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Let Kentuckians explore MARS

By Joel Peyton

A poorly run program designed to save Kentuckians money by outsourcing government services is actually costing taxpayers more of their hard-earned dollars. Kentucky maintains a system that would budget for a roundtrip to the red planet without enough left over to bring taxpayers back!

Outsourcing, or “contracting” as officials often refer to it, allows private providers to supply services that government cannot offer or does not provide at a reasonable price. It’s supposed to save taxpayers money while increasing the efficiency and quality of services.

However, the lack of oversight and openness that characterizes Kentucky’s system of contracting for services – known as the Management Administrative Review System (MARS) – has had the opposite effect of creating the equivalent of yet another costly government program.

The Kentucky Auditor’s Office reports that Cumberland Falls State Park spent more than $37,000 on pillows last year. General Butler State Park shelled out nearly $920,000 on laundry and linen service alone.

If additional bidders were encouraged to make offers, these parks would have spent less of taxpayers’ money for these basic products. Amazingly, Kentucky’s contracting policy makes it difficult for private-sector companies to know which services are available for bidding.

According to the auditor’s report, state managers in charge of contracting out services regard the process of open bidding with the kind of protectiveness with which mother hens shield their eggs.

It’s time to let Kentuckians explore MARS for themselves. More openness is needed in Kentucky’s contracting system, which currently is not available for public inspection. Agencies spending our hard-earned tax dollars should be accountable to policymakers and taxpayers.

Other states have demonstrated that properly run contracting programs lower the cost of government and increase the efficiency of services. Between 1994 and 1997, Virginia saved nearly $22 million by contracting out some of its services. As a result, the Cavalier State saved even more money by eliminating the equivalent of 544 full-time positions.

However, contracting programs must be properly run to produce the kind of success found in other states. Kentucky’s MARS program does not operate to save taxpayers money.

According to the auditor’s report, the program does not accurately track the total number of service-contract workers hired by the state. In addition, it does not record the number of hours logged by these workers, which prohibits researchers from preparing cost-benefit studies.

As a result, scant evidence exists to prove that outsourcing to private providers yields more efficiency than hiring government workers.

The current version of MARS gives sole discretion to agency managers to provide the lowest cost or best service. In practice, they have no incentive to reduce costs or improve services, yet may have all the incentive in the world to hide the benefits of contracting. After all, the job they are protecting may be their own!

Government programs like Kentucky’s MARS program hinder advocates for change because they do not facilitate the preparation of accurate cost-benefit studies. Taxpayers deserve a higher level of accountability.

The auditor’s office also points out that state agencies do not insist on applying a cost-benefit analysis when considering the outsourcing of services. Proof of Necessity (PON) forms used by government bureaucracies in Frankfort often do not include detailed information, including an adequate justification for outsourcing services.

For example, agencies too often respond by stating “no internal vendor available” because it is easier to specify a known outside supplier than invite bids from new ones. When asked to supply a request for details concerning the expected cost of an outsourcing agreement, the typical response of “cost was based on last year’s contract” virtually guarantees higher prices. Such vague descriptions do not effectively measure the cost or efficiency of contracts.

However, such terse responses do benefit bureaucrats who are usually cognizant of the success of contracting in other states. These government managers are adept at using their knowledge of the system to preserve the status quo, including the flow of information about the performance of outsourcing in the commonwealth.

While there may be a dearth of sound Kentucky data, there are plenty of indications from other states that well-run contracting programs can yield positive results and save taxpayers money. If they borrowed the process that Texans require, Kentucky managers would track the number of state employees employed versus the number of contract employees. With this information, the Lone Star State can measure its costs better and determine if state employees or private providers are more appropriate at providing particular services.

Kentucky should also make the reforms needed to provide adequate oversight to its outsourcing program. As NASA and other states have already proven, contracting can save money – and bring costs back down to Earth - when public employees properly implement cost-saving methods.

– Joel Peyton is a research analyst for the Bluegrass Institute, Kentucky’s free-market think tank.

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