VOL. 131 | NO. 244 | Thursday, December 8, 2016
View From the Hill
Outsourcing: Savings, But No Specifics
BY SAM STOCKARD
The Haslam administration is forging ahead with plans to nab a statewide facilities services contractor after an outside analysis backed up a study showing estimated cost savings of more than $35 million a year at Tennessee universities.
This potentially massive expansion of outsourcing comes much to the chagrin of United Campus Workers who’ve scoffed all along at Gov. Bill Haslam’s privatization efforts.
Not only are they continuing to cast a jaded eye toward the governor’s plan, saying it will cost them jobs and benefits, they’re questioning the review by KraftCPAs, saying the firm has conflicts of interest with Haslam and failed to answer a central question: How will privatization save of tens of millions of dollars?
Nevertheless, the Department of Finance and Administration is putting out a request for proposals from companies capable of managing properties, much like Jones Lang Lasalle already handles custodial, grounds, maintenance and repairs, at roughly 10 percent of the state’s properties.
With state officials saying JLL saved taxpayers $13 million over two years, look for it to have the inside track for this state contract as well.
The Office of Customer Focused Government sold the burgeoning outsource plan during the 2016 legislative session with the claim state employees’ jobs and benefits will be protected, as long as they get the job done, of course.
The estimated cost savings at state universities was $35.8 million, and the outside review by KraftCPAs dropped that by only $600,000, at least making it appear the third-party analysis was unbiased after looking at the figures state universities submitted.
“It was in the best interest of all stakeholders to engage an independent third party to objectively inspect our work,” says Terry Cowles, director of Consumer Focused Government.
“Now that we see a less than 2 percent impact to the overall potential savings from this objective report, we continue moving forward with the information gathering process by gathering cost estimates from potential providers allowing each agency to choose the path that’s best for the communities they serve.”
Besides downplaying this outsourcing effort by saying jobs and benefits will be saved, Cowles and other state officials say universities and other departments will be given the option to hire the private vendor.
Higher education officials appear to be on board.
“We appreciate the work the state has done to make this a thorough review process,” says UT President Joe DePietro. “Once the RFPs [request for proposals] are in and we have all the necessary and final data, we will have sufficient information for each of our campuses to make their own decisions on whether to opt-in based on what is best for them.”
Likewise, Tennessee Board of Regents Chancellor David Gregory says “validation” of the process was important.
“With the potential savings begin validated and with the protections in place for existing employees, the RFP for potential vendors is the correct next step,” Gregory says. “We remain interested in the results and the opportunity to have another tool to help us remain efficient and to look for new ways to control costs.”
Whether universities such as MTSU, East Tennessee State and the University of Memphis use the state contractor will depend on the new boards of trustees appointed by the governor as part of the FOCUS Act at each school. They are to be confirmed by the Legislature and start work in early 2017 as part of a higher-ed realignment plan designed to give individual state universities more local control.
As such, it could become the Bill Haslam Patronage Act.
Campus Workers rallied at the Legislative Plaza last session as Customer Focused Government unveiled its Business Justification Report for outsourcing facilities management at departments across the state.
The agency is subtracting the cost of protecting state employees, $22.4 million, from the potential annual savings of $57.6 million in the first year to reach $29.1 million with savings at $35.2 million in year two and beyond.
As momentum increases for an outside contractor, Campus Workers continues to pile it on, even as Gov. Haslam has said he’s simply trying to find ways to cut expenses and keep student tuition down.
“In the face of massive public opposition, without any input from the state’s Legislature, and evidence and direct experience overwhelmingly suggesting outsourcing does not work, Haslam is charging ahead anyway – and risking the jobs and livelihoods of thousands of workers and tens of millions of dollars in taxpayer money, and creating an unprecedented, secretive, executive branch procedure for turning over our state to private, profit-seeking entities,” says a United Campus Workers news release.
The group contends KraftCPAs, which was paid $81,995 to review the cost estimates, donated $15,000 to Haslam’s campaign in 2010 and 2014, and was retained for “professional services” in 2015 when news broke of Haslam’s outsourcing plan.
UCW also points out KraftCPAs executive Vic Alexander, who donated $5,800 to Haslam’s campaign, was appointed to the State Board of Accountancy, the body that would handle any ethics complaints filed about the relationship between the firm and Haslam.
In addition, KraftCPAs member Lee Kraft donated $7,500 to Haslam in 2013, according to the statement.
“There is no way KraftCPA can be considered independent,” UCW claims, arguing the firm simply regurgitated figures supplied them by state universities, instead of focusing on the main problem: how millions of dollars will be saved without laying off state workers.
Furthermore, they say Haslam ordered secrecy about outsourcing discussions and rewrote the rules for procuring contracts to favor corporations while circumventing the Legislature and public.
This contract won’t require legislative approval. And even Republicans, who hold supermajority control in the House and Senate, express misgivings about outsourcing, especially Knoxville-area legislators, who said it could hurt University of Tennessee workers.
But Democrats, obviously, are much more vocal.
