Colorado Legislative Council Staff

STATE

FISCAL NOTE

General Fund and Cash Fund Exempt Expenditure Impact


Drafting Number:

Prime Sponsor(s):

LLS 98-952

Rep. Pfiffner

Date:

Bill Status:

Fiscal Analyst:

April 28, 1998

House SVMA

Lon Engelking (866-4751)

 

TITLE:            CONCERNING GOVERNMENTAL EFFICIENCY



Summary of Legislation



STATE FISCAL IMPACT SUMMARY

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


$34,571*


$1,342,439**

$96,000**

$4,320***

FTE Position Change

0.4 FTE*

0.5 FTE*

Local Government Impact — None


*This fiscal note assumes legislative intent to provide no new state spending authority or appropriations to support the provisions of the bill. Therefore, no new spending authority or appropriations are implied for FY 1998-99. The Department of Personnel will be required to shift resources from other programs to support the provisions of this bill. Please refer to “Affect on Existing Appropriations” on page 4.


**Estimate based on previous upgrades to the COFRS system. The Department of Personnel would be required to seek additional funding for these amounts subsequent to the report of the Task Force on Software after January 1, 1999. The General Assembly may or may-not approve these amounts. The effective date of implementation of agency managed competition would be conditional on the approval of software acquisition.

 

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


            This bill 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 bill creates a 5-member task force on managerial accounting software to investigate, identify, and oversee the acquisition of computer software that would enable state agencies to determine their per-unit costs for providing goods and services. The task force would meet no later than October 1, 1998, and make recommendations concerning computer software to the Department of Personnel no later than January 1, 1999. Managed competition could not be implemented by a state agency until the managerial accounting software is operational. It is assumed that the Department of Personnel would be required to submit a request for an appropriation to the Joint Budget Committee in the normal process before they could purchase the software. Therefore, the effective date of managed competition would be conditional upon the authorization and appropriation of additional moneys by the General Assembly.



            This bill also creates the Commission on Government Efficiency comprised of 11 members. The bill prescribes the terms of the members and requires the commission to select a chairperson no later than October 1, 1998. Beginning in 1999, and for each year thereafter, the commission is required to meet not less than quarterly. The bill specifies the members shall serve without compensation.


            The commission is authorized to request staff assistance from the Department of Personnel. This assistance is to be provided within available appropriations. The bill requires the State Auditor to conduct an annual audit of commission activities. The commission is required to submit a report to the Senate and House State, Veterans, and Military Affairs Committees on or before March 1, 1999, and each year thereafter.


            The powers and duties of the commission include:

               to conduct research of currently performed government functions, and government functions performed by the private sector;

               to evaluate and make recommendations concerning the appropriate functions of state government and to make recommendation as to which functions of state government should be performed by State Personnel System employees;

               to recommend new standards for government efficiency, evaluate the effects of such standards on the State Personnel System, and advise the executive and legislative branches to implement changes including changes relating to the selection of managed competition projects;

               to identify opportunities for privatization;

               to review and make recommendations concerning proposals from state agencies to privatize certain government functions;

               to identify specific government functions currently performed by the private sector that could be performed more effectively by State Personnel System employees and should be transferred to the appropriate state agency;

               to develop guidelines and procedures for soliciting proposals for new and existing personal services contracts from private entities and state employees to perform services or functions; and

               to identify and make recommendations to the Joint Budget Committee.


            The provisions of this section will be repealed effective July 1, 2003.


            The bill would take effect on July 1, 1998; except that if a referendum petition is filed within the 90-day period after final adjournment of the General Assembly, the bill would take effect on the date of the official declaration of the approval of the vote of the people by proclamation of the Governor.


            The provisions of this bill will affect the state General Fund and may affect cash fund exempt expenditures in the event that any state agency elects to implement managed competition for a personal services contract. The bill also specifies that the Department of Personnel is to provide staff assistance to the commission within available appropriations. However, the department will incur additional costs to support the provisions of this bill. Therefore, the bill is assessed as having a fiscal impact.



Affect on Existing Appropriations


            The bill specifies the members of the Commission on Government Efficiency are to serve without compensation and the Department of Personnel is to provide staff assistance within available appropriations. This fiscal note assumes legislative intent to provide no new state spending authority or appropriations to support the provisions of the bill.


            However, this fiscal note assumes commission members will incur meeting and travel costs, and the Department of Personnel will incur administrative costs as identified in Table 1. These estimated costs are based upon the following assumptions:

 

               seven of the 11 commission members will be from out-state and will incur travel and lodging expenses at $99 per day;

               the commission will meet monthly during the first twelve months, and every other month thereafter for a total of nine meetings during FY 1998-99 (October through June) and seven meetings during FY 1999-00;

               the Department of Personnel will be required to prepare and conduct research including surveys and market-testing; prepare reports; staff commission meetings; maintain correspondence; and prepare meeting summaries.


Table 1 - Department of Personnel

Commission on Government Efficiency

 

FY 1998-99

FY 1999-2000

Personal Services

Program Admin III (grade 111, step 1)

PERA and Medicare

Total


0.4 FTE -$23,386

3,028

$26,414


0.5 FTE - $29,232

3,786

$33,018

Operating Expenses

$200

$250

Commission Meeting Expenses

$6,237

$4,851

Non-recurring Expenses

Computer

Furniture

Total


$1,000

720

$1,720


0

Total Expenses

0.4 FTE and $34,571

0.5 FTE and $38,119




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 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 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.



Expenditures Not Included


            Pursuant to the Joint Budget Committee’s budget policies, the following expenditures have not been included in this fiscal note:

               health and life insurance costs, $885;

               short-term disability costs, $49;

               inflationary cost factors;

               leased space; and

               indirect costs.



Spending Authority


            This fiscal note assumes legislative intent to provide no new state spending authority or appropriations to support the provisions of the bill. Therefore, no new spending authority or appropriations are implied for FY 1998-99 to support the provisions of the bill. The Department of Personnel will be required to shift resources from other programs to support the provisions of this bill.


            The Department of Personnel would be required to seek an appropriation after January 1, 1999, to purchase computer software prior to implementation of the managed competition provisions of the bill. The estimated cost (based on recent modifications to COFRS) is $1,304,320.


Departments Contacted


Department of Personnel


            The Department of Personnel disagrees with the analysis provided in this fiscal note and maintains the expenditures identified in Table 2 will be required to support the provisions of the bill for FY 1998-99 and FY 1999-00. 


Table 2 - Department of Personnel

Commission on Government Efficiency

 

FY 1998-99

FY 1999-2000

Personal Services

Program Admin III (step 1, grade 111)

Admin Asst I (step 1, grade 60)

PERA and Medicare

Total


0.8 FTE - $46,771

0.4 FTE - 6,758

6,932

$60,461


1.0 FTE - $58,464

0.5 FTE - 16,896

9,759

$85,119

Operating Expenses

$5,000

$5,000

Commission Meeting Expenses

$6,237

$4,851

Non-recurring Expenses

Computer

Furniture

Total


$2,500

1,800

4,300


0

Total Expenses

    1.2 FTE and $75,998

1.5 FTE and $94,970