Strategies for Success in the New Normal

1. Strategies for Success in the New Normal Dr. Joe Saviak, J.D., Ph.D. Associate Professor & Assistant Director Public Administration Program Flagler College

2. Redefining Government in the 21st Century • The New Normal • The Monopoly Is Dead • High Performance Government • Use of Analytics • High Performance Workforce • Redesigning Government – Partnerships, Contracting & P3s, Vouchers • Redesigning Public Pensions & Employee Health Care • Strategic Planning • Program Evaluation • Organizational Culture • Communication • Leading Change/Innovation in the Public Sector • Moving from Government to Governance

3. Redefining Government in the 21st Century It’s malpractice when we do not provide managers and professionals with the understanding, skill set, and the ability to use all the tools they should have in their problem-solving tool box for the challenges of the 21st century Organizing government around the realities of the 20th century can no longer be justified Real lessons from the 20th century (the professional public service model – a vast improvement over the incompetence and corruption in early 20th century local govt.) - some lessons still applicable (retain & employ what still works) But so much has changed that what worked last century simply will not work now! As Starling would say, “We can’t be the Post Office in the age of the Internet.”

4. The New Normal Here’s the current fiscal health of state and local government in America:(Martin, Levey, & Cawley, 2012) GAO estimates that collectively local governments face a $225 billion structural budget deficit Pew Center for the States (2011) estimates that state and local government pension plans may be underfunded by $1.3–$3 trillion. Municipalities nationwide ended 2010 with the largest year-over-year reductions in general fund revenues and expenditures in the last 26 years (National League of Cities) American Society of Civil Engineers (ASCE) rates the condition of the majority of America’s infrastructure as “mediocre” or “poor.” The ASCE estimates that it may cost up to $3.6 trillionto bring the nation’s infrastructure up to “good” condition (ASCE, 2013) Since 2008, the number of public sector jobs eliminated by just local governments alone has been variously estimated at between 236,000 and 850,000 - many of these jobs will not return when the Great Recession is over & are gone forever.

5. The New Normal As the economy recovers, life in local government will be just like it was in the 1990s - this is false Punctuated Equilibrium resulting in a New Normal - many changes are here to stay and more change will be on the way - no single status quo during a career in local government – change will be the constant – change will be our new culture Reduced revenues, smaller public sector workforce, tough choices on service levels, and adoption of new means of financing/delivering public services(Martin, Levey, & Cawley, 2012) Solutions cannot be short term & tactical in nature Solutions must be strategic, structural, & long term We will need to use all of the tools in the toolbox of successful public managers – we will need to be change leaders.

6. The New Normal (Martin, Levey, & Cawley, 2012) Specific Strategies: 1. Evaluate current services– mandates, needs, wants, & things we don’t need to be doing(should we be doing this?) 2. Assess current service levels– based upon the evidence, what can we decrease? (how much - at what service level?) 3. Rethink service delivery– crisis offers opportunities for reform – time is now to rethink, reorganize, and reengineer service delivery (how should we deliver this? Make or buy? Contracting, P3s, Grants, Vouchers, Volunteers, Pay for Success) 4. Consider more privatization and less privatization– on a case by case analysis, should we outsource or in-source? Just the mere process of considering new service delivery choices will usually generate cost savings (Goldsmith Model – allow public sector to compete) – In-sourcing City of Palm Coast $2.2 M cost savings 5. Explore more shared services- you don’t have to consolidate govts. to engage in joint service delivery

7. The New Normal (Martin, Levey, & Cawley, 2012) Specific Strategies 6. Identify new revenue streams - improve tax collection– consider user charges where applicable – selling services & cost recapture - diversify from dependence on ad valorem - don’t leave money on the table 7. Un-freeze assets– conduct a lazy assets analysis – inventory & select strategy to enhance, optimize each asset - use P3 concessions and leases of roads, bridges, and facilities to produce new revenue streams for local governments (Chicago Skyway) – sell public property not serving a public purpose 8. Automate, automate, automate– achieve greater efficiencies with IT solutions – (Cloud computing instead of physical storage, Use of advanced analytics, E-government - use of on-line self service for citizens instead of office locations, Waterfall to Agile – “buy success in manageable phases” (IBM, 2012), Knowledge Management)

8. The New Normal (Martin, Levey, & Cawley, 2012) 9. Reform employee health care and pension plans– wellness programs, HDHPs & HSAs, on-site clinics, VBID, eligibility audits, generics, smoker surcharge, self insure, telemedicine – change from DB to DC or hybrid 10. Program Evaluation- We can ill afford to not measure what we do each day - culture of program of evaluation – builds public trust & confidence (Saviak, 2011) 11. Partnerships– for funding, service/program delivery, regulation, and to finance, build, operate, and maintain infrastructure (Saviak, 2013)

9. The New Normal (Martin, Levey, & Cawley, 2012; Saviak; 2013) 12. Use all tools in the toolbox- need to access the full set of tools beyond the traditional 20th century tools of government of legislate, regulate, & direct delivery by govt. (Salamon, 2002) 13. Continuously communicate and effectively educate– conduct honest adult conversations with citizens about services, costs, finances, & choices – make sure they have the facts – the communications burden is yours – also let them know about your successes (no one else will!) – have a communications plan for each major administrative/policy decision – failure to effectively communicate can carry a high price!

