Crack'd Budget

The Panic in Albany is very real.With a fiscal crisis expected to balloon to a $47 billion deficit in the 2011- 2012 fiscal year and the source of 25 percent of the state’s tax income still unstable on Wall Street, Governor Paterson is asking for help and suggestions. But is he listening? A new report from one of New York’s largest unions says that the state’s addiction to hiring consultants to do the work that state employees are more than capable of doing is unnecessarily costing taxpayers hundreds of millions of dollars a year and adding to the already out-of-control deficit.

The Public Employees Federation issued a December report, “Beating New York State’s Consultant Addiction: How the State Can Save $730 Million,” stating that with New York facing such unprecedented fiscal challenges, the state can “no longer afford to waste between $417 million and $705.8 million annually on costly consultants to do the work that can be done by state employees just as well and at a significantly lower cost.” Representing 59,000 professional, scientific and technical state employees, the PEF is one of the largest white-collar unions in the United States and is New York´s second-largest state employee union. Given its constituency, it would be easy to question the objectivity of the report, as the PEF has an obligation to protect its members’ interests, but the report relies on the state’s data collection to make its case. According to the PEF report, New York has relied on consultants to the degree that the spending on the consultants increased by more than $100 million in the last fiscal year from $2.68 billion to $2.78 billion.

Egregious as this may be, the question of transparency comes into play when 83 percent ($2.3 billion) of these expenditures were not disclosed in the Procurement Stewardship Act (PSA) report, as required by The Contract Disclosure Law.To be sure, the contract dollars are accounted for in the budget, but because it’s not reported as the law requires and therefore doesn’t show up in the PSA report, a concerned public would have no idea exactly how out of control the problem actually is. In fact, this under-reporting made it appear that the use of consultants in state agencies decreased by $45 million in the last fiscal year when it actually increased by $100 million, a continuing trend that has resulted in consultant expenditures increasing by almost $518 million over the last four years.

One or two departments not reporting correctly would be forgivable. Errors happen. It certainly doesn’t seem like an error when 83 percent of consultant-related expenditures were not correctly reported.

The specifics aren’t any better. The state paid an average of $126,503 per reported full-time equivalent consultant.According to the Department of Budget, the average state employee salary with benefits is $81,760.The result, as the report points out, is that the state pays, on average, 54 percent more for consultant employees than state employees.

It used to be that the explanation for hiring consultants (whether you’re the government or a major corporation) was that it was more cost effective—mostly because employee benefits were too expensive. But the PEF report shows that simply isn’t true anymore, if it ever was. The salary comparison is the cost of the consultants versus a permanent public employee salary with benefits.

At the average cost of 54 percent for consultants, that means there are much worse violations. One of them is the Department of Health, which paid consultant financial specialists from Mercer and Mercer more than four times the state employee rate in comparable titles: $252.82 per hour vs. $61.20.

According to the report, the Office of General Services (OGS) is one of the more flagrant abusers of consultants. OGS employed an estimated 310 FTEs at the rate of $73.03 per hour, or $142,000 annually.To the sum of more than $44 million, the bulk of these consultants were in engineering, architecture and construction inspection—all jobs that could be in the hands of state employees who do the same type of work but for and average annual salary of $94,323. The report points out that OGS could have saved $15 million in labor costs last year had the employee route been taken.

But it’s not just the overpriced contracts. One of the OGS contract recipients, O’Brien and Gere Engineers, recently received assistance from New York State public authority, Empire State Development Corporation (ESDC), to move its corporate headquarters and 300 employees to downtown Syracuse—only a few miles away from its current location.

The ESDC is investing $3 million in the project, including a $1 million grant and a $2 million low interest loan.They’ve also been able to attract another $3.5 million toward the estimated $25 million project from the City of Syracuse and the Syracuse Industrial Development Agency.

With the New York State Department of Labor reporting a nearly 6 percent unemployment rate just below the national rate, Wall Street bonuses (a critical source of tax revenue) projected to fall by $20.7 billion or 43 percent, and revenue from the top 20 corporate taxpayers down 38 percent through the first two quarters of the fiscal year, you might reasonably ask:What belt-tightening is the state going to do? So far, the solutions have ranged from cutting bagels and pastries out of meetings, to the governor’s proposal to cut hundreds of millions of dollars in education funding.

The PEF has a different idea: “For the long-term fiscal health of the state, New York needs to cut its addiction to consultant crack. If NYS can cut its pastry consumption, then surely it can cut its consultant consumption.”

Note: Governor Paterson released his 2009-2010 fiscal year budget proposal as we went to press.

Allen McDuffee writes about politics and Middle East affairs. He blogs at governmentalityblog.com and is currently working on a book project called No Child Left Unrecruited.