The Artur Davis
Taxpayer
Protection
Plan

 

Right now, despite the sincere efforts of many committed public servants, Alabamians are often poorly served by “business as usual politics” that is riddled with corruption, waste and a startling lack of accountability to the individual taxpayer. Families struggling to balance their checkbooks and pay their bills are subjected to a seemingly endless string of headlines about frivolous pet projects funded with their hard-earned tax dollars and elected officials heading to jail. It’s no wonder that many voters have lost faith in state government. Fixing this broken system will be one of my top priorities as governor.

I have previously proposed the toughest ethics reform plan ever considered in Alabama, one that goes well beyond the proposals put forward by any other candidate. I am also the only candidate who advocates a constitutional convention to scrap the 1901 document which protects entrenched special interests.

Now I am taking my drive for reform a step further with a detailed plan to increase accountability and protect our tax dollars, and it will generate approximately $664 million dollars in savings that will restore the public’s confidence that state government is a responsible steward of their tax dollars.

Let me discuss some of the specific reforms I will implement. For the first time, we will aggressively go after Medicaid fraud, where our enforcement efforts are second to last in the nation. We will achieve cost savings in the ways we purchase prescription drugs and durable medical equipment for Medicaid. We will curb the costly practice of outsourcing government work to expensive private sector entities. We will get serious about accountability for contracts and legislative spending. And we will do what other states have done to reduce costs in the day-to-day operation of government, from conserving energy to better managing our state property.

One of my first acts as Governor will be to sign an executive order implementing an immediate top-to-bottom performance review of the entire state government. No department or program will be exempt from this rigorous evaluation and I will demand it be completed by the close of the fiscal year. We will save money and we will do it in a way that makes the work of government more efficient. Some of my proposals will not be popular with the defenders of the status quo. But with state revenues plummeting and proration a way of life in state government, the need to implement cost-saving reforms has never been greater.

Alabama’s next governor must possess the political courage to fight waste and put an end to business as usual in Montgomery. The detailed plan that I have proposed represents the most aggressive government transparency and accountability initiative ever considered in to Alabama. I believe that Alabama voters are ready for reform and ready for a Governor who will make these changes a reality.

 

GOING AFTER FRAUD AND ABUSE

 

Bolster Efforts to Uncover Medicaid Fraud. Studies have found that fraud by Medicaid providers ranges from 10% to as much as 40% of all program spending. According the Government Accountability Office (GAO), a well-designed Medicaid anti-fraud system has three elements: (1) preventive controls, (2) detection and monitoring, and (3) investigations and prosecutions. Effective prevention requires data-sharing arrangements with appropriate agencies to validate that states are only paying providers eligible to receive payments. Detection and monitoring includes checks against death files for both providers and recipients: A GAO study this year found prescriptions written in the name of dead doctors for receipt by deceased patients. Advanced detection software can identify fraudulent billing patterns that would escape human notice. But without proper investigation or follow-up of information produced by data matching or detection software, no fraud, waste or abuse will be identified.

As Governor, I will:

• Impose Stricter Qualifications on Vendors to Participate in Medicaid: California requires all new vendors to be on probation for up to 18 months and inspectors make routine on-site visits to providers in fraud-prone services, to keep sham companies out of the program.


• Require Triple Damages for false claims under Medicaid, as Florida and Georgia have done.


• Create a Medicaid Inspector General’s Office, as Texas, Kansas and Ohio all have done. Texas hired dozens of new oversight workers including computer experts, nurses and pharmacists to scrutinize patient records, and prosecutors. The increased staffing and focus has paid off in skyrocketing convictions and recoveries.


• Beef up Fraud Enforcement. Last year, Alabama employed a staff of seven to investigate Medicaid fraud – and produced two convictions, the lowest in the country except for the one state that convicted not a single one. Total fraud recoveries were. $4.6 million. Mississippi, in contrast, employed 25 inspectors in its Medicaid fraud unit, got 28 convictions, and recovered over $10 million. Tennessee, 36 staff to get 46 convictions and recoveries of $53 million. Florida, 201 staff to get 82 convictions and over $121 million in recoveries. Very simply, investing in fraud enforcement pays off.


