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"Bureaucracy defends the status quo long past the time when the quo has lost its status."

- Laurence J. Peters

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One of the more common comparisons made when judging government is its performance relative to the performance of private businesses. Some argue that government should be “run more like a business.” The counter argument is that government isn’t a business because profits are not a central concern.

• Purchasing by the state is uncoordinated and inefficient.
  We don’t buy like a single organization, and we miss the savings from leveraging our buying power.

• Purchasing is tied to paper processes.
  This is the most expensive way to buy.

• The state has not invested in contract management.
  Millions are lost by not actively managing the contracts that we have.

• The state insulates itself from competition.
  Absent competitive pressures, state pays too much for services and doesn’t get the quality it deserves.

• Bureaucratic inertia stops obvious solutions.
  State government is not primed for innovation and continuous improvement.

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One of the more common comparisons made when judging government is its performance relative to the performance of private businesses. Some argue that government should be “run more like a business.” The counter argument is that government isn’t a business because profits are not a central concern. Some go so far as to say that the concept of customers doesn’t make sense, because people probably don’t consider themselves to be “customers” of the tax collector, the prison guard or the regulator.

The reason this debate continues is that both sides of the argument are partly right. Government does have a set of responsibilities and requirements that make it different from most American businesses. In most cases, it doesn’t earn a profit, and the services it provides frequently benefit many citizens rather than a specific individual— services such as roads, public schools, public safety and assistance to the needy.

Government hires employees, it manages a payroll, it buys and sometimes sells goods and services, it maintains a set of financial records, it deals with the public on a daily basis and it offers “products” to its customers.

Many of the daily processes of government, though, do closely parallel business operations. Government hires employees, it manages a payroll, it buys and sometimes sells goods and services, it maintains a set of financial records, it deals with the public on a daily basis and it offers “products” to its customers.

In managing these operations, government can and should operate like a business. It should make smart business decisions and manage its operations like what it is—one of the largest single businesses in California, with more than 315,000 employees, a $22.7 billion payroll and services that touch the lives of most of California’s 36 million people.

In its review, CPR found a number of areas where the state can operate in a more business-like fashion. It can incorporate many of the techniques that the most successful businesses use to cut costs and improve services. It can make common-sense decisions.

Most importantly, it can stop acting like hundreds of small, independent businesses and recognize that it is a single business enterprise. By doing that, particularly in the procurement area, the state can leverage its buying power to give the people of California a better value on the dollars they pour into the State Treasury.

An obvious place to begin these recommendations is procurement. California state government spends upwards of $7 billion annually on goods and services, ranging from work by consultants to food for inmates in state prisons to the computers on workers’ desktops to pencils and routine office supplies (Exhibit 10). California state government is large and diversified business.

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One problem is that single departments acting individually too often make these purchases. In that circumstance, the state clearly doesn’t get the best buy for its dollars. The irony is that often dozens, if not hundreds, of agencies are buying pretty much the same goods and services. Nowhere is this fact more obvious than in information technology. State agencies today have 17 contracts with Microsoft for their various products and services. We have 78 contracts with Cisco Systems and another 54 with IBM. Those are the major suppliers, and there are dozens of others.

The problem here doesn’t lie with our suppliers. They are responding to what the state asks of them. The problem is with a procurement system that turns a blind eye to the inefficiency and redundancy that dozens of contracts with the same vendor for generally the same services imply.

The state has begun to move in the right direction, but much more effort is necessary in this area. Since the CPR began, it has worked with the Department of General Services on an approach to purchasing called “strategic sourcing.” Strategic sourcing is a rigorous, systematic process by which an organization analyzes its spending and determines the best way to buy goods and services to get the best value at the lowest price. It is a first step toward leveraging the state’s enormous purchasing power.

This approach has been used successfully in the private sector, with reports of cost savings of 10–30 percent. It also has worked to speed up the procurement cycle, meaning fewer delays and a better relationship between purchaser and supplier.

CPR believes this approach has the potential to save the state millions of dollars annually.

Action: The Governor should direct the Department of General Services to expand its use of strategic sourcing throughout state government.

