined periodically; (2) reduce the number of members and meetings; (3) eliminate or reduce the regulatory burden that they place on state agencies, with regulatory commissions meritingspecial consideration for elimination or consolidation; (4) submit their budgets in a uniform manner to the State Budget Office and the Legislative Fiscal Research Division.
• Use zero-based budgeting. Departments should begin each fiscal year with blank budgets that require review of programs and elimination of those that have become obsolete. This would force program managers to justify expenditures and curtail wasteful spending.
• Establish incentives to control costs. Current state policy provides no incentive for agencies to manage their finances conservatively. As an example, the commission cited the university system, which is allowed to retain unused appropriations, or “reversions.” Universities should be encouraged to use a portion of the reversions for other important projects, such as “dividing remaining information technology dollars between agency and enterprise information technology initiatives.”
• Reduce duplicative personnel systems. The commission found that the state has more than 40 personnel systems. The Office of State Personnel should evaluate the systems, especially the university system, and reduce inefficient structures.
• Reduce headcount in a smart manner. To achieve personnel savings, departments should be required to justify a critical need for any position that becomes vacant.
• Explore privatization and managed competition. A panel should be established to review state government and identify key areas for consideration of privatization/managed competition.
Remarkably, the commission’s recommendations dovetail with the John Locke Foundation’s Agenda 2002: A Candidate’s Guide to Key Issues in North Public Policy. The JLF report keyed on many items, programs, or whole agencies that fell outside the proper scope of government and the highest-priority needs of the state. For example, the foundation’s alternative budget in 2002 identified $255 million in wasteful subsidies to corporations, $221 million in state services that should be the responsibility of users instead of taxpayers, $100 million in bureaucratic duplication, $218 million in nonteaching personnel and expenses in public schools, and $87 million in inappropriate subsidies for research and arts organizations that should be funded privately, or locally, among other savings.
Differing from the efficiency commission’s recommendations were those of another panel created by the governor, the Governor’s Commission to Modernize State Finances. Also releasing its report in early December, the state finances commission took a less praiseworthy tack. Seemingly oblivious to runaway spending, the panel recommended that the sales tax be expanded to include services. North Carolina’s citizenry is in no mood for a new tax, and any smart politico will reject it out of hand.
To the owner or CEO of any business or even the head of a household, the efficiency commission’s recommendations reflect plain old common sense. State leaders should seize a golden opportunity and hone the ax.