Efficiency in Colorado State Government: Are We There Yet?

By Kelly Hupfeld Policy Report: Government Efficiency Series

Efficiency in Colorado State Government: Are We There Yet?

By Kelly Hupfeld Associate Dean, School of Public Affairs, University of Colorado Denver Research Affiliate, Buechner Institute for Governance Efficiency Series: Report Number 2012201-01

About this Series: Efficiency in government services is a complex topic. While we often have a commonsense notion that efficiency is about getting more outputs or outcomes per input or dollar spent, measuring public sector efficiency is very hard in practice. It is hard to measure partly because public goods are not typically traded in markets and they are often only provided by one entity, which makes it hard to benchmark. For these reasons, at the state level, it is useful to try to benchmark Colorado government efficiency by comparing it to other states, as it is reasonable to assume that all states are striving to be efficient, especially as they compete for economic development resources, but that some are more successful than others. It is also useful to compare Colorado to itself, over time, when possible. Colorado has relatively low levels of taxation and state funding, as situated in comparative rankings of other states. A common theme in Colorados political discourse is that public investments should be spent efficiently and such efficiency should be demonstrated before tax increases are contemplated. As a result, our goal in this report series is to provide straightforward data and analysis to inform Colorados conversation about the relative efficiency of our public sector.

Our mission is to enhance the understanding and achievement of efficient, effective and just governance in Colorado and the nation. We accomplish this mission by serving as a community resource, providing objective policy research and program evaluation, expert technical assistance, leadership and professional development training and forums for the civil discussion of public issues.

Buechner Institute for Governance

EXECUTIVE SUMMARY As revenue shrinks and the demand for public services grows, government managers and elected officials are being asked to do more with less. In the minds of many citizens, the government is notoriously wasteful. As a result, increasing efficiency is perceived as a relatively easy way to avoid cuts in services and tax hikes. In the private sector, efficiency is typically measured by comparing the cost of inputs to the value of outputs. A business that is not efficient will not maximize its profits. The public sector, funded with taxpayer dollars, has a responsibility to operate efficiently. But we also ask our government agencies to consider other values in addition to efficiency. These include values such as equality of access, democratic procedures, and transparency. Implementing these values is often time-consuming and expensive in other words, inefficient. This paper explores the concept of efficiency as it applies to the public sector.
Governor Bill Owens (January 3, 1999 Denver Post article): The tone of his administration, he said, will be that of reform. "I'm going to try to make sure that taxpayers get a full value for their tax dollar." Governor Bill Ritter (Oct 16, 2007 Denver Post article): "Here in Colorado we think every taxpayer dollar is precious." Governor John Hickenlooper (January 13, 2011 State of the State address): We will visit state offices across Colorado in search of ideas for efficiency, and ways to re-design the delivery of services.

I. EFFICIENCY AND TRUST IN GOVERNMENT As revenue shrinks and the demand for services grows, government managers and elected politicians face very difficult choices and angry voters. Raising revenue through tax and/or fee increases is not politically popular. Cutting services is not popular either, particularly when voters are asked about cutting specific programs rather than downsizing government in general or theoretical terms. As a result, many public servants and elected officials are looking for ways to do more with less. The quotes from Colorado governors on the first page of this document indicate that this is an ongoing, and bipartisan, issue in Colorado. At the national level, it is clear that Americans believe that greater efficiencies can and should be found in government. A 2010 poll from the Pew Research Center for the People and the Press, administered at the height of the rancorous federal debate over health care reform, revealed that 70 percent of respondents believe that waste and inefficiency is a major problem for the federal government. At the same time, respondents believed that government was facing more difficult challenges now than in the past, and 56 percent agreed that Americans are not willing to pay for things they want the government to do.1 Typically, polls find that people have higher opinions of their state and local institutions than of the federal government. However, the 2010 Pew Center poll discovered that views of state and local governments had declined precipitously since the last survey in 1997. In 1997, 62 percent believed that state It is clear that government, including state and local governments, must take steps to improve relationships with citizens. Ensuring efficient operations, and making sure that citizens are knowledgeable about gauging the performance of government, will be a key part of restoring trust.
Buechner Institute for Governance