Strategic sourcing would be a major step forward, but our efforts to squeeze more out of every taxpayer dollar shouldn’t stop there. We should also take a hard look at major suppliers and how we have done business in the past. Specifically, the state should try to consolidate its thousands of small contracts into more encompassing statewide master contracts. This is a particularly important move in the information technology area, and state law allows the renegotiation of contracts.

It will be worth the effort. In discussions with CPR staff, Cisco Systems, as one example, estimated that a combination of contract consolidation and multi-year contracts could result in as much as a 15 percent reduction in contract costs to the state. Microsoft estimated reductions of five to seven percent through contract consolidation. The savings from just a handful of initial major vendors could amount to more than $2 million in savings annually.

Action: The state should negotiate single master service contracts with major vendors wherever possible.

This strategy should start with information technology vendors, due to the state’s large number of contracts. This strategy offers significant potential for savings, and both parties benefit from reduced billing and administrative costs.

The state also can be smarter about how it buys prescription drugs. The state is an enormous buyer of a range of pharmaceuticals for its employees through its health benefits program for university faculty and staff, for people receiving public assistance, and for those in adult and youth correction facilities.

Spending for pharmaceuticals by the Department of General Services (DGS), which buys drugs for five major departments, including the Department of Corrections and the California State University System, totaled about $153.6 million in Fiscal Year 2002–2003. However, that cost is swamped by the amount the state pays under the Medi-Cal and related Health Services programs, which totaled $3.8 billion in Fiscal Year 2002–2003 (Exhibit 11).

EXHIBIT 11

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STATE PHARMACEUTICAL COSTS BY PROGRAM
(Amounts in Millions)

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Department	Department Administering	Dollar Volume
Medi-Cal/Health Services	Health Services	$3,800.0
Corrections	General Services	101.7
Mental Health	General Services	35.4
Youth Authority	General Services	1.7
Developmental Services	General Services	13.2
California State University System	General Services	1.6

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The price of medicines is rising at an alarming rate. Drug costs through the DGS program rose from $41.6 million in Fiscal Year 1996–1997 to $153.6 million five years later. Most of the cost increase is attributable to the rise in mental health prescription costs for inmates in the corrections system. The average cost of medication was $197 per inmate annually in Fiscal Year 1996–1997, but that cost had risen to $770 per inmate a short five years later.

The price of medicines is rising at an alarming rate. Drug costs through the DGS program rose from $41.6 million in Fiscal Year 1996–1997 to $153.6 million five years later.

The state’s large volume of drug purchasing should translate to a strong market position and lower costs, but that is not the case. Several of the state agencies purchasing drugs do so independently, thus dividing the state’s buying power and undermining attempts at cost-effectiveness. Medi-Cal buys 90 percent of the drugs procured by the state, but at this point, other agencies don’t have access to this purchasing pool, and information on rebates for Medi-Cal are confidential and are not shared with other agencies.

In addition, the California Public Employees Retirement System (CalPERS), the California State Teachers Retirement System (CalSTRS), the California Veterans Homes and the University of California System have the legislative authority to buy drugs independently of the Department of General Services.

One way that many public and private organizations have worked to manage costs is by establishing drug formularies that closely control the cost and range of drugs, while looking for the best values. This approach also provides a large amount of information that can be used in making purchasing decisions and in negotiating with pharmaceutical suppliers.

Taking another step, public and private organizations have hired pharmacy benefits managers (PBMs) to provide this type of pharmacy management. The approach, which makes use of experts in this area, is not unknown to the state. Both CalPERS and CalSTRS have used PBMs to help contain and manage drug costs. The County Medical Services Program (CMSP), which operates in 34 small and rural counties, established a PBM in January 2003. The program serves 40,000 indigent adults and children who do not otherwise qualify for Medi-Cal or have health insurance. In the first year of its PBM contract, drug spending for CMSP was cut by 34 percent, and the program saved $20 million against payments to the manager of $700,000.

Buying pharmaceuticals is a complex process. All of California’s programs have special needs and are trying to do a good job, but it’s time to ask if we couldn’t do a better job through better management. Rising pharmaceutical costs are one of the most significant national health issues of this generation, and the statistics make it plain that by sticking to independent action on a department-by-department basis, the state is failing to manage costs effectively.

