Report - Tip of the Iceberg
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The Tip of the Iceberg: A Report on How New York State Can Save Millions of Dollars by Using the State Work Force

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Despite new laws enacted to shine a light on the high cost of private consultants, the state of New York is still spending a fortune for private contractors when public servants can often do the work better and for less.

In a time when the state is facing severe fiscal constraints, spending on all consultants, including support staff, in SFY 2008-09 rose to $2.9 billion; a $100 million increase. That’s the equivalent of 23,329 full time consultants working for the state, over 2,500 more consultants than the previous fiscal year. For more than a decade, the State Comptroller’s Office, private auditing firms and public employees’ unions have been pointing to the elephant in the room  the state’s irresponsible and essentially uncontrolled spending on high cost private consultants, but so far only the tip of the iceberg has been exposed.

Based on reports filed with the Office of State Comptroller, which only cover 20% of total consultant expenditures, New York State continues to pay thousands of consultants performing professional services an average of $160,719 annually; 62% more than public employees doing similar work cost including the cost of their benefits.

Some state agencies incurred astronomical consultant costs; for example, the State Election Commission paid the equivalent of 12 full time consultants working on three separate contracts $5.7 million a year, equating to an annual cost of $456,000 per consultant. The State Insurance Fund paid the equivalent of 3 full-time consultants working on three separate contracts an average of $450,000 a year.

Several furlongs ahead is the $543.94 average hourly cost for legal consultants at the New York State Racing Commission Oversight Board, including paralegal services at a cost of $552 an hour. Governor Paterson has initiated procedures that have resulted in a reduction in the rate of growth in consultant spending and the Governor’s Task Force on Personal Service Contracting Issues has recently issued recommendations that should further reduce the state’s wasteful spending on consultants. The Task Force’s recommendations, however, don’t go far enough.

Conservatively estimated, the state could save between $280 million to $480 million by replacing about half of the State’s expensive private consultants with state employees.

The following steps must be taken to achieve this savings.

1. The State should enact a Consultant Reduction Plan with a goal of saving $375 million annually (about the mid-point between our low and high estimated savings) by 2012-13. Phased in over the three years, this plan could save the State over $656 million.

The plan should:

A. Require the Division of Budget to set savings targets for each state agency for consultant spending, focusing on information technology and engineering services as these categories will achieve the greatest savings.

B. Institute a freeze on new and renewed state agency consultant contracts over $100,000 until a cost benefit analysis is completed by an agency and reviewed, and a waiver is approved by the Division of Budget.

C. Require the Department of Transportation, as part of their Consultant Reduction plan, to conduct at least 90% of their bridge inspections with state employees within three years.

2. The state should enact a law that requires state agencies to perform a Cost/Benefit analysis before entering into any consultant contract more than $100,000.

3. The state should enact a law that requires penalties for failure to file reports under consultant disclosure law. DOB and the Office of the State Comptroller (OSC) should also take the necessary steps to improve the consultant reporting as recommended by the Governor’s Task Force on Personal Services Contracting.