One-on-one debate: Would outsourcing government services save Minnesota money?

As the debate over how to balance the state budget continues, Republican lawmakers are pushing for more outsourcing of government services.

GOP legislators say hiring private companies to do work currently done by state employees can save money, but DFLers disagree.

MPR's Morning Edition invited two guests to debate the issue on Monday. Representative Keith Downey (R-41A) is the Republican point man on government reform in the Minnesota House. Senator Barb Goodwin (DFL-50) sits on the state government innovation committee in the Minnesota Senate.

An edited transcript of the conversation is below.

Cathy Wurzer: Representative Downey, I'm going to start with you first. The state already spends about $860 million each biennium on outsourced professional and technical services. How would an increase in outsourcing save the state money?

Rep. Keith Downey: There aren't proposals to increase contracting and outsourcing per se. There is a proposal to repeal a state law that is currently in place that says if there is a state government employee willing and able to perform a function, we have to keep that function in state government.

I have an overall saying: If it's in the yellow pages, why is state government performing it? And so I think it makes sense to take that out and just say it should be an open field and where it makes sense to contract out, then you can justify the value of doing that, you would. And let's allow those state employees to bid on that business. They may in fact be the best way to get the job done.

Wurzer: Senator Goodwin, what do you think of that idea?

Sen. Barb Goodwin: We've been privatizing and outsourcing in Minnesota always, and I don't think it's a bad thing to do some of that. We have to do some of that. What's happened, though, in Minnesota and so many other states is that the system of outsourcing, privatization is so unregulated. The oversight on those contracts is very, very poor.

For example, if you go into a budget meeting now and get a budget book, you'll know exactly how many employees are in that agency, but you won't know how much is in contracts. We've increased four-fold what we're privatizing out in the last 20 years, and yet we don't know how much each agency has in contracting. We don't know how many contractors they have on. We don't know how many of these dollars are going out of state. So, we really lack a lot of good information.

Downey: I just have to take issue a little bit with some of Senator Goodwin's assertions. On the one hand to say that we have no idea what we're outsourcing, and then on the other to say we've increased our outsourcing four-fold, I mean those two don't add up. It's about $2 billion in terms of products and goods, and then another $2 billion in outsourced services, the information I've seen from the Department of Administration.

Wurzer: Senator?

Goodwin: Oftentimes, too, private is not cheaper. It is not cheaper in the long run. The legislative auditor's study in 2003 found that a number of these companies come back three, four, five times with addendums to change the number after they get the job. So then suddenly you're dependent on them. They've started the job, and then they say they need X amount of millions more.

Wurzer: Is there an accountability issue with outsourcing?

Downey: Well, as I heard Senator Goodwin talking, I was thinking back to some of my own days in the technology and consulting spheres, and every contract we ever did, we were 100 percent at risk. Until we produced the deliverables or the outcome or produced the result, we weren't paid.

I would grant you that we have an opportunity to optimize how we buy and spend our money for outsourced goods and services, absolutely. And I think it's nowhere more acute than in the social services area where we don't track outcomes at all. We just appropriate funds and assume that some public good is coming of it.

Wurzer: Now senator ... many of your colleagues are not very excited about outsourcing at all. And I wonder, is it because you get a lot of support from public employee unions? And can some people look at that and say, 'Well, it's just payback to protect these public employees from more outsourcing?'

Goodwin: Well, certainly they could say that. One thing I want to mention, though, is that the problem is that you end up sending tax dollars out of the state of Minnesota, and you end up sending jobs out of the state of Minnesota. We don't have any provision that says that they have to hire a company from Minnesota. Now when we talk about the provision that Representative Downey has to say that you don't have to look at other employees, that provision isn't so harsh that they actually have to do that. They are supposed to look at it. That's basically what it says. They're supposed to look to see if there are other people that are eligible and available to do the job.

Downey: Well, I have to disagree a little bit there. I remember just last year, as a matter of fact, when the Department of Administration came to me for an exemption for the folks who go around and recover the recyclables in the state office buildings. Well, many of those resource recovery firms out there in the private sector will do it for free because they get the benefit of the materials, and yet they were precluded from contracting out for those services. And so we were spending three, four hundred thousand dollars a year on that function. And they could not outsource it. They couldn't contract it out because of that.

Wurzer: What about, though, Senator Goodwin's contention that there are some services that are simply not cheaper coming in from the private side and you're not really saving money?

Downey: Well, if you think about it in the shortest term context, you might find that to be true. You know in every situation you have to make an intelligent design. Does it make sense to contract this out? Is this such a routine, every day mundane activity that there are large organizations in the private sector that can do it better, faster and cheaper? You have to look at these specialized, highly technical one-off circumstances that occur every 5 years or every 30 years, and say, 'Does it make sense to bring in outside expertise?' And you know what? For that particular year, when you've brought in the outside expertise, it may look more expensive, but when you compare that to having the state complex doing it and performing it and having those people here for the next 30 years, it's far cheaper to bring in the specialized expertise. So you've got to look at every situation one-off and determine whether it's a good thing or not.

(Interview edited and transcribed by MPR reporter Madeleine Baran)