• Send all Medicaid recipients an alert of all billing activity on their account, so they can report overbilling to the State to help us catch fraudulent providers.

The federal government recently reported that Medicaid fraud is estimated at $30 billion nationally – which would come to about $400 million in Alabama. All told, stepping up these $40 million annually.

Improve Tax Enforcement. Similarly, experience in Texas, New Mexico and California show a return of about $250,000 to $780,000 per enforcement auditor. According to Governor Riley’s efficiency commission, approximately $40 million of additional tax revenue could be collected via an aggressive fuel tax collection program alone. I wouldn’t stop there: Based on experiences in other states, Alabama should be able to obtain an additional $130 million in unpaid taxes through improved collection efforts. Deadbeats ought to be paying what they legally owe so that the rest of us who pay our fair share and play by the rules don’t have to make up for them.

CLEANING UP THE CONTRACTING PROCESS

When the state does award a contract or state money to a private entity, we must make sure that the expenditure is necessary, the contractor or recipient gives the taxpayers the best value for the money, and that the decision is made fairly and transparently. As Governor, I will:

Eliminate No-Bid Contracts.The last two governors have vowed to eliminate no-bid contracts. Their efforts have been incomplete because we have a big loophole-- Alabama exempts personal services contracts from being chosen on the basis of the best price, and state agencies have too much discretion to bypass the no-bid rules in the name of expediency. Here’s what I will do to fix it: every personal service contract will be bid under an approach that evaluates bidders on qualifications, but requires that the lowest-priced qualified bidder receive the contract. In other words, we will take into account the unique skills and experience of a bidder, but to win a contract, a bidder will have to demonstrate that it can save Alabama money. The subjective world of awarding lucrative contracts based on friendships and political relationships will be over.

As for enforcing the no-bid contract rule, the same tough standard will apply. I will appoint a contract review officer who will have the authority to review every contract award before, and not after the fact, and bids will be required unless there is a sworn certification that there is a threat to the public safety if a contract is delayed to allow time for bids. This will fix the current system, which often reviews contracts only after the fact. An audit is no good if taxpayer dollars have already been wasted.  

Prohibit state employees – including legislators – from having any financial interest in a state contract. Massachusetts, for example, excludes public employees at any income levels from having an indirect or direct financial interest in a state contract, and more or less extends the same restrictions to legislators.

Roll Back Outsourcing. The fastest-growing expense in Alabama government is the more than $600 million that agencies spend on state contracts with lawyers, engineers, consultants and others. The cost of those professional services soared 88% between 1997 and 2003 – at a time when overall inflation rose by less than 30%, and when state employment was rising, as well. This kind of increase is simply unnecessary and unjustifiable. For instance, in 2003 the State spent nearly $75 million on private engineers – at costs more than double what staff engineers would have cost. As Governor, I will authorize a full examination of state performance contracts in order to determine if they are cost effective and most importantly if they are delivering services adequately. Simply rolling outside professional service contracts back to the levels of a decade ago, plus inflation, would save $190 million. 

REDUCING THE STATE’S HEALTH CARE BILLS
WHILE IMPROVING CARE

 

Aggregate Prescription Drug Purchases to Reduce Costs. Alabama should implement bulk purchasing of prescription medications. Currently, the State spends more than $600 million on prescription drugs, ranging from drugs covered under Medicaid or teacher and state employee health care plans, to inventories for our correctional and mental health systems. We can emulate other states like Georgia, which cut Medicaid drug spending by 22% per month in 2000, and was still able to maintain an overall reduction three years later of 6%. As Governor, I will aggregate state employee, teacher employee, and all public pharmaceutical purchasing. I will insist that pharmaceutical suppliers provide a rebate in order to be placed on the preferred drug list (PDL) – Florida saved $127 million in the first year of its PDL program. In addition, I will ask the Legislature to change current state law, which prohibits us from joining multi-state drug purchasing cooperatives that allow participants to obtain prescription medications for far lower prices.  Based on other states’ experiences, similar drug-purchasing reform in Alabama should save about $40 million a year.

