Efficiency consultants outline $2 billion in savings, efficiencies over five years; recommendations likely to be controversial

The consulting firm Alvarez & Marsal presents its report to the Kansas House and Senate budget committees Tuesday at the statehouse in Topeka.

? A consulting firm hired by the Kansas Legislature issued a report Tuesday showing how the state could achieve more than $2 billion in savings and efficiencies over the next five years.

But that includes recommendations that some lawmakers may find difficult to swallow, such as reducing benefits in the State Employee Health Plan and delaying payments to private contractors and vendors who do business with the state.

And of that savings, only about $20 million could be achieved in the current fiscal year, barely enough to fill the projected $14 million budget shortfall that lawmakers are facing.

J.W. Rust, left, and Melissa Glynn of the consulting firm Alvarez and Marsal present a report to the House Appropriations Committee outlining more than billion in savings and efficiencies they say the state can achieve over the next five years.

Rep. Barbara Ballard, D-Lawrence, says she still questions why the Legislature paid .6 million for Alvarez and Marsal to perform an efficiency study on state government.

The 260-page report by the firm Alvarez & Marsal includes 105 specific recommendations, covering such areas as purchasing, real estate management, insurance, the use of prison labor, and spending for K-12 education.

K-12 education

Within K-12 education, the single largest category of state spending, A & M recommended actions that it said could save the state $609 million over five years. About half of that would come from consolidating employee benefits among the state’s 286 school districts into a single plan similar to the State Employee Health Plan.

That, however, would require a change in statutes because under current law, employee benefits are among the items that are required to be negotiated between school districts and their local teachers unions.

The firm also called for school districts to spend down their “excess” cash balance reserves of about $193 million over five years, an issue that is often discussed in the Legislature, although school officials largely dispute the idea that they can spend down those reserves without jeopardizing their financial stability.

The report did not recommend consolidating any school districts, something that has been a topic of heated discussion in the past. But it did recommend consolidating some services, such as purchasing, into a single statewide function within the Department of Administration, saving an estimated $43 million over five years.

Sen. Laura Kelly, D-Topeka, who serves on the Senate Ways and Means Committee, said that could cause even more problems in some parts of the state.

“You’re going to get a lot of blow-back from some small businesses in these communities that depend upon school business to exist,” she said. “And they’re often the same people supporting school functions. They say it saves the state money, but who pays the price?”

Employee benefits

The report also recommends cutting about $124 million a year in employee benefits by putting all employees into a low-cost, high-deductible health insurance plan.

Currently, the state offers employees two types of plans: a traditional plan, known as Plan A, that costs employees about $72 a month for themselves, or $523 a month for their whole family; and the high-deductible plan, combined with a health savings account, which costs about $70 a month for an individual, but only $264 for a family.

The difference is that the under the high-deductible plan, an employee has to pay the first $2,750 in health care costs each year, and $5,500 for a family, before the insurance kicks in. Under the traditional plan, employees pay only a $400 deductible, plus a 20 percent coinsurance payment.

The maximum out-of-pocket costs are actually smaller on the high-deductible plan. But according to the Kansas Department of Heath and Environment, of the roughly 100,000 people in the State Employee Health Plan, including employees and their spouses and dependents, only 37.5 percent are enrolled in the high-deductible plan.

“I think we need to do what we can to support state employees,” said Sen. Marci Francisco, D-Lawrence, who also serves on the Ways and Means Committee.

Francisco noted that in other parts of the report, the consultants pointed to high turnover rates and a large number of vacant positions in state agencies, especially in the Department of Revenue, which hinders the state’s ability to collect tax revenues.

“If we have a lot of turnover in our state employee ranks, we’re not going to be providing the kinds of services that are going to save us money in delivery of those services,” she said.

Other recommendations

In other parts of the report, the consultants recommended finding ways to increase the amount of money the state takes in.

In the Department of Revenue, for example, they recommended filling 14 vacant auditor positions and hiring 54 additional revenue officers, which they said would generate $364 million in revenue owed to the state that is currently going uncollected.

They also recommended finding ways to draw down more federal money to support state operations, particularly in the Department of Education.

And they recommended making greater use of inmate labor in the Department of Corrections to produce certain items that are used by other state agencies.

The report delivered Tuesday was only a preliminary report. The final document is scheduled to be delivered in February, but lawmakers said they expect the report to be the focus of much of this year’s budget debate.

Rep. Ron Ryckman Jr., R-Olathe, who chairs the House Appropriations Committee, said he was pleased that the report identified far more in savings than he’d expected. He also said it will be the focus of ongoing budget talks throughout the 2016 session.

Sen. Ty Masterson, R-Andover, who chairs the Senate Ways and Means Committee, said he was also impressed with the report.

“On first blush, it’s positive,” he said. “Its a big number over five years, and whether that’s savings or efficiencies, that’s a positive. We’ll see what we can implement.”

But Rep. Barbara Ballard, D-Lawrence, who serves on the committee, said she still questions why the Legislature paid $2.6 million to commission the report.

“I’m willing to look at the ones that work. We should implement them because it’s efficient and effective government,” Ballard said. “But we know where a lot of our money is that we’re not collecting, and that’s in the income tax,” she said, referring to the sweeping income tax cuts enacted in 2012 and 2013. “So why are we going all the way around to figure out how to save money when we’re giving away money that we actually could have?”