This month the Legislature and Governor Schwarzenegger will once again begin to fashion a state budget, and while the specific provisions of that effort are still unknown, the fact that that budget will have a big impact on the future of our state is anything but. The latest projections are that, unless the state changes its basic budget provisions, over the next 18 months the state will be in the red by about $20 billion…and counting.
How did we get here? Well, one clear reason is the state bureaucracy is growing bigger and more expensive and is becoming an ever-larger drain on our state coffers. A case in point: Over the past decade Caltrans’ (i.e. our State Department of Transportation or DOT) in-house staff for delivering projects has more than doubled in size (mostly before Governor Schwarzenegger took office).
The primary reason for this dramatic expansion is that powerful state employee unions use their clout in the state budget process to create union jobs and severely restrict the state’s use of engineering companies. As a result, Caltrans uses private engineering companies for only a small portion of its work (about 10 per cent). The other 90 per cent of Caltrans’ project work is handled by full-time long term state employees on the state payroll—making California’s DOT more financially committed to the use of permanent state employees than any other state in the nation.
Indeed the national average among the other 49 DOTs is to use private engineering firms for over 50 per cent of their workload. Other DOTs do so, because then they can quickly access special expertise when they need it and just as quickly terminate those services when they no longer need it.
Amazingly, state employee unions claim that using private engineering companies for bridge and road design is too expensive and results in substandard services.
First, let’s talk about costs. When state employee unions talk about it, they compare apples and oranges. For the cost of a state employee, public unions only count salary, benefits and a few direct costs. But for the cost of a private sector engineer, the public unions count all of the overhead and support assistance that an engineer needs in order to do his or her job.
Even more significantly, public employee unions ignore the fact that state employee engineers stay on the state’s payroll long after a project is complete. In contrast, once a private engineer finishes a state project, the engineer moves on to work on another project for another client, and the state no longer owes that engineering firm anything. One only has to consider the state’s huge unfunded liability for state employee pensions and medical care, to understand that the difference between hiring a permanent state employee and the cost of procuring a particular service for a limited time is a huge cost difference.
We currently suffer from the worst of two trends: Caltrans is way overstaffed and must still pay those staffing costs, while at the same time there is now little new money available for new projects. It is no surprise then—though largely unknown to motorists—that the state gas tax is now substantially used to pay for state employees, not new projects.
Second, what about the quality of services provided by engineering companies? In a service business such as engineering, the ability to win and retain business is inevitably in direct proportion to the quality of the services provided. Private companies do not stay in business—and their employees do not stay employed—if they provide poor service. The same cannot be said, unfortunately, of a state bureaucracy where, as everyone knows, it is far more difficult to reward high performance and weed out poor performers.
Frankly, the state’s current practice of severely restricting the use of private engineering companies is not sustainable and ignores opposite trends across the country. The status quo is a recipe for even greater fiscal disaster in California. The alternative to simply using private services when needed—adding more jobs at the state level—will further exacerbate the unfunded pension liability bombshells facing the taxpayers in coming years.
Meanwhile, California’s need for high quality, cost effective engineering services has never been greater. A recent national report found that California’s all too often congested, deficient roads cost motorists an estimated $40 billion per year due to higher operating costs, crashes and delays (www.tripnet.org).
California’s future will hold even more financial peril—unless the state makes basic changes in the way it conducts business and provides services. By opening the door to smarter use of the private sector to deliver needed transportation projects, California can create sustainable jobs, speed up project delivery, help grow our economy and expand our tax base.