Rising pharmaceutical costs are one of the most significant national health issues of this generation, and the statistics make it plain that by sticking to independent action on a department-by-department basis, the state is failing to manage costs effectively. means that before the state actually receives a shipment of paper or a carton of toner, it spends $28 million just to process the paperwork. There is a better way that can both save money and cut that basic processing cost by more than 60 percent—to $31.50.

Action: The Governor should direct the Department of General Services to immediately enter into a contract with a Pharmacy Benefits Manager to administer the state’s drug purchasing program.

Action: The Department of General Services should seek to extend the state’s market power by entering into cooperative agreements with local governments.

Action: All state non-Medi-Cal pharmacy programs should be moved into a buying unit that can best leverage the state’s large expenditures in this area.

The centralization of pharmaceutical purchasing is important to the goal of managing the state’s health care responsibilities. Drug costs will continue to rise, and immediate action is the best way to stretch taxpayer dollars in the short term. If the changes can be put into effect quickly, the state could save $15.8 million in the first year of operation, with savings rising to more than $20 million a year once the program is fully in effect.

A more far-reaching step in the procurement area is to use technology to purchase more efficiently—a process known as electronic procurement or “e-procurement.”

Buying goods and services in most states is a manual process, with paper forms, phone bids, faxes and paper catalogs. In the digital age, any manual process is ripe for examination. The state issues about a quarter million purchase orders a year. The processing costs—in staff time and other resources—average at least $114 a purchase order, according to national surveys. That means that before the state actually receives a shipment of paper or a carton of toner, it spends $28 million just to process the paperwork. There is a better way that can both save money and cut that basic processing cost by more than 60 percent—to $31.50.

Electronic procurement will give decision makers precise information about spending, which the state doesn’t have now, including how and where the state is spending money. That sort of information is a key to cutting costs, leveraging buying power and measuring supplier performance.

It could also help the state expand the pool of suppliers, benefiting companies seeking to do business with the state and providing agencies with a wider range of options. Right now, lists of suppliers are not maintained centrally, and vendors must file separately with each agency to which they want to sell.

Electronic procurement is another area where the private sector has led the way. Xerox Corporation reduced the number of people needed to handle procurement by 20 percent when it went to e-procurement. The states that have pioneered this approach have also found savings. North Carolina reported savings of 26–50 percent when it implemented an e-procurement system.

Those who have begun using these systems report not only savings but also improvements in the information available for decision-making, efficiencies in the purchasing processes, better accountability, improved financial management and the ability to gain greater access to regional and small businesses.

One issue with any automation effort, of course, is the upfront cost. Governments are often reluctant to invest now in technology for the promise of future savings. In this case, the states that are using these systems already—including North Carolina, Maryland and Virginia— charge vendors fees to access the system, which pays for the system itself, with no start-up costs. It might also be possible to finance a new system using performance-based contracts so that the state and the private sector e-procurement partner share in the risks—and rewards—from the e-procurement savings.

Action: The Governor should direct the Department of General Services to develop and implement an e-procurement system statewide.

The state should develop a single electronic payment portal for people who want to pay their taxes, pay fees or purchase goods from the government online. Today, more than half of the state’s 36 million citizens and most of its businesses have access to the Internet. People are increasingly familiar with and accustomed to the use of electronic payments (e-payments) to conduct business at their convenience at anytime of the day or night—except, that is, with the state of California.

A few agencies have pioneered online payments, including the Board of Equalization, the Department of Consumer Affairs and the Department of Motor Vehicles. The problem with this approach is two-fold. Right now, each agency is developing its own payment portal, meaning that each is incurring development and operating costs. More to the point, though, while a few agencies can be found on the Internet, the vast majority cannot.

Even in the area of credit card payments, the various agencies that accept credit card payments have contracted with various third-party providers and have disparate processing methods and widely ranging fees.

Electronic payments are fast, convenient and much cheaper on a per transaction basis. Security for the payments has greatly improved, and the approach is widely used by business, by other states and by some California departments. It’s just common sense for the state to promote a common pay portal as part of the efforts to increase the state's Internet presence.

Action: The Chief Information Officer should establish a statewide strategy to implement electronic fee collection and reduce manual paper payments by 25 percent as soon as possible. The state should also move quickly to develop a common electronic payment portal.

