Part of Mark Dayton’s revised budget plan involves dramatic reductions in how much the government spends on private sector contracts.
“State agencies spent over $850 million on outsourced professional and technical services during the 2008-09 biennium,” Dayton’s plan states. “Cutting this outsourcing in half would thus save $425 million.”
Dayton’s correct that the state spends about that much on outsourcing annually. But is it realistic to slice spending in half?
During the last biennium, the state spent more than $862 million on private sector contracts – or roughly $431 million each year – according to data pulled from the Minnesota Management and Budget website. This money was spent on a range of services, including road and bridge repair, computer programming, correctional facility management and payroll administration. So, Dayton’s figures are in the ballpark.
Dayton hasn’t detailed the contracts he’d like to cut, but his staff points to a recent study done by the Wisconsin Legislature that found outsourcing waste and says a similar Minnesota assessment could show that some projects are unnecessary.
Even so, making these cuts may be easier said than done because many contracts provide the state with essential services. In fact, the state requires that agencies or departments prove that “no current state employee is able and available to perform the services called for by the contract” before putting a project up for bid.
Some of the most substantial private sector contracting occurs at the Minnesota Department of Transportation. Between 2008 and 2009, MnDOT spent more than $120 million on contracts to rebuild roads and bridges, and is slated to spend about $73 million in 2010.
The state relies heavily on the private sector for road construction. Firms bid competitively on contracts to repair bridges and roads in the state, and the winning bidder hires workers to do the actual repairs. According to David Semerad, Chief Executive Officer and Director of the Associated General Contractors of Minnesota, upwards of 20,000 people are hired for these jobs in a typical road construction year.
According to government data, here’s a sampling of other essential contracts:
• A contract between the Department of Corrections and Correctional Medical Services, a company that provides medical, psychiatric, and pharmaceutical services to the state’s 10 prison facilities, care required by the state. Between 2008 and 2009, the corrections department spent $46 million on the contract.
• A contract between Minnesota State Colleges and Universities and US Bank to process credit card-based payment by students of tuition and fees, which cost roughly $3.5 million in the last biennium. According to Linda Kohl, a spokeswoman for MnSCU, such contracts are standard at many higher education institutions. “We use a contract because US Bank has far more expertise in student private banking data issues than we do,” she said.
• An $8.2 million contract between the Department of Employment and Economic Development and Bearingpoint Inc (now Delloite Consulting) to maintain the state’s unemployment benefits website. The site is where people go to file for the benefits, and is the only fully automated system in the country, according to department spokeswoman Kirsten Morell.
Dayton’s correct that the state spends approximately $850 million per biennium on outsourcing. And cutting such activity in half could save the state more than $400 million.
But in practice, Dayton’s plan appears difficult to implement. Many of the state’s contracts provide essential services that the state would still have to supply one way or another. Further, Minnesota law requires departments and agencies prove no state workers can take on these tasks before they contract with a firm.
Dayton’s claim is inconclusive.
Mark Dayton for Governor, Mark Dayton’s Revised Budget Plan, Sept. 21, 2010
Dayton campaign fact sheet on outsourcing
Minnesota Management and Budget, contractor spending 2008, created Sept. 29, 2010
Minnesota Management and Budget, contractors spending 2009, created Sept. 29, 2010
Correctional Medical Services, Locations: Minnesota, accessed Sept. 30, 2010
The Pew Center on the States, States Buying Smarter: Lessons Learned from Minnesota and Virginia, May 2010
Minnesota Office of the Revisor Statutes, 16C.08 Professional or Technical Services, accessed Sept. 30, 2010
The Milkwaukee Sentinal Journal, Use of outsourcing by state soars, audit shows, By Patrick Marley, May 12, 2009
Interview, Katharine Tinucci, spokeswoman, Mark Dayton, Sept. 28, 2010
Interview, David Semerad, Chief Financial Officer, Associated General Contractors of
Minnesota, Sept. 30, 2010
Interview, Shari Burt, Communications Director, Minnesota Department of Corrections, Sept. 30, 2010
Interview, Linda Kohl, Associate Vice Chancellor for Public Affairs, Minnesota State Colleges and Universities, Sept. 30, 2010
Interview, Kirsten Morell, spokeswoman, Department of Employment and Economic Development, Sept. 30, 2010