10. In the New Normal, The Monopoly Is Dead (Benest, 1996) • Government no longer has a monopoly – government now competes! • Citizens should be seen as customers – citizens now have options – in the 21st century, when the public does not like your agency or policies or level or quality of service or its cost, the public an do something about it • They can fire your agency – they can still get the service without using you! Options available to policymakers and taxpayers include: • Annexation • Consolidation • Incorporation – contract cities (Weston, Florida & Sandy Springs, Georgia) • Privatization • Contract with another public provider • Reorganization • Reduced funding • Service elimination • Or just fire staff & start over

11. In the New Normal, The Monopoly Is Dead (Benest, 1996) Each local government must now compete for customers & prove & communicate that its policies and services represent the best product at the best price Citizens will no longer be content with “that’s the way we have always done it”, “you don’t understand”, “it’s none of your business”, etc. Govt. has to continually explain & justify its spending, policies, & services to win and maintain public support – don’t assume it, prove it! Citizens cannot just be told – they must also be convinced Program evaluation & effective communications are key – evaluate and communicate! “Local governments also compete in a marketplace as they attempt to retain and attract residents, businesses, shoppers, tourists, utility and transit users, service customers, and arts patrons. Public agencies compete for people’s cooperation and political support, whether that support involves complying with codes, conserving water, or paying higher trash fees. Realistically, local government cannot force people to do anything unless they are willing to comply. Because citizens are bombarded with communications from all sources, local governments must vie for their attention. Cities and counties literally must compete on a daily basis for people’s hearts and minds.” Dr. Frank Benest, former City Manager of Palo Alto, California (1996)

12. Local Government in the 21st Century – Declining Social Capital (Putnam, 1995; 2000) We regulate human behavior either through private institutions, public institutions & both – as private institutions decline, a greater burden to address needs, solve problems & regulate conduct can be placed on public institutions (informal to formal, internal to external regulation, social norms to laws, private to public institutions/functions) Social capital – bonding (within group) and building (across groups) – the strength of relationships – degree of connectedness to one another and to others Social capital helps communities thrive – trust, engagement, networks, norms – enable communities to more effectively organize/mobilize/support/respond to prevent problems, meet needs, & maintain a higher quality of life – strong predictive relationship with quality of governance & quality of life – life is different in communities with low levels of social capital

13. Local Government in the 21st Century – Declining Social Capital (Putnam, 1995; 2000) Major decline in social capital in America in recent decades - over the last 25 years: 58% decline in club and civic organization participation 33% decline in family dinners 33% decline in church attendance 45% decline in having friends over 35% decline in involvement in community life (public meetings) While 55 percent of American adults in 1960 believed others could be trusted most or all of the time, only 30 percent did in 1998, and the future looks bleaker because the decline was sharpest among our nation’s youth. Roughly 75 percent of Americans trusted government to do the right thing most or all the time in 1960, a figure that sounds quaint today when less than 25 percent trust the government. What does this mean for managers in local government? 1) Design policies which foster social capital, 2) avoid policies which harm social capital, 3) deal with changing citizen expectations, 4) influences decisions on programs & services, 5) managing in an era of distrust, & 6) how to engage citizens?

14. High Performance Government (Abels & Lee, 2010; Benest, 1996; IBM, 2008; 2011; 2013) Priority Issues Redesigning government at all levels from 20th century to effectively operate in and respond to 21st century realities Citizen engagement – visioning – articulate values, hopes, & fears – educate! Not passive consumers but active partners in problem-solving - Vending Machine vs. Barn-raising models - Neighborhood Empowerment Moving away from sole dependence on traditional hierarchical bureaucratic model for organizational structure/service delivery - Service boundaries matter less – service delivery matters more – service delivery will be organized differently (e.g. not one single dept. – networks, collaboration, joint service delivery) – managing horizontally Expect surprises – doing risk management right!