Another area where California state government could operate more effectively is contract management.

In March 2003, the Legislative Audit Office overview and the Department of Finance (DOF) assessment of 117 state information technology contracts of more than $10 million uncovered numerous instances where departments were not properly managing technology projects. DOF found that of 90 of 117 projects—three out of four— had at least a 10 percent change in schedule, cost or scope, which may have adversely affected the completion of the projects. A 2001 Bureau of State Audits report found that state agencies and departments had not considered risks early in the procurement process. Problems that might have been corrected early lingered, requiring costly and time-consuming fixes late in the projects.

Many businesses and other units of government have faced similar problems managing large-scale contracts. There are ways to address the problem, but the state has failed to implement an aggressive policy to ensure that its projects are on schedule, on budget and effective. Currently, the state does not place an emphasis on contract management. Departments don’t provide training in this critical area of state business, and there is limited formal monitoring.

The few procurement officials hired by the state who possess contract management skills received their formal training elsewhere. It is a demanding field. Managers must understand issues ranging from the technical aspects of the project to contractor compensation and insurance plans. They must be able to negotiate disputes and monitor contractors’ financial condition so that it doesn’t jeopardize the project. The list goes on and on. If the state is going to function as a business, with $7 billion in purchases a year, it must be aggressive in writing and managing contracts that work for the state and for its private sector partners.

In addition, each state agency should conduct annual contract administration and management performance evaluations for their purchasing and procurement employees. The agencies and their representatives should be held accountable for improving and maintaining an effective system of contract management.

CPR believes that this simple shift in management emphasis will result in real savings to the state. One estimate, performed on a similar set of recommendations in Texas, estimated a .05 percent cost savings. Such an improvement in California's contracting could save the state $38 million a year.

PERFORMANCE-BASED CONTRACTS CLEARLY SPELL OUT ONLY THE DESIRED RESULTS EXPECTED FROM THE CONTRACTOR. THEY ALSO SPELL OUT HOW QUALITY WILL BE ENSURED AND THE REMEDIES IN CASES WHERE THE CONTRACTOR FAILS TO MEET PERFORMANCE EXPECTATIONS.

Action: The Department of General Services should institute a contract management policy for the state and develop common guidelines and training for all state-employed contract managers.

The state also should use performance-based contracting whenever appropriate. Traditional government contracts emphasize inputs—how much work the contractor will do, what sorts of material they will use and so on. Performance-based contracts, in contrast, clearly spell out only the desired results expected from the contractor. They also spell out how quality will be ensured and the remedies in cases where the contractor fails to meet performance expectations.

A wide range of services bought by the state would lend themselves to this approach. Performance-based contracts have been used in the private sector for information technology projects, janitorial services, construction projects and health purchasing among others.

California state government is in an odd position when it comes to this contracting methodology. The state has been slow to embrace the general use of this concept, although two of its agencies—the Department of Transportation (Caltrans) and the Franchise Tax Board (FTB)—have been pioneers in using the approach successfully. These two examples demonstrate the positive benefits for the state and also show two variations on the methodology.

GOVERNMENT PERFORMS SOME TASKS EXTREMELY WELL. FOR OTHER TASKS, USUALLY UNRELATED TO ITS CORE FUNCTIONS, THE PRIVATE SECTOR MAY OFFER A BETTER SOLUTION.

After the California's Northridge earthquake, Caltrans offered a contractor substantial performance incentives and penalties for rebuilding a highway overpass—a $200,000 per day bonus for completing the project ahead of schedule and a $200,000 a day penalty for each day it was behind. With this schedule incentive, this project was completed ahead of schedule, benefiting the state’s citizens and the contractor.

The Franchise Tax Board used a variation of this approach in which the contractor shared in the revenue benefits of the project. FTB’s Accounts Receivable Collections System required the contractor to front development costs for a share of any revenue gains once the system was in operation. The system’s benefits were originally forecast at $35 million a year in 1998, but the system has continuously exceeded expectations. Again, it has served as a model for similar projects in other states.

