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Brewer-appointed privatization commission issues long-awaited report, recommends more privatization

The Commission on Privatization and Efficiency released its long-awaited report, nearly eight months after it was originally scheduled for completion.

Now, Gov. Jan Brewer and lawmakers will have the rest of the year to wade through the 46-page report’s 16 recommendations before coming back to the Capitol for the 2012 legislative session.

“It is my hope that these recommendations will serve as a starting point for change and ensure that we are being good stewards with taxpayer dollars,” Department of Gaming Director Mark Brnovich, who chairs the commission, wrote in a letter to Brewer that accompanied the report.

Many of the proposals contained only broad outlines of major structural reforms and many require more extensive research and analysis before they can be implemented. Few of the recommendations in the report, which COPE released on July 21, included dollar figures or projected savings.

But Rep. John Kavanagh, R-Fountain Hills, said there has been a lot of anticipation among lawmakers to undertake such proposals and hoped that the report would point them in the right direction. Kavanagh, who had not yet seen the report, said it would be better for the Legislature to tackle the “fine tuning” of the policy proposals.

“It sounds to me like it’s going to be simultaneously informative, interesting and controversial. That’s just what we like down here,” said Kavanagh, the chairman of the House Appropriations Committee. “Clearly, many people feel that more could be done, and this will give us some guidelines and suggestions as to where to look.”

A pension reform proposal recommended that the state hire an independent actuary to analyze several alternate models for the Arizona State Retirement System, including enrolling all newly hired employees in a defined contribution plan instead of the current defined benefits plan, or using a “hybrid plan.”

Another recommendation was for the state to eliminate, consolidate or privatize more than 70 state agencies, boards or commissions, though the preliminary review COPE conducted of those entities was not included in the report. In a separate recommendation, the report suggested transferring the state’s bingo administration and tobacco enforcement divisions into other agencies.

Some recommendations were fairly detailed. A proposal to privatize the operations and management of the Arizona State Lottery included an analysis of how increased lottery revenue over the past five years has been largely offset by rising operating costs. Between fiscal years 2006 and 2010, lottery revenues jumped by about $83 million, but operating costs rose by a similar amount. The recommendation included an analysis of a similar proposal enacted in Illinois in 2010.

The report included broad, sweeping proposals on Arizona’s budgeting process and the way the state funds K-12 education. COPE recommended that the state switch to an outcome-based or performance-based budgeting model, in which the state would prioritize spending items on a year-to-year basis instead of using a “default position” from the previous year’s budget.

COPE recommended that Arizona follow the lead of Baltimore, New York City and several California school districts in implementing student-based funding. Under the model, per-pupil funding would go directly to schools instead of their districts, and the schools would have individual budgets.

The report said the student-based funding system would reduce waste and give schools “charter-like autonomy.”

“The state should require districts to place the majority of their operating budget, between 70 and 90 percent, into a school-level allocation to offer principals more autonomy and more real decision-making power,” the report read.

Other proposals were nothing new. COPE recommended that the state pursue personnel reform, one of Brewer’s top agenda items, and turn the Department of Insurance into a self-funding agency based on a proposal that the report said the department had already presented. COPE said the Department of Insurance proposal could save the state as much as $5 million per year.

Other proposals include:

• Reforming state procurement code that would allow the state to pursue more cost-effective contracts with private companies.

• Implementing an “activity-based costing pilot project” that would measure the true costs of the state’s vehicle fleet operations, maintenance; printing and document management; building and facility operations and maintenance; and mail services.

• Outsourcing the Arizona Department of Environmental Quality’s permitting to private companies.

• Computerizing the income and employment verification process used by the Department of Economic Security and AHCCCS.

• Allowing the state and its subdivisions to use a directed medical care system for workers compensation, which COPE estimated could save the state up to $1 million.

• Imposing a $10,000 deductible for all property claims and some liability claims. The report said State Risk Management would save $4.5 million per year if it did not have to automatically pay about 5,600 claims.

• Closing Department of Revenue offices in the East Valley and Tucson, and replace them with electronic filing and payment options.

The Department of Gaming is also carrying out a COPE recommendation, which was not included in either the July 21 report or a preliminary report the commission released in September, to move state agencies out of privately leased office space and into state-owned buildings. Spokesman Rick Medina said the department is moving from its uptown office to the ADEQ building downtown.

“We were paying rent to a private landlord, and now we’ll be paying that rent to the state,” Medina said.

Outside of its work on the report, COPE does not appear to have been very active over the past nine months. The 11-member commission’s last public meeting was in November and its website still lists four ex-commissioners as members, including two who haven’t served on the commission since the end of 2010. The report was originally scheduled to be released on Dec. 31, but was initially delayed due to the November election and turnover on the commission.

“That’s government for you,” Kavanagh joked. “Maybe we should’ve privatized them.”

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