15. High Performance Government (Abels & Lee, 2010; Benest, 1996; IBM, 2008; 2011; 2013) Priority Issues Focus on results – managing for performance Meeting citizen expectations for on-line, real time, & high quality service – coordinated response/integrated service delivery - being transparent & accountable Culture of Innovation in Government Leadership

16. High Performance Government – Use of Analytics (Bachner, 2013; Partnership for Public Service, 2013) Increasing use of analytics by wide range of government agencies at all levels to enhance outcomes & performance – reduce crime, prevent epidemics, improve agriculture Analytics converts data into actionable information to guide decision-making – identifies patterns, opportunities, and relationships to drive decisions Analytics confirm predictive relationships - predict & prevent problems before they occur or in real time as they are occurring – confirm causes to select solutions – target limited resources to prevent or react rapidly to the problem Case Studies 1. CDC – PulseNet – identify food-borne disease outbreaks – identify clusters – collect data from state public health labs - 29:1 ROI – cost-avoidance accounting – monetizing value of prevention 2. Predictive Policing – Santa Cruz PD - Computer algorithm uses criminal incident data to map high probability crime squares each week - top 15 squares in city - officers are briefed, resourced, & concentrated – officers get updated, real time, hot spot maps - raining, easy to understand & use, not mandated to base everything on map but map is another tool – 27% decrease in burglaries

17. High Performance Government – Use of Analytics (Bachner, 2013; Partnership for Public Service, 2013) Lessons Learned Strong support of agency leadership is key Users need analytics that deliver actionable information when, where, and how they need it – must be able to easily access and comprehend the tools and modify them to suit their needs – user-centered Data-driven decision-making must become fully integrated into the organizational culture of an agency – “it’s how we do business here” First understand your current operations & objectives to ID data needs & value of analytics - where can I obtain data & where can analytics help? Collaborate with other agencies – capitalize on their knowledge & tools – leverage their data - share successes & lessons learned Create a team to manage the initiative who have agency history, analytical abilities, & subject matter knowledge Sell success to incentivize agency leaders & employees to support & use analytics – prove the value of analytics with ROI (CDC 29:1 ROI)

18. Snapshot of the State & Local Government Workforce (Center for State & local Govt. Excellence 2013) • 75% of survey respondents are from local government. Key Findings • The picture is brightening for the state and local government workforce, although 33% still report pay freezes and 18% report layoffs. That compares with 51% reporting pay freezes in 2012 and 28% reporting layoffs. • 27% report that hiring freezes are in place compared with 42% in 2012. • 56% modified health benefits for employees – of those changes, 52% involved shifting health care costs to employees. • 54% made changes to retirement benefits offered to employees. 29% of current employees saw an increase in their pension contributions, as did 34% of new hires. • 74% rated staff development the most important workforce issue in 2013, followed by employee morale (70%), and managing workloads (68%).

19. Snapshot of the State & Local Government Workforce (Center for State & local Govt. Excellence 2013) Reducing employee health care costs, retaining staff needed for core services, & public perception of government workers were also identified as important issues by 60% of more of survey respondents. The pace of retirements is high, with 22% reporting that employees have accelerated their retirement date. Public employees are retiring from state and local governments in historic numbers in order to avoid impending changes to public pensions and health care (Martin & Saviak, 2014). When asked if employees were financially prepared for retirement, 44 percent said, “no,” and 18 percent said, “yes.” Since the economic downturn in 2008, 61% report that their workforce is smaller. 19.5% report it being the same size. Only 7.4% report it being larger compared to 2008.

20. High Performance Workforce(IBM Center for the Business of Government; Nigro, Nigro, & Kellough, 2007; Starling, 2008) Managing a Multi-Generational Workforce – 4 different generations on the job at the same time – Traditionalists, Baby Boomers, Gen Ex, & Millenials Each generation may think, work, & communicate differently – diff. goals & values & expectations Managerial strategies, tools of communication, benefits (work-life balance much more important to Millenials compared to Traditionalists) Cross-generational mentoring – Baby Boomers & Gen Teach enhance soft skills (professionalism/social skills) of Millenials and Millenials teach technology to Traditionalists & Baby Boomers

21. High Performance Workforce(IBM Center for the Business of Government; Nigro, Nigro, & Kellough, 2007; Starling, 2008) • Managing workforce planning – will you be able to effectively fill vacancies with the right talent 1 year, 5 years, 10 years from now? massive change due to Baby Boomer retirements – historic opportunity to remake the organization but a historic amount of institutional knowledge is being lost with retirements of Baby Boomers - need to attract and retain high quality replacements – need to not lose that institutional experience & knowledge (knowledge management) – historic opportunity to reshape the workplace & change organizations with large infusion of new personnel – what is workforce planning? NAPA – “identifying human capital needs required to meet organizational goals & developing effective strategies to fulfill those needs” - need to anticipate future workforce needs and pro-actively design & implement specific solutions for those challenges – solve the problem before it becomes a problem - cannot be reactive in HR in the 21st century - need to recruit and fill positions Agencies needed to have:1) strong succession planning, 2) career tracking, 3) mentoring & 4) professional development/training programs or you will have a big problem! The organization needed to be “learning” while the person was still on the job so the knowledge does not leave when the employee does – 5)knowledge management program

