Analysis: Will pricey consultants pay off? Ask Kansas, Louisiana

Wyoming isn’t the first state to bring in corporate consulting giant Alvarez & Marsal in hopes of building a leaner, cheaper government.

The state this month signed a $1.8 million contract with the multinational corporation to pursue a government efficiency project proposed to save the state hundreds of millions of dollars.

A look at the firm’s work in Louisiana and Kansas — where A&M conducted broad efficiency projects similar to that proposed for Wyoming — reveals both the pitfalls and promise of applying corporate streamlining practices to state government.  In both instances A&M’s sharp pencils more than paid for their fees but fell well short of the eye-popping sums presented to the politicians that hired them. Policy makers and observers in those states warn that regardless of what A&M finds, making the leap from a consulting report to actual savings will prove difficult and often depends on political whims.

Representatives for the firm say it has learned from its work in those states and is applying a more refined model to Wyoming to ensure an efficiency project can outlast the political moment that kicked it off.

For details on A&M’s new project, read a companion feature

Though A&M is most prominently a corporate services company, it has a public-sector consulting arm that has worked in a variety of states. Materials the firm provided with its most recent proposal to Wyoming cite projects in North Carolina, South Carolina, Georgia, Maryland and the city of Seattle. In those cases, the firm focused on particular agencies, rather than an entire state. In Kansas and Louisiana, however, the firm’s engagements align more closely with their work in Wyoming.

In those states, A&M was brought into a political climate that will be familiar to anyone observing Wyoming in recent years. Both states had governors hoping to turn their states into conservative policy labs by slashing taxes and, subsequently, government services. When continuing budget cuts became difficult, the suggestion that outside eyes could find a wealth of inefficiencies became an appealing panacea for a Louisiana governor and for the Kansas Legislature.

Though Wyoming has had moderate governors, imbalances in the state’s tax structure have meant revenues don’t meet current government spending needs here either. The political appetite for painless savings is every bit as robust.  

We’re not in Kansas anymore

Following steep tax cuts enacted by former Kansas Governor Sam Brownback and the state Legislature in 2012, Kansas found itself in a budget crisis by 2017, according to widespread reporting. Desperate to knock down government spending even after deep cuts, lawmakers turned to A&M in 2015, according to reports in the Lawrence Journal-World.

The Kansas Legislature contracted with A&M for a $2.6 million efficiency study. Three years later, the state has implemented recommendations for $30 million in savings out of the firm’s report, according to State Rep. Troy Waymaster (R-Bunker Hill), a chief budgeter in that Legislature who is currently chairman of the Appropriations Committee and Legislative Budget Committee.

Waymaster recommends Wyoming pursue work with A&M, but his experience also suggests lawmakers should temper expectations.

Kansas “more than paid for the study,” he said. “But it’s not nearing the amount that [A&M] came back with when they released [their report].”

A&M’s report had suggested more than $2 billion in savings over five years, according to the Lawrence Journal-World. An August 2018 report from Kansas’ Legislative Division of Post Audit — a branch of that state’s equivalent of Wyoming’s Legislative Service Office — enumerates which A&M recommendations have been implemented, according to reports from state agencies.

Of 105 suggestions listed in the report, 31 have been implemented and 24 are “in progress.” There are 33 suggestions that Kansas agencies or lawmakers decided they will not implement. Eleven are listed as “N/A” and five are listed as “no response/have not started.”

Some of A&M’s suggestions were already being implemented by the state before the report came out. “Somehow it was included in the study,” Waymaster said.

Other ideas — like combining agencies, commissions and boards or combining school districts’ health insurance plans — were politically untenable. “We actually had a bill that was introduced to consolidate some like agencies together,” Waymaster recalled. It died in committee. “There was such angst over changing that.”

Other revenue-generating ideas just didn’t seem tenable for a state government to implement, the Republican said. A&M suggested Kansas lease some state-owned land to telecommunications companies to build towers, earning itself a royalty payment. Lawmakers didn’t want the state to compete with private landowners and killed the idea, Waymaster said.

“At first when it was released [the report] made perfect sense and it seemed like it could be feasible,” Waymaster said. “But then you start getting into it in more detail and you say ‘OK, this is going to cause this problem…’”

Ultimately, though, Waymaster called the experience a good one for Kansas. The state saved enough money to pay for the report and can use it as a blueprint.