Reduce the State’s Cost for Durable Medical Equipment. Durable medical equipment (DME) purchased through the Medicaid programs should be purchased through a competitive bid process, which includes negotiated discounts for volume. In the same way that pharmaceutical costs can be negotiated down through aggregating drug purchases across state programs, the state can find savings in the way DME is purchased. Florida, Texas and New York competitively bid out DME purchases. Federal demonstration projects have shown that overall savings to the Medicare program ranges from 17% to 22%. In the two demonstration sites of Polk County, Florida and San Antonio, Texas, the net savings for DME expenditures totaled $2.7 million. This should translate into savings of at least $14 million in Alabama.

Increase Deinstitutionalization and Community Care for Children, the Sick, and the Elderly. I agree with the emerging consensus that individualized or community-based care for our most vulnerable populations is superior to institutionalized care. It is also a trend that is less costly. While court orders have spurred Alabama to make great progress in the last decade in reducing the use of institutional settings and group homes to care for children, but we can make a more aggressive effort. In a nationwide survey last year by the Child Welfare League of America, Alabama officials reported a declines of 30% in the use of group care (Colorado, in contrast, reported a 40% decline). I want to see us further reduce the use of group care facilities for children by another 20% to give more children a better shot at productive lives. Similarly, we need to promote more home- and community-based long term care for our seniors. We need to continue deinstitutionalization of those in our mental health systems. And, of course, moving to health care in smaller-scale settings will not only improve care in many cases but will help us make our health care system more affordable for all Alabamians. Altogether, these efforts should also save approximately $40 million per year.

IMPOSE ACCOUNTABILITY ON PASS-THROUGH-PORK

 

When it comes to government spending, the taxpayers deserve to know in real time. As Governor, I will make Pass-through-Pork more transparent and accountable by requiring all such grant programs to specify the specific recipients in the state budget, where the public can learn about and object to it. 

• As I outlined in my ethics plan, I will ban legislators from using their discretionary funds to benefit their employers or the employers of their spouses.


• I will support a constitutional amendment to create a real line-item veto for the Governor, allowing me to strike out individual items of spending regardless of when the legislature enacts a budget and even if it has already adjourned. I would also seek to limit the legislature’s ability to override such vetoes by requiring a two-thirds majority. Needless to say, this will not be popular with the legislature, and this veto would be used sparingly. But I believe it gives the Governor the authority to be a fiscal watchdog accountable to the whole state and not just one district. 


• As for community service grants, there is no question that many of these expenditure are worthwhile. That is why I have no doubt that they will withstand the scrutiny that the State Treasurer called for several weeks ago. There should be a 30 day public comment period before the Commission on Community Service Grants can act and the specifics of these grants should be posted on the Internet.

BETTER MANAGING STATE OPERATIONS

 

Save Money on Energy Usage in State Buildings. High-efficiency green buildings typically consume 40% less energy and water than traditional buildings. Governor Riley set an admirable goal of cutting energy consumption in state buildings 30% by 2010 – but in reality the state is moving too slowly to meet this goal. It is on pace to reduce energy usage by 10% and saving roughly $5 million per year in doing so – but I will push to meet the original goal within three years. Other states like Colorado saved millions of dollars by moving toward 20% energy-reduction targets of 20%-25%. I will push for all new state building construction (and all new state leased space) to meet LEED Silver standards for green buildings. I will retro-fit and retro-commission all existing state buildings to meet this goal and save the state an additional $10 million a year.

Consolidate Information Technology. Governor Riley’s cost-saving commission concluded that consolidating the data centers at the Information Services Division (ISD), the Alabama Department of Transportation (ALDOT), and the Department of Industrial Relations (DIR) could reduce costs by a projected $2 million a year—just from the consolidation of the computer mainframes and associated operations. In addition, the commission noted, consolidation of several hundred file servers spread over the state capitol complex onto one mainframe would dramatically reduce expenses ranging from purchase costs and rental fees to maintenance and service charges. There is no good reason to put off making these changes. Texas expects to save $163.9 million by combining 30 facilities into two and Oregon has saved $10-20 million by converting eight facilities into one. Virginia projected it could save up to $60 million within three years through consolidation. Alabama should be able to save $10 million a year by bringing its IT services together.