22. High Performance Workforce(IBM Center for the Business of Government; Nigro, Nigro, & Kellough, 2007; Starling, 2008) • Manage talent strategically – recruit, retain, develop, & mange a high performance workforce – to attract, retain, & develop high quality, need 1) flexibility in hiring (incentives, direct hire), 2) professional/leadership development programs, & 3) new types of benefits - child care, telework, student loan repayment, etc. - high demand & real competition for knowledge workers – are you recruiting the talent you actually need now & in the future? (hint: an ad on the website or in the local paper is not recruitment) - you compete with private sector & against other public sector employers too – need for working conditions, wages, benefits, career tracks, organizational culture, management style, other incentives, etc. to be competitive to attract & retain knowledge workers – especially in a recovering economy, these workers have options and they change jobs and careers several times during their working lives (for example, what will happen with your best IT employees when the economy ramps back up?) - Investing in employee training & professional development to ensure needed & changing competencies & skill sets - Public employers will have to sustain ongoing & major investments in workforce planning, training & employee development - need to continuously upgrade skills & technical abilities of employees – the organization needs it, the public expects it, and employees want it – it will cost $ but failure to plan & invest could carry an even higher price tag (it’s just like defer/delay of maintenance with your infrastructure, there’s a point you pass where costs go way up because you did not do it when you should have

23. High Performance Workforce(IBM Center for the Business of Government; Nigro, Nigro, & Kellough, 2007; Starling, 2008) • Need HR flexibility for managers (some decisional freedom from the central HR office) – critical pay authority (able to offer higher pay for needed competencies & skills), use of buy-outs & early retirement plans, & streamlined hiring • Managing a changing workplace environment – work is not confined to the traditional workplace or workweek – telework, compressed work week (4/10) • Highly diverse & increasingly diverse workforce and service population in Florida which will affect all aspects of HR – different employee expectations & needs – new and different generations within the workforce – HR policies need to match the needs & expectations of changing demographics within the public sector workforce • Offering benefits that match, motivate, & matter - more diverse package of potential benefits (e.g. not just traditional ones like health insurance – flexible working arrangements)

24. High Performance Workforce(IBM Center for the Business of Government; Nigro, Nigro, & Kellough, 2007; Starling, 2008) • Manage for Performance – need to link employee performance with agency strategic plans (e.g. how are employees specifically helping to attain agency goals & objectives?) Performance measurement systems - cannot do the generic traditional single supervisor everyone gets satisfactory useless evaluation Performance management systems which measure, reward, & recognize performance – pay for performance – paybanding (pay based on qualifications & skills rather than longevity) - pay for performance (be careful about how you design and implement – need to fully fund – need employee buy in) Public sector HR must clearly contribute to a “culture of performance” where employees are selected, trained, evaluated, promoted, & rewarded for performance as opposed to non-performance criteria (length of tenure – yes, there are legal/political constraints to this) - If there are policy or managerial obstacles to HR contributing to optimizing organizational performance, then it is HR’s role to identify & help remove these barriers to performance – recommend reforms so performance truly matters (recommend organizational policies, HR policies & procedures, incentive & disincentive structures for performance)

25. High Performance Workforce(IBM Center for the Business of Government; Nigro, Nigro, & Kellough, 2007; Starling, 2008; Spreitzer et al, 2012) • Help make sure that your organizational culture is a positive & productive one - employees internalize the organization’s mission & values (make the mission and values of the organization their own) - the right organizational culture facilitates communication, coordination, attainment of goals, reduces risk & liabilities, ensures consistent performance, enhances retention, sustains morale, boosts productivity & performance, & maintains public trust - tools include selection/onboarding, policy, training, supervision, rewards/discipline, teachable moments, & leadership • Measuring employee satisfaction – employee satisfaction programs – a persistent and high rate of employee dissatisfaction is evident today in all sectors • Make sure your employees thrive! Vitality & Learning. Keep employees healthy, make work meaningful, opportunities to learn, innovate, & lead, provide decision-making discretion, information sharing, minimize incivility, provide performance feedback, & promote diversity

26. The Public Manager’s Toolbox (Salamon, 2002) Tools are the means by which policies operate & produce results – pick the right tool for the right job and know how to effectively use and evaluate it – strengths & limitations - avoid selecting the wrong tool or using the right tool the wrong way 1. Re-engineering & Reorganization 2. Contracting & Public-private partnerships 3. Vouchers 4. Grants & subsidies 5. Regulation – economic/social 6. Distribute benefits 7. Government insurance program 8. Social marketing 9. Needs assessment 10. Technical assistance 11. Impact fees 12. Development agreements 13. Sale, use, exchange of property 14. Information technology 15 Tax & Budgetary Policy 16. Provide a service or program