“In my opinion it was well worth it,” he said. “There was some criticism before we implemented the efficiency study but it did uncover some things even our own legislative audit didn’t find.”

The study did not save lawmakers from having to raise new revenues. Many of Brownback’s tax cuts were reversed by the Republican Legislature in June, 2017.

Swamped in Louisiana

A&M appears to have been less successful in Louisiana.

There is, however, a key difference between A&M’s work in that state and the stories in both Kansas and Wyoming. In Louisiana, A&M was brought in not by lawmakers but by former Gov. Bobby Jindal. The Republican politician was criticized in the capital, Baton Rouge, for prioritizing ha quest for a higher national office over state policy, several Louisiana state-house observers told WyoFile. Like in Kansas, Jindal had implemented significant tax breaks for business that ended up driving a budget deficit — even according to his own admission.

A&M found $2.7 billion in suggested savings for that state’s budget, according to Associated Press reports. But many suggestions were spurned by lawmakers disillusioned with Jindal, and others were politically untenable to begin with, according to the news reports. Louisiana ultimately payed the firm around $7 million for its work.

A suggestion to save money by halving the amount of asphalt used in road paving was dismissed by the Legislature as cheap. A suggestion to close rural branches of the state’s Office of Motor Vehicles raised eyebrows for being politically untenable for state lawmakers — particularly when one of the offices slated for closing fell inside the state Senate president’s district. Other suggestions were for privatizing state services or selling state-owned lands and property, even some of the state’s ferry boats.

When an executive branch employee explained a recommendation about spending less money on state lawyers to the Senate Finance Committee, a lawmaker mocked her, according to Associated Press reports.

“It took an outside consulting firm to tell y’all that?” asked Sen. Fred Mills (R-Breaux Bridge).

Some suggestions from the report were implemented, but after Jindal’s 2016 departure, the initiative was largely shelved.

“I get this question from time to time,” said Jacques Berry, policy and communications director for the Louisiana Division of Administration, when reached by WyoFile for comment on A&M.

“Overall we’re not working from that report,” he said. “That was out the door. It was not accidental.”

As in Kansas, however, the state was able to implement savings that covered A&M’s costs, Berry said, particularly through consolidating information technology work to a single state agency — creating an economy of scale for technology products. “That one is paying off big time,” he said.  

In Louisiana, the Legislature partially reversed Jindal’s tax cuts in June of this year, passing a seven-year sales tax hike to raise around $500 million per year to fix the state’s budget, according to Baton Rouge newspaper The Advocate. The Louisiana legislature is majority-Republican, though the margins are slimmer than in Kansas or Wyoming.

A&M to apply lessons to Wyoming

In both Kansas and Louisiana, the firm considers its work a success, according to comments provided to WyoFile by A&M spokeswoman Sandra Sokoloff on behalf of Erin Covington and John Rust, directors of the firm’s public services division in Washington D.C. State governments or legislatures trying to implement A&M’s recommendations face a number of obstacles, Sokoloff wrote in an emailed response to WyoFile questions about the firm’s work in Kansas and Louisiana.

“Changing political priorities, improved revenue projections, resource constraints and a lack of focus on efficiency efforts all serve to diminish successful implementation,” Sokoloff wrote.

In Kansas, the firm offered “a menu of alternatives for the policymakers to address,” the company officials said, “and not all of the recommendations were selected and funded.”

In Louisiana, the firm considered its program to be an “overall” success, Sokoloff wrote.

Through its experience in both states, the firm has learned that creating an office that’s responsible for implementing recommendations is key. “In Kansas, as in Louisiana, the importance of establishing a long term Program Management Office and Governance structure would have helped ensure that the savings opportunities were tracked and implemented to the full extent of the recommendations,” Sokoloff wrote. Such a structure is also necessary to ensure that efficiency programs outlive any single administration, Sokoloff said.

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In Wyoming, the consulting firm’s new contract is largely for the design and implementation of such an office, which Sokoloff called “unique” to the state.

“Ensuring that an organization is put in place to manage risks and issues, drive project completion, and track and report on results will be a critical difference for Wyoming in the implementation of savings,” Sokoloff wrote.  

A&M’s new test case will ultimately unfold under Wyoming’s next governor. In a companion piece to this story, major party gubernatorial candidates expressed cautious support for the possible savings through efficiency, tempered with some skepticism about a pricey contract with an out-of-state consulting firm.