Improve Management of State’s Real Estate Operations. State government owns a wide range of properties, and they present numerous opportunities for management savings. We need to regularly examine the possibility of consolidating office space, purchasing offices currently rented, and managing these properties as an investment folio with the possibility of realizing gains, as Arizona has done. Virginia projected savings of up to $60 million annually from a concerted real estate management effort; West Virginia’s performance review recently identified millions of dollars in annual savings from smarter real estate management. In Alabama, it would be realistic to reap $30 million in savings. 

Efficient Use and Management of State-Owned Vehicles. A similar effort in West Virginia to limit use of state cars and personal vehicles saved $200,000 a year. In Florida, restrictions on the use of state vehicles for commuting and other similar changes were estimated to save as much as $2.4 million. Management of the state’s fleet of 15,000 vehicles should be centralized to establish a revolving account to fund purchases with specific mileage criteria. A conservative estimate would be that Alabama could save half a million dollars a year on such an initiative.

Reduce Telecommunications Costs. State governments in Arkansas, Oklahoma, Louisiana, and Indiana have all realized significant savings in the range of 7-10% of annual communications costs. A conservative estimate would be that Alabama could save half a million dollars a year on this initiative. 

A SYSTEMATIC EFFORT TO FIGHT WASTE –
AND SAVE $500 MILLION

 

As Governor, one of the first things I will do is to launch an efficiency review of the entire state government to find and eliminate waste and to improve overall governmental efficiency. I will make sure we institutionalize and make permanent the search for savings and efficiencies in Alabama and I will appoint a Cabinet-level advisor, reporting directly to my Chief of Staff, to oversee the effort.

We will start with performance reviews of every agency with a deadline for results by the end of the fiscal year on October 1, 2011. And then we will follow Texas and institutionalize this process during the course of my term, with a goal of expanding our saving each year. By the way, Texas, a unmistakably conservative state, found that it was able to achieve 10 billion dollars worth of savings in the first decade of their annual reviews.

In West Virginia, a review that cost $500,000 to conduct saved $77 million in just the first year. In Washington State, reviews of dozens of agencies cost just under $15 million in state resources – and saved over $3.5 billion. Performance reviews in other states have been able to identify savings amounting from 1% to 6% of the General Fund budget. For example, New Mexico’s performance review identified improvements worth over $300 million over five years, or an average of $78 million per year (about 4% off the non-school district state budget). California’s performance review identified an annual average of $6.3 billion over five years, over 6% of the then-$98 billion state budget – a percentage similar to Texas’ $4 billion first-time savings.

In this plan alone, I have identified over $500 million in annual savings and efficiencies -- $331 million of spending under the General Fund and Education Trust Fund, and $174 million in earmarked receipts or spending – mostly in Medicaid. Based on the results in other states that I discussed above, I think it’s safe to say that, all told, we can identify 5% efficiency savings in non earmarked General Fund and Education Trust Fund spending – or $340 million (out of a current total of approximately $6.8 billion in non earmarked money). I’ve also identified in this document at least another $174 million in efficiencies in utilizing earmarked funding, a total I am confident we can increase.  

 

GETTING ALABAMA’S FAIR SHARE: $150 MILLION

 

The federal government provides hundreds of millions of dollars in reimbursements that states can receive or recover from "uncapped" federal funding programs such as Title IV-A (TANF), Title IV-E/Foster Care and Adoption Assistance, and Title XIX/Medicaid. All states fail to draw down all the federal formula money available to them – mostly from failing to report or categorize such expenditures in a way that enhances their ability to draw down the federal match. For example, something as simple as re-categorizing a state university mathematics course for engineers as a math course rather than as an engineering sequence could qualify the course for federal funding aimed at mathematics education. If the state restructures programs and is more thoughtful in their design, we can increase our share of our federal taxes returning into the state.

This has nothing to do with federal stimulus dollars – it is long-existing federal-program dollars. No state match is required and there is no restriction on the funds’ use, as these are reimbursements for qualifying expenditures already made by the state government. Alabama successfully implemented a similar federal revenue maximization program roughly a decade ago in one limited area of government, and boosted federal receipts by roughly $4 million a year; it’s time to revisit and expand this effort to all areas of state government that could qualify for additional federal funding.

As a congressman, I have seen too many times that federal formulas frustrate our efforts. As Governor, I will make it a priority to turn those formulas to our advantage. Based on the results elsewhere, we can reap an additional $150 million a year.