27. Partnerships (Saviak & Christiansen, 2013) We can effectively partner with other agencies (public-public), non-profit orgs, & private firms (public-private) for: • Funding ($) – grants, new revenue streams, cost savings • Service/program delivery • Regulation • To finance, build, operate and maintain infrastructure • Two counties who build & staff a single fire station at the county line to serve a large development which extends across the borders of both (joint service agreement) • Local govt. engaging a private sector partner to handle agency technology needs or a non-profit to deliver a specific program for citizens (contracting) • State government partnering with a private firm who will design, build, finance, operate & maintain a major highway to serve a major port city and several counties in a region of the state (public-private partnership) • Many success stories across the world & nation – partnerships can help obtain needed expertise and skills, reduce costs, improve service, enhance efficiency, enhance citizen satisfaction, secure financing for infrastructure & deliver new infrastructure on time and on budget • Not a silver bullet solution to every problem but it is a potential problem-solver when wisely selected, appropriately designed, effectively implemented, and rigorously evaluated

28. Partnerships (Salamon, 2002; Cohen & Eimicke, 1998) To make partnerships successful, managers need to be skilled in: procurement, partner selection, rethinking service/infrastructure delivery, relationship management, contract design and management, risk allocation, and program evaluation The proposed partnerships must make sense – what’s the rationale - complementary capabilities – each partner does what they do best - benefits outweigh costs for both partners – citizens experience improved outcomes - risks & rewards appropriately allocated – both partners must be “all in” “Nothing new that is really interesting comes without collaboration.” (Watson & Crick – discovery of the structure of DNA)

29. Two Types of Partnerships – Contracting and P3s (Martin & Saviak, 2014) Contracting – for goods & services P3s for infrastructure Renewed interest today in a valuable tool of public management whose successful use in our country pre-dates our birth as a nation Don’t let policy choices precede research – do the business case analysis each time Contracting out should not be seen as a challenge to but as an opportunity for public administration In recent years, many state and local governments have dealt with their budget deficits is by deferring maintenance on existing infrastructure and delaying the construction of new infrastructure - somewhat helpful in the short term but results in longer term financial problems. Is there another strategy available to state and local governments? How do we close this funding gap and meet our infrastructure needs for the 21st century?

30. Contracting Contracting it’s the classic Drucker “make or buy” question (Martin, 2001) – this is an evidentiary question – need to collect & analyze the data on all key performance measures & arrived at an evidence-based decision - based on the empirical analysis, will it be direct delivery by government (govt. funds & govt. delivers) or do we choose to purchase outcomes (govt. funds & private sector or non-profit provider delivers) State & local governments contract with both private sector firms as well as nonprofit organizations. Estimates are that state and local governments annually expend between $1.1 and $1.5 trillion on contracting. Eighty percent (80%) of American cities use contracting to some extent. Over 90% of city officials support contracting. Contracting can be described as “guarantor government.” Government guarantees that the service or activity will be provided to citizens, but non-governmental providers do the job. Contracting is based on a buyer/seller relationship. A state or local government becomes the buyer and tells the private sector what it wants to purchase (the process is called procurement) and receives bids or proposals from interested private sector firms (the sellers).

31. Contracting The Benefits of Contracting Increased Competition and Choice Ability to Innovate, Reengineer, and Restructure Cost Savings Economies of Scale Quality Improvement Timeliness Access to Specialized Skills Ability to Deal with Variable Demand Access to Intellectual Property “How can the private sector deliver services and activities at less cost than state and local governments and still make a profit?” Adjusting workforce to work demand. Private sector firms generally make more use of part-time and seasonal employees to smooth out workload peaks and valleys (match workforce to actual service demand – ramp up & ramp down) which government may be less able to do.

32. Contracting The Colorado State Auditor’s Office (CSAO) has developed criteria for use in evaluating services and activities for contracting. The CSAO approach has been used by numerous other state and local governments for a number of years. The CSAO approach consists of nine criteria: (1) market strength, (2) political resistance, (3) service quality, (4) impact on public employees, (5) legal barriers, (6) risk, (7) resources, (8) control, and (9) cost. Managing the Contracting Process State and local government usually contract using one of three major procurement methods: The invitation for bids (IFB) process The request for proposals (RFP) process The request for qualifications process (RFQ) The trick in contract management is ensuring that the contract is implemented according to the agreed upon terms and conditions without impinging on the contractor’s independent decision-making

33. Contracting Successful Contracting What will be our major benefit or benefits and what will be our major challenge or challenges? Single Point of Contact Contract Design –If something is not in the contract, the contractor cannot be held accountable for it. Scope of Work Ability to Modify the Contract - every contract is considered an “incomplete contract.” Ability to Deal with Disputes Use of Performance-Based Contracts - PBC involves tying payments and contract extensions to the contractor’s accomplishment of output, quality, and outcome performance specifications. Contractor Monitoring – early warning system Requires a different skill set for public managers Avoid “bureaucratization” of private and non-profit providers Select the right method of compensation – avoid perverse incentives (Goldsmith & Eggers, 2004)