government had a positive impact on their day-to-day lives, and 64 percent had the same response for the impact of local government. In 2010, just 42 percent said that state government had a positive impact, and 51 percent said that local government had a positive impact. This change was particularly pronounced in the West, where just 34 percent of respondents agree that state government has a positive impact on their day-to-day lives, and 48 percent view state governments impact as negative. The Pew Center poll was administered at a time when the average Americans mood could best be described as angry and frustrated, and respondents did not limit their anger and frustration to government. Around two-thirds of respondents also said that large corporations and banks and financial institutions had a negative impact on the country. However, it is clear that government, including state and local governments, must take steps to improve relationships with citizens. Ensuring efficient operations, and making sure that citizens are knowledgeable about gauging the performance of government, will be a key part of restoring trust. This brief will discuss the concept of efficiency as it applies to the private and public sectors, identify popular initiatives aimed at increasing efficiency in the public sector, and discuss the implications for Colorado state government. II. WHAT DOES EFFICIENCY MEAN IN THE PUBLIC SECTOR? When the average person thinks of efficiency, the dictionary definition likely comes to mind: performing or functioning effectively with the least waste of time and effort. Efficient operations are important for any organization, whether in the public or private sector, and every organization has a responsibility to strive for efficiency and maximize the return on its resources. But how can efficiency be measured? How do we know if efficiency has been attained? In the private sector, the measurement of efficiency or productivity often involves comparing the cost of input to the value of outputs. For example, the calculation of return on investment involves comparing the investment in a particular activity or product to the outcomes obtained through that activity or investment. Efficiency can be calculated for a company as a whole, or for a single process within that company, or for individual employees or employee units within the company. Entire industries have sprung up around complex methodologies used to measure and improve efficiency, such as Six Sigma, Lean Manufacturing, and data envelopment analysis. In the public sector, the concept of efficiency often gets translated into simple outputs or outcomes per dollar,2 or even claims that because a large amount of money is spent, government performance must be inefficient. However, many other concepts are involved in understanding efficiency. In the first place, there must be agreement on the value and appropriateness of the activity undertaken. As management scholar Peter Drucker said, There is nothing so useless as doing efficiently that which should not be done at all. Commentators at the conservative Cato Institute argue that government will always operate inefficiently because of its lack of market incentives, and therefore government activities should be reduced to only those that cannot be addressed by the private sector.3 From this perspective, we should be looking to axe huge chunks of government, rather than nibbling around the edges seeking efficiencies. |

Buechner Institute for Governance

For those less convinced of the markets benign powers, seeking government efficiency can take many forms. It can mean ferreting out spending that is obviously wasteful, such as the infamous $640 toilet seat purchase by Pentagon officials in the 1980s. It can mean reducing the extent of unnecessary bureaucratic processes, such as cumbersome paperwork requirements or duplication across agencies. It can mean incorporating technology into functions that previously were handled by people and paper. And it can mean revising operations to better address new contexts and needs, including eliminating functions that are truly better served by the private sector. The debate over the size and role of the U.S. Postal Service provides an example of a function (mail delivery) whose context has evolved dramatically since the time the federal government established traditional mail delivery services. Adding to the complexity, the determination of an organizations efficiency cannot be divorced from the determination of that organizations effectiveness. Congratulating efficiency in an organization that is doing the wrong thing efficiently, or falling far short of its purpose while operating very cheaply, is useless and misleading. The determination of an organizations efficiency cannot be divorced from the determination of that organizations effectiveness.

Again, Peter Drucker had something to say about this: Efficiency is doing things right; effectiveness is doing the right things. In government as in the private sector, managers need to have a clear vision of what it means to be doing the right things: then they must turn to the question of how to do those things in the right way. In the private sector, profit provides a relatively easy way to measure whether the organization is doing the right things, and also provides insight into efficiency. In the public sector, the identification of the right thing to be doing is subject to constant debate and revision by multiple stakeholders. Public managers must try to follow vague and sometimes contradictory laws whose lack of clarity is deliberate, resulting from political compromise. Agency missions and strategies change regularly as elections bring new faces into leadership positions. People working in government bring their own ideas about the right thing to do. Simply identifying the criteria to be used to determine whether an agency is doing the right thing requires making value judgments about constantly moving targets. The concept of efficiency is also muddied in government by the very nature of democracy. As Harry S. Truman said, When you have an efficient government, you have a dictatorship. In our democracy, government is expected to operate efficiently, but it is also expected to be transparent, open, accountable, and available to all. The structures and processes put in place to protect these democratic values often causes conflict with the push to be efficient. In our democracy, the structures and processes that are necessary to protect democratic values often cause conflict with the push to be efficient. For example, government rulemaking typically cannot occur without notice to the public and an opportunity for hearing, and the failure to take public comments into consideration may be considered as evidence that government is not doing the right thing. It would be
Buechner Institute for Governance

