Colorado Legislative Council Staff



(Replaces Fiscal Note dated January 6, 1998)

General Fund and Cash Fund Exempt Expenditure Impact

Drafting Number:

Prime Sponsor(s):

LLS 98-366

Rep. Pfiffner

Sen. J. Johnson


Bill Status:

Fiscal Analyst:

April 23, 1998

Senate Appropriations

Steve Tammeus (866-2756)



Summary of Legislation


FY 1998/99

FY 1999/2000

State Revenues

General Fund

Other Fund



State Expenditures

General Fund

Cash Fund Exempt

Cash Fund Exempt - Department of Law







FTE Position Change



Local Government Impact — None

             *This amount for the Department of Law is included in the General Fund expenditure above.

            This bill, as amended by the Senate State, Veterans, and Military Affairs Committee (Senate Journal, April 15, 1998, pages 822-824), allows any state agency to elect to implement managed competition as an additional management strategy or tool to maximize the effectiveness and efficiency of government services. The bill defines “managed competition” as the process by which a state agency authorizes employees of the agency to compete with private businesses or firms for a personal services contract authorized under Sections 24-50-503 or 24-50-504, C.R.S.

            The bill requires a Labor-Management Cooperation Council to be organized within any state agency that chooses to implement managed competition to focus on achieving successful outcomes in the areas of general privatization initiatives and employee managed competition projects. The bill requires the council to participate in all stages of the consideration and implementation of a state agency’s proposal for managed competition.

            The bill requires state agencies to meet certain conditions in order to implement managed competition, including requirements for written documentation and other relevant data. The bill requires the agency to prepare a proposal to implement managed competition and solicit input from the Labor-Management Cooperation Council. The proposal shall be submitted to the Commission on Government Efficiency. The bill requires the proposal to include, among others, a cost-benefit analysis comparison including the direct and indirect costs of the governmental operation, the private contractor operation, and the reengineering of the current governmental operation. The bill specifies the types of costs that are to be included in the analysis. The proposal should also include a review and evaluation of the staff capacity and a process for monitoring and evaluating a contract with a private contractor.

            The bill requires the head of the agency to notify employees of the agency at least 90 days prior to requesting bids from private entities for a personal services contract. If state employees desire to submit a bid through a business unit, the agency is required to provide the business unit with adequate training for the bidding process, and to provide a team of knowledgeable persons to assist the business unit with preparing the bid. The bill specifies the process for a business unit to submit a sealed bid. The bill requires the State Personnel Director to implement procedures to ensure objectivity in the bid evaluation process. The bill specifies that the business unit’s actual cost of providing services cannot exceed the business unit’s contract price, and requires a new request for bids in that event.

            The bill allows any agency that realizes a cost savings through the use of personal services contracts to retain the savings and apply the savings to the office or division where the savings originated. The State Personnel Director shall establish, and the Commission on Government Efficiency shall approve procedures to calculate the amount of cost savings.

            The bill allows the cost savings to be distributed by the state agency as follows:

               up to one-half the amount as bonuses to the employees in the business unit;

               up to one-half may be retained and expended by the agency to improve the workplace conditions; or

               to other programs as allocated by the executive director of the agency, under certain conditions.

            The bill requires all agencies that implement managed competition for a personal services contract to submit an annual status report by January 1 of each year to the Governor, the State Personnel Director, and the Senate and House State, Veterans, and Military Affairs Committees.

            The amended bill appropriates $500,000 from the General Fund to the Department of Personnel for FY 1998-99.

            The bill will become effective at 12:01 a.m. on the day following the ninety-day period after adjournment sine die of the General Assembly, or on the date of the official declaration of the vote of the people as proclaimed by the Governor, if a referendum petition is filed pursuant to Article V, Section 1 (3) of the State Constitution.

            The provisions of this bill will affect state General Fund and cash fund exempt expenditures in the event that any state agency elects to implement managed competition for a personal services contract. Therefore, the bill is assessed as having a conditional fiscal impact.

State Expenditures

            The Department of Personnel will require 90 hours of legal services from the Department of Law at a cost of $4,320 ($48 per hour) for FY 1998-99 and 45 hours of legal services at a cost of $2,160 for FY 1999-2000. The Department of Law will be required to provide general counsel, review the program procedures, and review the criteria for rulemaking and calculating costs savings.

            The amended bill will require the Division of Colorado Information Technology Services under the Department of Personnel/GSS to modify and expand the existing COFRS accounting system to allow all agencies to conduct cost accounting in the prescribed manner. The division, based upon previous upgrades to the COFRS system, believes the computer system modifications could cost approximately $1,396,000. The cost estimate includes:


               CPU upgrade or mini-computer - $800,000, General Fund or Capital Construction Fund;

               annual maintenance - $96,000, Cash Funds Exempt; and

               software evaluation and re-programming - $500,000, General Fund.

            Additionally, system modification and re-programming may be difficult to accomplish in a timely manner due to on-going activities to meet the Year 2000 software upgrades.


            The provisions of this bill may also affect state expenditures (General Fund, cash fund, and federal funds) for any agency that elects to implement managed competition and incurs additional costs for business unit training and program administration.

            This bill requires agencies to submit proposals for managed competition to the Governor for review. The fiscal impact to the Office of State Planning and Budgeting (OSPB) will be determined by the number and scope of those proposals. However, since the bill requires agencies to attempt to achieve savings for at least one year prior to implementation of managed competition it is unlikely any proposals would be submitted to OSPB during FY 1998-99.

Spending Authority

            This fiscal note would imply the Department of Personnel would require a General Fund appropriation of $1,304,320 and a cash fund exempt spending authority of $96,000 for FY 1998-99 to implement the provisions of this bill. Of this amount, the Department of Law would require a cash fund exempt spending authority of $4,320.

Departments Contacted

            All Agencies