Other approaches to this type of contracting ties contractor payments to savings achieved rather than revenue; however, the basic idea is the same. The contractor shares the risk with the state and benefits from successful completion of its work (Exhibit 12).

EXHIBIT 12

INCENTIVE-BASED CONTRACTING OPTIONS FOR CALIFORNIA
Type of Incentive/ Remedy	Description
Cost-Based	Relates the contractor’s profit or fee to results achieved compared with identified cost-based targets.
Award Fee	Allows contractors to earn a portion (if not all) of an award fee pool established at the beginning of an evaluation period.
Share-In-Savings	The contractor pays for developing a finished product and is compensated from the savings it generates.
Share-In-Revenue	Generates additional revenue enhancements; compensation is based on a revenue sharing formula.
Balanced Scorecard	Used when performance is less tangible, i.e., contracting linked to the quality of lead personnel or communication and resolution of issues.
Past Performance	Information on past performance by the contractor is used as part of the decision process to exercise contract options or to make contract awards.
Non-Performance Remedies	Specified procedures or remedies for reduction in payment when services are not performed or do not meet contract requirements.

Action: The Department of General Services should actively promote performance-based contracting to reduce the cost of goods and services.

Savings can be significant. It can also help the state finance projects, like the Franchise Tax Board project, for which dollars might not otherwise be available through regular appropriations. Research indicates conservatively that seven to 15 percent of the total amount of state spending could benefit from this contracting approach. Estimates based on 11 percent of state contracts moving to a performance-based contracting suggests savings of about $67–167 million a year. As the scope of state contracting using this approach expands, savings could quickly top a quarter of a billion dollars annually.

Government performs some tasks extremely well. For other tasks, usually unrelated to its core functions, the private sector may offer a better solution. Often government agencies may resist private sector involvement, hanging on to activities that cost more money and are done less efficiently. For example, a department with a large amount of mailings may handle its own outgoing mail operations, rather than taking advantage of vendors who can more effectively and cheaply handle it. A department which uses a strategic approach will open this sort of non-core function to competition to drive down costs.

The federal government has used this approach extensively. The Federal Activities Inventory Reform Act of 1998 (FAIR) was designed to reduce federal agencies’ operating costs and increase their efficiency through the use of public-private competition. It encourages agencies to evaluate their core functions and determine which can be subjected to competition with the private sector. It requires an annual inventory of “commercial” activities.

GOVERNMENT SHOULD STOP BLINDLY FOLLOWING PRACTICES, BECAUSE “THAT’S THE WAY IT’S ALWAYS BEEN DONE.”

Similarly state and local governments nationally have used this approach to cut costs and make the most of limited staff resources. Virginia, for example, adopted the Government Competition Act in 1995, creating a process that is estimated to have saved the state $40 million a year. Similarly, in 1993, Texas created a Council on Competitive Government to look at alternative services methods, including managed competition, outsourcing, reengineering and public-private partnerships. Through 2002, the state had saved an estimated $84 million.

Action: The state should create a Competitive Government Policy Council to examine and promote competition opportunities for noncore state functions.

This council should develop strategies to remove barriers to alternative service delivery methods, such as managed competition, where it makes sense for the state.

Government should stop blindly following practices, because “that’s the way it’s always been done.” CPR’s research turned up scores of examples of where our state has not used the sort of common sense we would expect from the average citizen confronted with the same decisions.

The most striking example of this problem is the tortured method the state uses for approving school construction. State law requires local school districts to seek approval from at least four state agencies every time they construct a new facility, and depending on the site, as many as 40 other state programs may become involved. The Department of Education reviews site and educational requirements. The Department of Toxic Substances Control reviews potential environmental hazards. The Office of Public School Construction reviews funding eligibility and allocation, and the Office of the State Architect reviews construction plans for compliance with local building codes.

All of these activities are worthy safeguards when the lives of children are involved, but the state must ask itself if all of this review in Sacramento is really necessary for school buildings all over the state, particularly when the real responsibility for local education decisions should rest with local school administrators and locally elected school boards.

At the very least, we should use common sense and simplify this overly bureaucratic review process. The point of school building programs is to provide safe, new facilities for the state’s school children, not to create unnecessary layers of state review.

Action: The school site approval process should be consolidated into a single department to provide a one-stop approval process.