much more efficient to allow agencies to put their own rules in place without public input, but in this case the values of democracy and transparency trump the value of efficiency. In our education system, students arrive at wildly varying levels of capacity and preparation, but schools are required not only to serve all students, but expected to bring them to standardized levels of proficiency. As business operations experts know, one way to improve efficiency is to reduce variations in the production line by removing those inputs that cause the standard process to take additional steps. If efficiency were the highest value we applied to our education system, we would probably take steps to reduce access to education by those who caused the greatest variations to the standard educational process typically children with special needs, children living in poverty, children who need to learn English. However, as a society, we have determined that equal access to education and even equal outcomes in education are of the highest value in operating our educational system. III. MEASURING PUBLIC SECTOR PERFORMANCE None of the above discussion is meant to say that efficiency has no place where other democratic values are prioritized. To the contrary, government has an affirmative responsibility to use taxpayer money wisely as it works to fulfill its mission, and examples of inefficiency and waste will undermine public confidence in the ability of government to serve the public good. As a result, efficiency must be one of the indicators we use to assess government performance -- but it typically will not be the only measure. Recent efforts to improve efficiency in government have focused on adopting a version of the private sectors management for results, in which the agency defines its goals, identifies appropriate indicators of success, and ties its budget to the anticipated outcomes. The New Public Management in Federal Government In the past two decades, there has been intense interest in finding ways to evaluate government performance and in institutionalizing a culture of performance measurement in federal government. The shift to this new approach, popularly titled the New Public Management and articulated in books such as Reinventing Government,4 represented a move away from the previously dominant view of government bureaucracy as a positive force, necessary to protect against political corruption and to promote expert and objective decision-making in the public interest. The New Public Management encourages viewing citizens primarily as customers of government services, and promotes a management focus on government results rather than agency activities and processes. The New Public Management also encourages government agencies to incorporate market-like practices such as competition and decentralization of decision-making. Parts of the New Public Management have become institutionalized in federal government, starting with the passage of the Government Performance and Results Act in 1993. The GPRA requires government agencies to develop multi-year strategic plans and annual performance plans, and to publish annual reports of performance using indicators identified in the performance plans. Under President George W. Bush, the federal Office of Management and Budget assessed federal agency and program performance using the Performance Assessment
Buechner Institute for Governance

Rating Tool, and agencies were required to create performance budgets tied to their GPRA performance plans. The GPRA Modernization Act, passed in 2010, expands the original GPRA by requiring priorities and plans to be identified and coordinated across the federal government. A visit to any federal agency website quickly reveals the application of the GPRA requirements to that agencys purpose and activities. For example, the Environmental Protection Agencys strategic plan, annual performance plans and budgets, and performance reports can be found at http://www.epa.gov/planandbudget/, and the same documents for the National Institutes for Health can be found at http://nihperformance.nih.gov/. In a 2004 report that assessed the impact of the GPRA over the past 10 years, the U.S. Government Accountability Office (GAO) found that GPRA had laid a solid foundation of results-oriented agency planning, measurement, and reporting that have begun to address federal program effectiveness, customer service, and improvement of Congressional decisionmaking. In particular, government managers now had access to much more information about the performance of their programs. However, more work needed to be done on training managers on developing performance plans and measures, using information for decisionmaking, and coordinating among agencies.5 Managing for Results in State and Local Governments Many state and local governments across the country have embraced the idea of managing for results. Perhaps the most well known of these initiatives is CitiStat, which began in Baltimore as an effort to use data to drive management decisions (and was based on New York Citys datadriven policing system, CompStat). According to the Center for American Progress, the heads of Baltimores city departments meet every two weeks to discuss performance data with officials from the mayors office. Other cities that have adopted variations of CitiStat or other performance management initiatives include Austin, Texas; Phoenix, Arizona; and Portland, Oregon. 6 When Baltimore mayor Martin OMalley was elected governor of Maryland in 2006, he instituted a state level version of CitiStat called StateStat. The StateStat office uses datasets from participating state agencies to create indicators of performance, which are then used to frame discussions with cabinet officials about their agencys performance. A Delivery Unit works with state agencies to use data for identifying progress on the governors priority goals.7 Washington Governor Christine Gregoire implemented the Government Management and Accountability Performance initiative after a visit to Baltimore. The GMAP has been recognized by the Council on State Governments, the Kennedy School of Government at Harvard, and Governing magazine, which gave Washington state its highest grade of A- in its 2008 ranking of the quality of management in the states. Oregon requires its state agencies to report annually on key performance measures. These measures are developed as part of the annual budget process. A Committee on Performance Excellence, created by the legislature, reports on state agency efforts to improve performance,
Buechner Institute for Governance

