July 1st marks the start of the fiscal years for most states. More than a few started running out of money in the last few weeks of the year. Most everyone breaths a sigh of relief once the new year starts, but the 2025 fiscal year isn’t destined to end the trend of running out of money. 45 out of 50 states had lower tax revenue for the second quarter of 2023. Throw in the complexities of a presidential election and who knows what the rest of the year is going to look like.
The bottom line is that the way people live, work, and interact with their communities, businesses and government entities has changed in the last four years. State governments have typically not kept pace with their sources of funding or the needs of their communities. It’s not so much a criticism as an observation. We all saw the cargo ship Dali crash into the bridge in Baltimore. A fully ladened freighter can take several miles to come to a stop even when they do have control of the vessel. Government entities are very similar. It takes years to change course on many things.
Historically government agencies set the direction things are going rather than reacting to it. So even though things take time, there is generally a smooth transition. Covid changed that. Businesses went out of business, which reduced tax revenue in states like New Hampshire, California, etc. Connecticut has 22% less state workers than it did at it’s peak, and still reached the spending cap early this year. It’s not any one person’s fault, they just can’t react to change fast enough.
Commuter patterns changed, and most office buildings are largely empty because people are working from home. This includes state office buildings. The last time I was in a State office building for a meeting, I kept having to stand up and wave my arms so the lights stayed on. There weren’t enough people in the building to keep the motion sensors active. So what’s a state to do?
Streamlining Processes
In as much as this is one of my favorite things to work on, governments have been doing this for 30 years. It tends to be more churn than progress unfortunately. We tend to do incremental changes rather than wholesale changes. Reducing red tape, automating services, and reducing paperwork are all good things. But they really don’t result in much overall change when they are implemented within the context of the services that they are associated to.
You don’t usually start seeing real change until you start crossing boundaries in departments. Sharing maternal health data between SNAP and WIC would end up saving Medicaid about $300M annually nationwide. It’s a simple change that doesn’t really impact the programs involved. You have to look at the bigger picture to see the benefit.
Data Sharing
Sharing data in government has always been a challenge. Sometimes the obstacle is the physical boundary of the the agencies’ building. Other times it has to do with funding sources or cost allocation rules. And sometimes it’s just easier to say “NO”. Privacy rules and perception around privacy don’t help either. But once you get past all of those, you can do some really cool things, and save State government lots of money. Happy residents is another nice benefit.
California has built the model for data sharing. It will probably be a few years before they see the cost savings, but it’s just a matter of time. In addition to the savings in duplicate data entry, data sharing will reveal new ways of working and many of the departmental silos will fall by default. New York is another leader with their innovative 1115 waiver for Medicaid. If these two states had a baby it could be a model for government services for the next few decades. For now we just need to look for the lessons from both.
Shared Services
This is another crowd favorite. Share resources like HR, finance, and IT across departments to reduce duplication. It also allows you to aggregate purchasing across agencies to negotiate better rates for goods and services. Done correctly it can be the silver bullet states need. Done badly it creates an ivory tower that becomes out of touch with the people it is supposed to serve.
In the early 1990s the Post Office proposed a shared services model that I thought was brilliant, but it never saw the light of day. They saw what email and UPS/Fedex were going to do to their business. There was a proposal to partially convert post offices to shared government one-stop centers. Different agencies would have shared or rotating presences at other times of the month. Wouldn’t it be nice to drive down the street to talk to a human about your tax return, car registration, or unemployment benefits? Online services are great most of the time, but sometimes you just need a human. Standing in line for 3 hours only to find out you are missing a form is not how government services should work.
Shared services should be built for sustainability rather than optimization. If customer’s needs aren’t being met promptly, it’s a failure. If your times for onboard, FMLA processing, and help desk calls aren’t lower going forward then you’ve just built a self-licking ice cream cone. No one needs that.
How Much is That Office?
Most state offices were designed for a workforce before the personal computer. They are laid out so managers can see people working based on the flow of paper. They aren’t set up to give workers what they need to do their jobs. More recent offices have more collaboration spaces but still tend to be cubicle farms. And thanks to more remote/hybrid work they are largely empty most of the time. Return-to-office mandates don’t work. In addition to being about 4% more productive working remotely, people with options are simply likely to quit. Hybrid work cuts quit rates down by 35%…”Each quit costs the firm about $20,000, so Hybrid is very profitable.” – Nick Bloom
While state offices tend to be less costly than most space, they still can approach the $10,000 annual range for facilities costs to support one worker. And then there is the average 1ton equivalent in CO2 that each desk contributes. The bottom line is that most States have about a 50% surplus of space based on how it is currently used. It’s time to think of shared desks and collaborative spaces. Some buildings may be sellable, and some space may be leasable based on the long-term needs of the State. This is one area in which almost all states can save money.
Then There’s Energy
State government buildings are among the most accessible untapped resources for energy. They tend to have rooftops and parking lots that would be great for solar. They have steam plants for many buildings when they could install geothermal heating instead. And since States own most waterways, there is a vast untapped micro-hydro potential that can leverage bridge piers, storm drains, and other structures. Because of their size, they tend to be fish-friendly, and most people wouldn’t even see them. What if a state’s energy budget was flipped from an expense to a profit center? It can be done.
Union Contracts
This is a topic that scares everyone. Most union agreements have been band-aided to the point that they are ridiculously complicated and outdated at the same time. Job classifications typically date from the mid-20th century and space requirements and worker protections are equally dated. In many ways, some current agreements restrict workers more than protect workers. Why does an organization need to provide 58 sq. ft. of dedicated working space per employee when they are only in the office 20% of the time? What does Worker’s Comp look like for remote workers? Why do all workers need to take breaks at the same time? What job protections exist against AI?
It’s time for a clean slate to identify what workers need in the 21st century. There’s plenty of opportunity for unions to add value, protect worker’s rights, and have constructive relationships with States. For States with unions to adapt faster to the changing landscape, they need union agreements that reflect our current world. Those who embrace flexibility ultimately win for everyone.
Be Bold
This is no longer the time for incremental change. 9 months from now many states will be scrambling again to get through the rest of the fiscal year. Anyone who has played with Legos knows that you can destroy your masterpiece and recreate something new because you still have the pieces. Governments are not that different, but people don’t like to take them apart and rebuild them. They tend to look at the structures that are in place as sacred and instead resort to service reductions, furloughs, and not filling positions. This tends not to contribute to the happiness of State workers or the people they serve. Let’s start the new fiscal year with a new plan to do things differently.