By making these changes, the same approvals can occur at a lower cost, faster and at greater convenience to school districts.

Another common sense decision CPR identified is related to highway construction and maintenance. Clearly, this is an important issue to Californians. The California Department of Transportation (Caltrans) is responsible for maintaining 50,000 lane miles of roads, 12,000 bridges, 250,000 acres of roadside areas, 88 roadside rests and many other facilities.

CALTRANS’ OWN STUDIES INDICATE THAT A DOLLAR SPENT TODAY ON PREVENTIVE MAINTENANCE—JOINT AND CRACK SEALING, SURFACE SEALS AND SO ON— TRANSLATES INTO A $20 SAVING FOR RECONSTRUCTION DUE TO FAILURE IN THE FUTURE.

These totals reflect a massive capital investment by the state’s taxpayers, and yet, the maintenance of this infrastructure is largely ignored while the state continues to add more lane miles. While the state’s transportation demands clearly require building the state highway system, the state should do a better job of maintaining the infrastructure that is already in place.

Caltrans’ own studies indicate that a dollar spent today on preventive maintenance—joint and crack sealing, surface seals and so on— translates into a $20 saving for reconstruction due to failure in the future. It’s only common sense to maintain existing roadways to avoid the need for costly replacement.

The CPR report outlines strategies that can help save money in the State Highway Account so it can be channeled into preventive maintenance. Outsourcing roadside rest area maintenance also could save the state up to $10 million annually, while improvements in the way prime contractors insure state projects could save an additional $10 million a year.

Action: The state should commit more State Highway Account resources to preventive maintenance.

The state should also relinquish some of its existing road infrastructure to local governments. Of the 50,000 miles of roadway the state maintains, up to 6,000 miles are roads that go through local city limits. As new state highways have been constructed, these arteries have been bypassed, and they have become, basically, local streets. However, the state continues to maintain them, increasing state costs that could better be used for actual state highway construction and maintenance.

This practice makes no sense when state highway dollars are already stretched to the breaking point, and in fact, some local governments have tried to have roadways relinquished to them.

As long ago as 1995, Caltrans performed a study on the existing state highway system, identifying 3,262 miles of roads that were more appropriately maintained by local governments. The report resulted in no changes in ownership, and today, the number of miles of such roads has actually increased.

Action: The state should examine the routes identified by Caltrans for possible relinquishment to local governments.

Approximate savings to State Highway Account funds from this change could total $100 million a year. These dollars are best used to maintain and expand the current state highway system. Diverting dollars to local road maintenance simply doesn't make sense, regardless of the origins of the roads.

The state does business with a large number of vendors, often paying millions of dollars for their goods and services. At the same time, a small but significant percentage of those vendors may owe the state money, often as a result of a tax delinquency or other liabilities. State law allows the debt to be offset against the amount the state owes to the vendor in the form of an offset.

Often the debt is owed to one agency, and another agency may contract with a vendor without knowing of payment problems in another agency. Until recently, there was no way for agencies to cross check their vendors for debts to the state. However, the recently implemented State Contract and Procurement Registration System can provide this information. Unfortunately, there is no requirement that departments use the system, and most do not.

Action: State agencies should use the State Contract and Procurement System to determine if the vendor owes the state money that can be offset against the state’s payment.

The state could increase its success in collecting debts owed to the state agencies if agencies used the system on a routine basis.

AS THE CALIFORNIA PERFORMANCE REVIEW WAS GETTING STARTED, THE GOVERNOR WANTED TO SEND AN E-MAIL TO ALL STATE EMPLOYEES INVITING THEIR PARTICIPATION AND IDEAS. THIS SIMPLE TASK, REPEATED MILLIONS OF TIMES A DAY IN BUSINESSES AND PUBLIC SECTOR AGENCIES ACROSS THE NATION TODAY, PROVED TO BE IMPOSSIBLE FOR CALIFORNIA STATE GOVERNMENT.

California state government is a large, far flung enterprise that literally covers the state. To be effective, its internal communications must be fast and efficient, particularly with the widespread use of electronic mail for low-cost, instantaneous communications. At present, our system is hopelessly behind the times.