34. Public-Private Partnerships (Martin & Saviak, 2014) Public Private Partnerships The American Society of Civil Engineers (ASCE) rates the condition of the majority of America’s infrastructure as “mediocre” or “poor.” The ASCE estimates that it will cost $3.6 trillion to bring the nation’s infrastructure up to “good” condition by 2020. National, state, and local governments have successfully employed public-private partnerships to deliver infrastructure and public facilities. P3s are not based solely on a buyer/seller relationship. P3s involve an alliance between government and the private sector with each partner sharing in both the risks and the rewards. Most Common Public-Private Partnerships (P3s) Airports, Bridges, Highways, Hospitals, Parking Facilities, Prisons, Rail Systems, Roads, Tunnels, Water/Wastewater. As of 2011, 377 public-private partnerships (P3s) have been initiated in 24 states - 104 of these P3s for transportation infrastructure - Florida (16), California (12) and Texas (9) have initiated the greatest number of P3s. P3s run the gamut from the relatively straightforward operations and maintenance (O&M) to design-build (DB) partnerships to the more complex design-build-operate (DBO), design-build-operate-transfer (DBOT), build-own-transfer-operate (BOTO), build-lease-transfer-maintain (BLTM), lease-renovate-transfer-maintain (LRTM) to the most complex design-build-finance-operate-maintain (DBFOM). DB most common. Can structure P3s differently depending on the project & goals/needs/strengths of partners.

35. Public-Private Partnerships Benefits: Accelerating infrastructure maintenance and construction Substantial risk transfer from government to the private sector On-time and within budget delivery of infrastructure projects Source of infrastructure funding Cost savings Equal or better quality Because more risk is transferred to the private sector partner, P3s tend to be completed on-time and within-budget with successful operational startup (e.g. the private sector partner who has paid for the toll road has a lot of incentive to get it built on time and get it producing revenue & ensure quality and safety so that customers use it so they can be repaid & make a profit) Case Studies: Long Beach Courthouse, Port of Miami Tunnel, Chicago Skyway, I-495 Capital Beltway, Texas State Highway 130, ADOT Highway Reststops Florida has 2 P3 statutes – both are well designed F.S. 334.30 – authorizes FDOT to engage in P3s for transportation infrastructure HB 85 – F.S. 287.05712 Florida’s other P3 statute is for local governments

36. Public-Private Partnerships Strategies for Success: Is there state enabling legislation? What does it allow? Build our institutional capacity – knowledgeable staff In contracting, we manage the contract – in P3s, we manage the relationship It’s not the traditional buyer/seller relationship as with contracting for most goods/services especially if it is a DBFOM – different roles & responsibilities for each partner - need to adapt traditional public procurement to the partnership model for P3s – private sector partner providing the $ in DBFOM Different procurement process & tools - use of RFQ followed by RFP/Competitive dialogue/ITN instead of traditional procurement processes (ITB/RFP) Designing/implementing long term contracts (e.g. 30-50-99 years) – treat as “incomplete contracts” - enhanced flexibility, periodic review by partners, user-friendly contract amendment process, dispute resolution mechanism, emphasis on PBC – tools to make the contract perform over the long haul

37. Public-Private Partnerships Strategies for Success: Use of unsolicited proposals – have a policy for this! Project size must be sufficient to attract private sector partners (e.g. US $100M) – use of bundling No progress payments – don’t change the incentive structure of the P3! What’s our P3 procurement policy and procedures? Make sure your procurement policies & process conform to Florida law (HB 85, CCNA) – adhere to the comprehensive agreement criteria (HB 85) Badly need a model policydeveloped to distribute to local governments in Florida – a template that local govts. can start with & tailor to their specific needs Employ best practices & lessons learned from abroad for your policies and contracts - need to utilize internationalbest practices

38. Public-Private Partnerships Strategies for Success Authority to use the full range of project financing mechanisms (Iseki et al, 2009)/the ability to accept all forms of potential project financing – for example, all federal assistance or loan programs (Nossaman, 2009; Iseki et al,2009) Broad authority to consider and engage in a diverse range of types of P3 projects (Iseki et al, 2009) Creation of a P3 Unit – specific organizational units should be created to oversee P3s. Contract Provisions - a P3 contract should also: (1) focus on outputs and outcomes rather than inputs & methods used (PBC); (2) identify the number of asset upgrades, if any, and when they are to occur; (3) identify if, when and how much tolls or user fees may be increased; and (4) specify what happens to the asset at the end of the P3 project. Documentation of Decisions and Directions – staff will change In P3s, the partner (government or private sector) best positioned to deal with the risk, should assume the risk.

