The Rising Cost of State’s Outside Contractors

State bureaucrats, it seems, are less than enthusiastic about the law requiring an annual report itemizing how much Wisconsin spends contracting out work to various service providers.

Under Democratic Gov. Jim Doyle, the report was submitted as late as seven weeks past its Oct. 15 due date. Republican Gov. Scott Walker proposed axing the requirement. Failing that, his administration turned in its first report, for fiscal 2011, more than eight months late and only after this column reported on the delay.

The latest report, for fiscal 2012, was quietly submitted in mid-November. As with prior reports, it appears intent on meeting the letter of the law while being as unenlightening as possible.

Overall, the amount spent by state agencies and the University of Wisconsin System on outside contractors increased by more than 5 percent over the prior year, to a total of $515.8 million. All of the increase owed to state agencies; the UW System held steady at $125 million.

It is the second consecutive year that state spending on outside contractors has risen, up from $417 million in fiscal 2010.

The report’s cover letter by Christopher Schoenherr, deputy secretary of the state Department of Administration, asserts: “Overall, the state of Wisconsin has reduced its contractual spending by $36.2 million since Fiscal Year 2005.”

Actually, this is true only for state agencies, not the state “overall.” Including the UW System, the amount of outside contracting was $15.6 million higher in fiscal 2012 than in 2005. In fact, the state spent more on outside contractors last year than at any time since 2004.

DOA spokeswoman Stephanie Marquis says “the introduction letter was worded as has been done historically.” But, in years past, the cover letter has included UW System spending in the figure it gives as the “overall” total.

The report lumps outside spending into vague categories like “Professional Services – General,” which accounted for $268 million.  The next highest category was data processing services, at $85 million. Another big category: “Miscellaneous Services,” at $38.2 million.

By far the biggest user of outside agencies in fiscal 2012 was the Department of Health Services, at $182.4 million. That’s the highest it’s been in years, despite a DHS spokeswoman’s statement in July 2012 that the department was taking steps to reduce these expenditures.

In December 2011, the Legislative Audit Bureau issued a report faulting DHS’ “vendor oversight and contract monitoring.” It said the agency’s “increasing reliance on vendors may also potentially hamper its ability both to effectively provide guidance to the large number of contracted staff and to maintain adequate administrative oversight.”

The report urged DHS to “review existing contracted services to identify whether cost savings could be achieved by using state employees.”

DHS spokeswoman Claire Smith says the department has added some new state positions, replacing contractors, and “will continue to reduce contract staff with state staff where cost-effective.” She adds that some outside expertise will still be needed.

The contracting report does not say which companies were hired, or list compensation rates. It does compare the estimated costs of hiring contractors versus using state employees, as the law requires, for nearly 400 individual jobs.

For instance, the state Department of Transportation estimated that it would cost $14.1 million for state workers to remove snow from rest areas, compared to $1.1 million to contract this out. It also reported that a contract for “delivery services” would cost $53 million if performed by state workers and only $235,688 if done by a contractor.

Even with these numbers in the mix, adding them up shows it would have cost just 13 percent more to have state workers do all the jobs for which a cost-benefit analysis was performed. In fact, more than half of the analyses found that using state workers would be cheaper.

The report itself does not tally these numbers. That’s not something the law requires.

The nonprofit Wisconsin Center for Investigative Journalism (www.WisconsinWatch.org) collaborates with Wisconsin Public Radio, Wisconsin Public Television, other news media and the UW-Madison School of Journalism and Mass Communication. This story was a produced in collaboration with Wisconsin Public Television.

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