such as the adoption by the state Department of Human Services of a Lean approach to improving its service delivery.8 (Lean refers to a process originating in the private sector of analyzing production processes and eliminating steps that do not create value.) These trends are steps in the right direction in that they require agencies to articulate goals and assess their performance against those goals. Just as in the private sector, however, resultsfocused management can be shortsighted if it does not take into account the multiple purposes and stakeholders involved in fulfilling the agencys purpose. Because goal-setting will drive performance if managers are to be held responsible for reaching agency goals, the goals must incorporate all expectations we have of our government, including but not limited to efficient operations. IV. CONCLUSION: IMPLICATIONS FOR COLORADO STATE GOVERNEMNT Much of the fiscal discussion in Colorado has been on the challenging broader environment and the tax and spending constraints caused by the interaction of three constitutional provisions: 1) Gallagher Amendment (limits local property tax base), 2) Taxpayers Bill of Rights (TABOR) (limits revenue and requires voter approval for all tax increases), and 3) Amendment 23 (requires minimum increases in funding for K-12). Together, these provisions have reduced local contributions and increased the burden to the state while prohibiting any revenue increases without prior voter approval. These constraints have helped change Colorado from an average spending state in the 1980s, to a state that is near the bottom of spending in almost all areas of state government. After a focus on zero-based budgeting from the 1970s, Colorado has experimented over time with a variety of state performance plans. Fairly recently, the Transparency Online Project (TOPS, at http:// tops.co.us), begun in 2009 by executive order of then-Governor Bill Ritter, is intended to provide accountability to taxpayers by showing state government revenues, expenditures, and agency budgets and spending. This website provides useful information about state revenue spending, but does not attempt to judge the efficiency or effectiveness of the states operations or otherwise link agency spending to performance goals. The legislature passed the State Measurement for Accountable, Responsive, and Transparent (SMART) Government Act in 2010, which requires state departments to develop five-year strategic plans, with clear performance goals and ways to measure achievement of them. It was amended in 2011, to add lean principles that put greater attention on efficiency, upon which the Governors Office of State Planning and Budgeting is focused. Generally, this follows Governor John Hickenloopers focus on asking state employees and citizens to identify savings, waste, and inefficiencies.9 In the executive summary of his Colorado Blueprint, Governor Hickenlooper stated that Coloradans deserve a government that is responsive to their concerns and priorities, is frugal with their tax dollars, and promotes economic development [T]he Hickenlooper Administration is focused on the Three Es of Good Government: efficiency, effectiveness, and elegance.
Buechner Institute for Governance

The Buechner Institute for Governances Series on efficiency in Colorado state government examines the major areas of state expenditure, and tries to assess and compare their levels of efficiency. By doing so, we hope to inform the conversations taking place around the efficiency of state government.

ENDNOTES:

The Pew Research Center for the People & the Press (2010). The People and Their Government: Distrust, Discontent, Anger, and Partisan Rancor. Washington, D.C. Retrieved from http://www.peoplepress.org/files/legacy-pdf/606.pdf.
2

Outputs are usually understood to be the amount of goods or services produced, while outcomes usually include measures of impact on a goal. For example, in law enforcement, outputs could be tracked through arrests made, while outcomes would address the impact of outputs on longer-term measures such as the crime rate.
3

DeHaven, Tad. Cato@Liberty blog, September 3, 2010, http://www.cato-at-liberty.org/government-efficiency/.

Osborne, D. and Gaebler, T. (1992). Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector. Reading, MA: Addison-Wesley.
5

United States Government Accountability Office (2004). Results -Oriented Government: GPRA Has Established a Solid Foundation for Achieving Even Greater Results. GAO -04-38. Washington, D.C.: GAO.
6

Perez, T. and Rushing, R. (2007). The CitiStat Model: How Data -Driven Decision-Making Can Increase Efficiency and Effectiveness. Washington, D.C.: Center for American Progress.
7

Information obtained from StateStat website, at http://www.statestat.maryland.gov/.

Committee on Performance Excellence (2010). Report to the Governor, Legislature, and Public. Retrieved September 21, 2011, from http://www.oregon.gov/DAS/BAM/docs/Perf_Excell_Comm/GovRpt1-2010.pdf.
9

http://www.colorado.gov/cs/Satellite/GovHickenlooper/CBON/1251588744102

Buechner Institute for Governance