39. Port of Miami Tunnel P3 The Port of Miami actually sits on an island. Traffic entering and exiting the Port of Miami must do so on surface streets. 26,000 cars each day on those surface streets entering & leaving the port – congestion. The Florida Department of Transportation (FDOT) has entered into a transportation P3 with a private sector consortium partner, MAT Concessionarie LLC, to design-build-finance-operate-maintain (DBFOM) a tunnel that will connect the port with interstates I-395 and I-95. The total cost of design and construction of the tunnel is $903 million. The private sector partner contributed $80 million to the project with the remainder of the funding in the form of debt and loans. Once the tunnel is open to traffic, all operating and maintenance costs will be paid by the State of Florida. The FDOT will collect container and passenger fees to provide the revenue stream to fund the partnership. Construction of the tunnel began in May 2010 and completion is expected by May of 2014. Operational control of the tunnel will revert to the FDOT at the end of the P3 contract in October 2044.

40. Vouchers (Salamon, 2002; Cohen & Eimicke, 1998) Vouchers– Instead of direct delivery, citizens are given a choice by funded access to multiple competing providers Examples:GI Bill – another partnership tool 3 key issues for public managers to assess in considering use of vouchers to provide public program or service: • Choice:When the govt wants the receiver of the good or service to have some choice of the supplier of the good or service • Efficiency:When the govt wants to promote efficiency. A voucher can allow for competition and thus lower prices • Equitable:Vouchers can promote equity and are often driven by concerns with fairness (ex: children stuck in failing or low performing public schools – low income families provided vouchers) Challenges: • Need competition & capacity among providers • Ensuring informed consumers - information asymmetries (when consumer lacks sufficient information to make choices – providers knows everything & consumer knows little) • Evaluate provider performance • Potential for adverse selection (customers will select bad providers or providers will end up with bad customers – screen providers via procurement – match providers to diff. customer groups) Current policy discussion: should we depend on a public sector monopoly (the VA) or give our veterans the power and choice to pick their doctors and health care providers?

41. Redesigning Public Pensions & Employee Health Care The traditional implied contract – less pay, more benefits – is changing Collective bargaining agreements - some services in some localities are pricing themselves out of the market (Benest, 1996) “I can afford 1 fire department – I just cannot fund 2-3 fire departments at the same time” (Moore, 2011) – cost of retired employee pension/benefits obligations GAO – unfunded state and local govt. retiree health care obligations total $530 billion (Martin et al, 2012) SLGE study – 68% of city & county govts. pushing to have retirees assume more of their health care costs 85% of state & local govt. employees still in DB retirement programs State & local govt. pension plans underfunded by $1.3-3 trillion (Pew Center, 2011) In 2008, state & local govts. spent about $132 billion annually on employee health benefits From 1996-2008, the average single employee premium increased 156% - for family coverage, 169% (Barro, 2011)

42. Redesigning Health Care (Barro, 2011) What makes public plans so costly? In the 4th quarter of 2010, public workers earned an average of $4.66 per hour in health benefits compared to an average of $2.08 per hour in the private sector – a difference of 124% The plans are different in the public sector! Lower employee contributions to premiums – 10% less compared to private sector Fewer and smaller co-payments and deductibles – insurance plans pay a greater % of the bills and lower cost sharing increases utilization which increases costs - 75% of private sector employees have a deductible – just under 50% of public employees have one 74% of private plans impose a waiting period for eligibility – only 58% of public plans do and when they are required, they are shorter – this means people take jobs with health benefits anticipating a likely claim (adverse selection) which means more costs to the plan Only 20% of private plans offer health benefits to retirees under age 65 (pre-Medicare) but 66% of state & local plans do 99% of full time state & local employees have access to benefits (86% in private sector) and only 16% of public employees waive them (compared to 26% in the private sector) Superior physician networks & higher provider reimbursement rates

43. Redesigning Public Pensions & Employee Health Care (Brookings, 2014; ALEC, 2013; ICMA, 2013; GFOA, 2011; Barro, 2011) Employee Health Care Identify your cost drivers Manage choice of providers Manage eligibility – eligibility audit – change time to eligibility Cost sharing – increase contributions, co-pays, & deductibles – variable premium contributions Offer diversity of plans to employees – 1) High deductible plan & HSAs 2) High deductible, low premium catastrophic insurance policy Self insure Implement wellness, health literacy, disease management, physical fitness programs & smoking cessation programs – reduce utilization – decrease costs Surcharges for smoking – 9 states reward non-smokers & make smokers pay more – 39 states with smoking cessation programs

44. Redesigning Public Pensions & Employee Health Care (Brookings, 2014; ALEC, 2013; ICMA, 2013; GFOA, 2011; Barro, 2011) Leverage Points of Cost Management • Change benefits • Manage plan participant choice of providers • Cost sharing with employees • Reduce utilization • Right combination of outsourcing & insourcing • Maximize value ROI All Stars • Onsite clinics • Variable premium contributions • HDHP & HSAs • Wellness programs • Self-insurance • Cooperative purchasing • Value-based insurance design disease-management (VBID) – Asheville Model

