Will the Taxpayers Benefit from Rendell’s “Strategic Sourcing Initiative”?

“Government should be run more like a business.” The underlying sentiment of this oft-repeated phrase is that government should be more efficient and effective when spending our tax dollars. Of course, everyone wants government to be more frugal with our money, but can it actually emulate private enterprise?

That is the goal of Gov. Ed Rendell’s “Strategic Sourcing Initiative,” which purports to trim approximately $100 million from $1 billion of the $3 billion worth of goods and services annually purchased by the state. While representing only a fraction of the state’s overall spending, the administration’s effort has generated a significant amount of controversy in Harrisburg.

Opponents of the initiative have raised a number of questions and legitimate concerns. In particular, could there be any unintended consequences that would eventually outweigh any cost reductions?

Small business advocates have been the most outspoken opponents of the Governor’s sourcing program, expressing grave concerns about the new procurement plan. In particular, small businesses worry that the size of the new contracts, as well as other requirements that winning companies must meet in providing the contracted goods and services, will effectively prohibit them from having the opportunity to compete for state business. They fear that many small businesses could fail or, at the very least, be forced to cut jobs if they lose the opportunity to contract with the state.

At the request of both Gov. Rendell and small business advocates, The Commonwealth Foundation waded into the controversy to explore whether or not this is sound public policy and if the taxpayers of Pennsylvania will truly benefit from the “Strategic Sourcing Initiative.”

First and foremost, although government can never truly operate like a private enterprise-elected officials and bureaucrats never have to risk investing their own money or worry about a “bottom line”-Gov. Rendell should be commended if he actually reduces government expenditures on state purchased goods and services. However, if those cost reductions are not directly passed on to the taxpayers in form of tax relief, then are these really “savings,” as the governor claims?

Nevertheless, we do agree with Gov. Rendell’s assessment that government officials “have a solemn duty to get the best possible return on the taxpayers’ money. Just as the Commonwealth can’t be the employer of last resort, we can’t be the purchaser of last resort.”

Space precludes a presentation of our complete analysis of Gov. Rendell’s procurement plans; however, we believe the state can reduce the costs of purchasing goods and services. Of course, the actual realization of reductions will only be confirmed through experience and rigorous internal and independent evaluation.

And although we do have a number of concerns about the promulgation of these new procurement rules and the potential loss of choice and competition in the bidding process-the key for keeping prices low and quality high-we also believe the premise of leveraging the state’s purchasing power to secure lower costs to be sound public policy.

While reining in spending in the Department of General Services (DGS) is hardly the beginning and end of taming state government’s wasteful ways, at least the governor is starting somewhere. Taxpayers can only hope he doesn’t stop there.

Indeed, the principle of getting the best possible return on the taxpayers’ money should also be applied to the goods and services government provides, not just the ones it purchases. Unfortunately, other than the strategic sourcing initiative, “better business practices” remain the exception rather than the rule in state government.

Of course, there is still time to reverse course. We will continue to hold out hope that Gov. Rendell will fulfill his inaugural address commitment to “find a way to make government live within its means.” In fact, if the Governor simply returned to this theme in all of his policy proposals, then Pennsylvania taxpayers would see real savings in the form of a state government that taxes and spends less. That is the only way that taxpayers will truly benefit from the attempt to make government run more like a business.

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Matthew J. Brouillette is president at The Commonwealth Foundation, a free-market public policy research and educational institute based in Harrisburg, PA. Permission is hereby granted to reprint in whole or in part, provided the author and his affiliation are cited.