PEF 3-year plan to save state $765 million
Steps the Legislature, governor, Division of Budget and comptroller can take to save $765 million.
- Mandate or direct state agencies to follow a cost-cutting review process for all state contracts;
- Set specific agency targets for reduced spending on contracts, especially for information technology and engineering;

- Focus closely on agencies with highest consultant expenditures;

- Evaluate all public authorities to determine which ones should be absorbed into state agencies and which ones should be eliminated;

- Balance spending cuts with equal revenue enhancements to address future budget gaps;

- Eliminate ineffective tax breaks and business subsidies; and

- Keep spending levels as a percentage of total personal income in NYS in line with historical levels.

By SHERRY HALBROOK
New York state needs to save money, but it’s going about it backwards.

“Forget the hiring freeze. What New York state needs is a consultant freeze,” said PEF President Ken Brynien.

That was the message PEF and a representative of State Comptroller Thomas DiNapoli delivered at a press conference in early May, and they had plenty of hard facts to back it up.

“Everyone is quick to throw out the popular and overused phrase ‘hiring freeze’ to solve the state’s budget gap,” Brynien said. “Our report, based on ground-breaking research from the Office of the State Comptroller (OSC) proves the real savings – three-quarters of a billion dollars over the next three years – is in a consultant freeze.”

PEF’s research, the result of analyzing data provided for the first time under the new Contract Disclosure Law, reveals new insights into how much the state spends on consultants and how much it could save by having state employees do the work, even when the cost of employee benefits are included.

If the state is serious about saving money, Brynien said, it should undertake a three-year plan to systematically reduce its dependence on consultants. (See list of recommended steps, on next column.) PEF has sent its report to the governor’s office.

“Compounded over three years, our plan, which calls for eliminating about half of all consultants, would save state taxpayers $765 million,” Brynien said.

“Half or more of the savings could come just by replacing information technology (IT), engineering and architectural consultants with state employees. It’s a plan that can be easily implemented and would provide recurring and realistic savings,” Brynien added.

Consultant use mounting
“Prior state administrations have made headlines cutting the size of state government,” Brynien said. “Meanwhile, no one was paying attention to the dramatic increase in the use and cost of professional consultant services.”

According to a Procurement Stewardship report issued by OSC, more than 23,000 private consultants are employed by state agencies at an estimated cost of $704 million in 2006-07.

OSC: Use economic sense
Representing DiNapoli at the conference, assistant comptroller Joseph Ruggiero said the comptroller “is committed to making sure New York taxpayers get the best value for their tax dollars. The state needs to use its resources as effectively and efficiently as possible.”

While both Brynien and Ruggiero said they recognize that using private consultants and contractors makes sense in certain situations, they said agencies have gone way beyond that.

In fact, the state’s payments to contractors and consultants just for professional services shot up 23 percent in three years (from fiscal year 2003-04 to fiscal 2006-07).

It makes sense economically, Ruggiero said, to use state workers “and it’s good for the taxpayers. New York needs to use outside consultants under (only) the most absolute necessity.”

Brynien said PEF wants to help Gov. David Paterson and the state Legislature address the budget deficit. But he cautioned the hiring freeze Paterson announced in April will have the opposite effect if agencies simply fill in the gaps with private consultants who cost more.

The problem with tightly restricting hiring and spending by state agencies, Brynien added, is the gap it creates for meeting the need for services. Plugging those gaps with expensive consultants has become a way of life at most state agencies and that has contributed to the budget deficit New York is facing now.

“We have solid evidence those contracts will cost the state more money than it would save under a hiring freeze,” Brynien said.

Contracting underreported
“It may seem counter-intuitive to hire your way out of a deficit, but if it’s done properly it would certainly help,” said Tom Cetrino, who led PEF’s analysis of the data.

“We found the state is paying as much as 250 percent more for consultants than it would pay for state employees to do the same work,” Cetrino said.

As bad as the problem of dependence and overspending for consultants appears to be, based on the data reported by state agencies under the new Contract Disclosure Law, Cetrino said the reality is probably even more extreme. That’s because many state agencies did not fully report all of their contracts and expenditures as mandated.

“PEF was a driving force behind getting this law drafted, introduced, passed and signed,” Brynien said. “Its intent is to make public and transparent the total cost and number of private consultants being paid by the state with tax dollars.”

Instead, he said, the agencies under-reported those expenditures by about $2 billion. As a result, as much as 75 percent to 80 percent of state spending on consulting contracts for professional services is not accounted for in the OSC’s Procurement Stewardship Act Report.

For instance, the state departments of Banking, Economic Development, Elections and Human Rights did not report any of their spending for professional consultants. The Department of Agriculture and Markets and three other agencies reported less than 1 percent of their actual consultant expenditures.

“Because of the substantial underreporting, we believe the real total number of private professionals working as state consultants may have been closer to 100,000,” Cetrino said.