45. Redesigning Public Pensions & Employee Health Care Case Studies – The Bailey Group In January of 2013, The Bailey Group transitioned Alachua County School District (client since 2012) from a fully-insured to a self-funded platform. Our conservative estimate shows $5,000,000 in savings for the first year alone with no plan changes or cost-shifting to the employees. This transition was completely seamless to the employee population. In 2006, we took an innovative approach by researching on-site health clinics as an alternative to reducing medical and prescription benefits and increasing premium contributions. In 2007, the on-site health clinic model was presented to St. Johns County School District (SJCSD). After months of analysis and meetings, including but not limited to, insurance committee meetings, board workshops and the final board meeting, SJCSD opened their first on-site health center in May of 2009. The estimated savings for the PPO plan claims was $1.4 million the first year, derived from the reduction of primary care and specialist office visit charges and prescriptions. Due to the success of the first clinic, two more on-site health clinics were opened in November of 2010. The SJCSD Health Clinics provide primary, chronic acute and preventative care services along with occupational and workers compensation services, pharmacy, EAP, lab services and digital x-ray.   The Bailey Group has been involved in every aspect of planning, implementing and running the health centers.

46. Redesigning Public Pensions & Employee Health Care Case Studies – The Bailey Group Focusing on innovative solutions, The Bailey Group introduced a High Deductible Health Plan paired with a Supplemental Bridge product to the benefits portfolio of a non-profit organization in Northeast Florida with approx. 900 employees. The employer absorbed the cost of the bridge product for their employees to assist the employees with the increased deductible. When introduced, the High Deductible plan instantly achieved 80% participation and will save the group over $200,000 in the first year. The employees were thankful to have such a comprehensive plan, and the employer was appreciative of the savings. When conducting a recent dependent audit, we estimated over $300,000 in annual savings for one school district (calculated using average claims per employee per month X the number of dependents found ineligible). Additionally, just last year one of our Account Executives successfully fought to have a $180,000 claim rescinded for a large self-funded client based on incorrect diagnosis coding. It took 8 months, but the carrier finally agreed and neither the employer nor the participant was responsible for the claim.

47. Redesigning Health Care(GFOA & Colonial Life, 2011) To succeed with these strategies, local governments should: Secure stakeholder support Use employee benefit committee – they participate in plan decisions – increases buy in Provide employees with benefits value statement with $ costs – educate them about the real costs of HC Sell the benefits of specific types of reforms to employees (on-site clinic convenience, HSAs help them accrue savings, self insuring can better match employee needs) Emphasize ROI to decision-makers Compensation study to show public compensation in line with other local governments Implement long term reform incrementally!

48. Keeping the Promise: State Solutions for Government Pension Reform (Liljenquist, 2013) “The sad fact is that political calculations give legislators strong incentives to promise generous benefits and few, if any, incentives to make good on those promises.” (p. iii) Local govt. can go bankrupt & restructure – states cannot States can have increasing pension burdens rob them of discretionary spending decisions 76 of 126 (60%) major state and local plans below the recommended 80% funding ratio Unfunded liabilities ranging from $730 billion to $4.4 trillion

49. Redesigning Public Pensions (Brookings, 2014; ALEC, 2013; ICMA, 2013; GFOA, 2011; Barro, 2011) Specific Potential Pension Reform Solutions Leaders must commit to permanently fixing the problems You must confirm the actual scope of the problem Don’t exempt public safety – employees retire earlier so price tags are larger, exempting them may make your reforms legally vulnerable, & citizens support public safety but they also want fiscally sustainable pension plans Know the legal limits (case-law) Effectively communicate – sell reform Tools of Reform: Delaying retirement (increase age & service requirements) Stop double dipping & eliminate pension spiking (cashing in a large amount of sick leave or OT in the final year of employment) Limit COLAs/make COLAs contingent upon the financial health of the plan Change from non-contributory to contributory plans Increase contribution requirements Change the calculation of final average salary DB to DC for new hires, hybrid plans, CB plans Decrease the multiplier Place a hard cap on pension payouts

50. Redesigning Public Pensions (Brookings, 2014; ALEC, 2013; ICMA, 2013; GFOA, 2011; Barro, 2011) How to Sell Pension Reform • Assess the Environment for Major Reform • Develop a Winning Message • Talk with System Stakeholders • Message Math not Ideology • Reforms need Strong Champions • Accurate Data & Effectively Communicating Pension Liabilities are Key • Prove the Impact of Pensions on Taxes & other Public Spending Priorities • Anticipate and plan forLegal Challenges • Ensure People Understand that We Cannot Grow Our Way of the Problem • Ensure People Comprehend that Inaction is not an Option • Sell Benefits to Public Employees – More take home pay, sound retirement • Build a Strong Support Coalition • Identify What Can Be Negotiated and What Cannot – meet commitments to current retirees – take steps for a troubled plan (close the plan to new hires, freeze the amount accrued by current participants (do not add to your problems), & move to a more sustainable model • Understand that Plan Administrators are in a Predicament as far as Public Statements Go – they don’t want to alarm employees or bring their own management into question – you need them to make accurate statements – use outside expertise too