State Budget Needs Options

McKinsey Report Offers Them 

In late July the Legislature’s Appropriations and Financial Affairs Committeemet for 2 days to begin work on fixing the state’s 2-year budget. Here’s a summary of the situation facing lawmakers — and all of us:

• The State’s 2-year budget that began on July 1^st 2009 is already more than $50 million dollars in the red; 

• The law establishing the budget previously directed the Appropriations Committee to find an additional $30 million dollars in savings;

• Revenues have come in at least $20 million dollars a month less than expected this spring and summer; and 

• Professional staff expects the total state budget shortfall to exceed $100 million dollars before the economy stabilizes — and everyone agrees that estimate is very conservative.

Governor Baldacci has consistently rejected tax increases to fix the state’s budget problems, and he’s repeated that pledge often in the last few months. So the Appropriations Committee is looking at budget cuts, as they have in the past. Notably lawmakers are now talking about program cuts, instead of across the board line item reductions. 

What other options do lawmakers have? As it happens, they have a valuable menu of ideas prepared last year by McKinsey & Company, an internationally prominent management consultancy. The Appropriations Committee spent a full day last month looking closely at McKinsey’s recommendations, including:

• Finding $30 to $50 million dollars in savings from K-12 education reforms, including changes to the Essential Programs & Services formula, centralizing negotiation of teacher health care benefits, standardization of special education identification and regionalization of education services; 

• Finding $30 to $50 million dollars in savings from initiatives in the Department of Health and Human Services, including standardization of payments to providers, implementation of disease management and wellness programs for disabled Medicare patients, normalization of beneficiary cost sharing and adoption of integrated care planning;

• Finding $10 to $20 million dollars in savings from corrections reforms including optimizing the use of available jail space across the entire state, fully funding pre-trial services, and reducing jail operating costs through administrative efficiencies 

• Finding $15 to $30 million dollars in savings from purchasing savings, including reducing the number of vendors used by the state, using standard rates for multi-contract vendors, improving controls on purchasing card use, and consolidation of local volume purchasing; and

• Finding $15 to $30 million dollars in savings from additional municipal service consolidation, for example joint back office services, and by improving the quality and efficiency of joint municipal service programs. 

McKinsey’s recommendations total up to something between $100 and $180 million dollars a year in savings to state government. That’s right in line with the amount of savings the Appropriations Committee is looking for in the coming months. The ideas also produce additional local savings as well.

Of course not every initiative suggested by McKinsey will be implemented. But the report’s emphasis on efficiencies, restructuring and consolidation is exactly the right approach to making sure Maine can afford the government it needs. And given the alternatives — unworkable program eliminations, unfair tax shifts onto local property taxes, or a bag of budget gimmicks — McKinsey’s recommendations deserve the emphasis that the Appropriations Committee gave them last month.