State Rep. John Ray Clemmons, a Nashville Democrat, remains “completely opposed” to the plan he says would “outsource up to 17 percent” of state workers’ jobs.
“There is no way that the outsourcing initiative that (Haslam) has devised will not result in unemployment and loss of state benefits to current state employees,” Clemmons points out. “There is no proof that the level of services will be preserved or that the proper oversight will be maintained over services that are being paid for by taxpayers’ dollars.”
Clemmons is far from satisfied with how the state says money will be saved.
Projected cost cuts come through elimination of sub-contractors because the vendor can do the work and lower materials and supply costs through greater bargaining power.
And while he doesn’t question the motives of KraftCPAs or the review it produced, he says the quality of questions the firm was tasked to ask are questionable in and of themselves. He also says he believes the Campus Workers raised some “valid questions” about conflicts of interest and the ultimate question: whether outsourcing will save money and maintain services.
From a wider perspective, though, Clemmons says Haslam has shirked his duties on the insurance market and transportation while creating an office and finding data to supporting the outsourcing of jobs.
“So I seriously question his priorities,” Clemmons adds.
While the Office of Customer Focused Government touts savings under JLL’s facilities management, a recent Comptroller’s report raises some questions about how well the state oversees the company’s work.
The audit found state agencies are largely satisfied with JLL’s professionalism, timeliness and quality of services, one respondent in the audit stating: “They always respond quickly and get the job done correct the first time. Friendly and professional at all times.”
Some, however, consistently criticized janitorial services in their buildings and said better communication is needed between JLL and state agencies on outstanding work orders.
In addition, State of Tennessee Real Estate Management (STREAM), which oversees state-owned and leased properties, did not always ensure JLL submitted monthly reports or conducted property inspections as required by its contract. JLL also holds a contract with the state to oversee leasing of properties for state operations.
The Comptroller’s audit cited several problems with STREAM, including failure to set up policies and procedures on state leases and to manage leases for state agencies.
It also found the department and JLL “have not performed due diligence to ensure the state has procured or renewed leases in the state’s best interest.”
Clemmons contends state agencies such as STREAM are being set up for failure by the governor through underfunding and understaffing. He points out STREAM was able to add a person who would be responsible for overseeing JLL to make sure the company complied with its contract.
“The state leasing office is one of the specific areas and offices the governor has said he wants to outsource,” Clemmons says. “And so what you have here is a critique that they have failed to provide oversight of leases and services provided by JLL.
“Well, to the extent JLL failed in its duty and failed to perform the services for which it is contracted and is being paid with taxpayer money, it only benefits JLL, because the understaffed state agency will also be outsourced, probably to JLL as well.”
However, Dave Roberson, a spokesman with the Department of General Services, says the issues of monitoring JLL deal only with timely submission of reports and inspections and are not considered “substantive.” The audit didn’t identify them as “serious,” either, he points out.
No doubt about it, Comptroller Justin Wilson is a known nitpicker. Then again, that’s why they pay him.
Roberson referred questions about the possibility of STREAM being outsourced to the governor’s office. Haslam previously told reporters Kraft CPAs is a widely respected firm and doesn’t need the state’s business to survive.
But Roberson points out STREAM brought the work of its Capital Projects Group, formerly outsourced, back inside the division where the work is being handled quicker by state employees at a lower cost.
“I don’t think this suggests that all of STREAM is likely to be outsourced. Sometimes outsourcing is the right choice for reducing costs, and sometimes not,” Roberson says.
Asked if the audit raises concerns that more outsourcing could lead to increased oversight problems, Michelle Martin, a spokeswoman with the Office of Customer Focused Government, points out it already has a “rigorous contract governance structure” involving the local entity, and, she notes, companies responding to the recent RFP are required to “address contract governance” substantially.
As the state moves on this matter, not only will it have greater buying power through a contractor, since current demand is “fragmented” across 7,500 facilities statewide, a professional service provider would improve constantly, compared to the state, “because of new technologies and other innovations,” according to Martin.
United Campus Workers say there are other examples of poor service and lost dollars, such as outsourcing of janitorial work at UT-Knoxville and privatizing of the state’s motor pool, which it says led to “near doubling” of costs, though the governor “never admitted culpability.”
It’s comforting to know someone within the Haslam Administration recognizes outsourcing isn’t the next best thing since sliced bread. The governor might even think about government as a service industry, instead of a publicly-traded entity buoyed by constant cost-cutting that excites stock market investors.
No doubt, college students and their parents are probably excited to hear that training a state employee to work on HVAC units will keep their tuition down to only a 2 percent increase in the coming years, compared to 5-7 percent increases for more than a decade.
This leads to the risk of being repetitive. If a state employee switches over to JLL and becomes certified to work on heating and air conditioning units, why couldn’t he or she do that while on the state payroll? The state has Colleges of Applied Technology where these skills are taught.
The state should put them to good use. But instead of putting faith in the ability of our state employees to grow on the job, it appears we’ll be traveling the road of outsourcing instead.
Sam Stockard can be reached at email@example.com.