As the California Performance Review was getting started, the Governor wanted to send an e-mail to all state employees inviting their participation and ideas. This simple task, repeated millions of times a day in businesses and public sector agencies across the nation today, proved to be impossible for California state government. Instead, this message—and any other message like it—was sent to agency and department heads to be forwarded to their employees. Even with the best intentions, the possibility of problems and misinformation is enormous.

This is a simple problem, but a significant one. One study by the Department of Finance in 2003, found the cost of providing e-mail to department employees ranged from $144 to $216 a year. The total cost of providing the current fragmented e-mail system was estimated at $21.6 million a year.

Moreover, the widespread occurrence of computer viruses raises real security issues, because it is uncertain to what degree agencies actually maintain current security safeguards. As one example, the Love Bug Virus in 2000 disabled the e-mail system in the Franchise Tax Board for four days, causing a loss in productivity on top of the costs to identify and eliminate the problem.

Given these problems, growing number of states are shifting to consolidated messaging systems. Over time, this approach can lower costs, improve service and provide tighter security. Ohio, for example, lowered its annual cost of messaging from $11 million to $2.1 million.

This approach should be implemented in California. Consolidated hardware and software licensing should produce savings across the state. The consolidation would also reduce state costs for buying and maintaining hardware and providing staff to perform maintenance and related activities.

This approach is a clear example of a common sense approach. It will provide state workers with a better and more secure messaging system, and it will greatly reduce state costs. Compared to the current estimates of about $21 million annually, the state should recognize significant savings as a majority of e-mail accounts are shifted to the new system.

Action: The state should consolidate departmental e-mail services.

Reforming the Failed Corrections System California’s multi-billion dollar corrections system has long been the source of criticism and media scrutiny. Among the problems mentioned: out of control costs, a high recidivism rate, abuse of inmates and juvenile wards by correctional staff, a disciplinary system that fails to punish wrongdoers, and the failure to deliver mandated health care to inmates and juvenile wards in an economical manner. Because of this, Governor Schwarzenegger established a Corrections Independent Review Panel under the leadership of former Governor George Deukmejian. The panel had a simple mandate: To conduct an independent review of the corrections system and report its findings to the public at the same time that it delivered its report to Governor Schwarzenegger. The panel consisted of more than 40 members, including an outside executive director, outside consultants, and representatives from the Department of Corrections, the California Youth Authority, the Office of the Inspector General, the Board of Prison Terms, the California Highway Patrol and the Labor and Workforce Development Agency. The panel was divided into eight teams: Organization, Ethics and Culture, Discipline, Use of Force, Personnel and Training, Risk Management, Population Control and Institution Closures. In addition, the Panel examined the current labor contract between the state and the California Correctional Peace Officers Association and the technology challenges facing the correctional system. The California correctional system is comprised of more than 54,000 employees, with a total budget of about $4 billion, representing 5.6 percent of the state budget. The system includes more than 300,000 inmates and parolees and 8,400 wards and juvenile parolees. The panel’s overarching conclusion: “At one time, the California correctional system was looked upon as a national leader. Innovative and daring, California pioneered the way for standards which were adopted by other jurisdictions as a model of efficiency. What then, has happened to this jewel of the corrections system?” “How did we fall from the pinnacle of success? The answers are complex, yet simple. There has been too much political interference, too much union control and too little management courage, accountability and transparency.” The panel found that much needs to be done to reform the California correctional system if its credibility is to be restored in the eyes of the public. Noting that all of the changes it recommends cannot be accomplished at once, the panel reports that “its recommendations should be accepted as a blueprint for future budgets and policy decisions.” The panel outlines a number of recommendations that should be accomplished as soon as possible. They include: Reorganizing the Youth and Adult Correctional Agency. Changing the culture and reinforcing strong ethical behavior. Ensuring that the best candidates are being recruited and that all employees are properly trained. Establishing discipline and use of force policies which are fair and equitable to the employee, the department and the public. Changing the way we manage inmates/wards so that they are better prepared to reenter society as a productive member. “It should also be recognized,” the panel’s report concludes, “that cultural change can be painfully slow, but we must begin now. Above all, the panel’s work was conducted with one major goal in mind...the increased safety of the citizens of California.”

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