Big Privatization Push on Wilson’s ’96 Agenda : Government: Potentially sweeping transfer of work from public sector is under study, but faces many obstacles.

SACRAMENTO — Gov. Pete Wilson is quietly preparing a high-profile campaign next year to dramatically shrink the size of state government, seizing another hot-button Republican issue that might boost his sagging image after a failed presidential campaign.

State officials say the plan is sweeping in its ambition, potentially leading to a massive transfer of tax revenue and workers out of state government and into private enterprises. Under various privatization options, one Wilson aide estimated that the governor could propose a shift of between one-quarter and one-half of the state’s responsibilities.

“If you are not very good in one of your lines of business . . . and if there is no compelling, overarching reason to stay in the line of business--then why stay in the business?” said Phil Romero, Wilson’s deputy Cabinet secretary who is coordinating the project. “That is what successful organizations--both public and private--are doing.”

Romero described the plan as an unprecedented, bottom-up review of the state’s primary duties that is still in its early stages. It will be introduced, in part, during Wilson’s State of the State speech in January. By March, department heads are scheduled to conclude their reviews and to recommend specific programs for private assignment.

Still, Wilson faces formidable obstacles in such a sweeping effort. Such a plan is certain to challenge vested labor and business interests with a stake in the status quo. In addition, leading Democrats, whose support is critical, are skeptical about the benefits of privatization and they are wary that the proposal could be a political vehicle to rehabilitate Wilson’s sagging image.

Even so, the effort is expected to scrutinize every function of state government--from prison operations to motor vehicle licensing, nature parks, road building, health care and legal representation. Romero said each area will be analyzed to determine if it is cost efficient and if it can be adequately performed by a private alternative. Depending on which agencies end up being affected, the changes could be dramatic.

Some functions, such as police work, might not be appropriate for private assignment even if it less expensive, Romero said. But as an indicator of the potential change, Romero said he believes that up to half of the state’s activities could be done at least 30% cheaper by private contractors.

“We do not have any preconceived [or] secret plan,” Romero said. “This is a process that any vital body should go through routinely. But in the process . . . I certainly don’t want to preclude the fact that we might make some substantial changes.”

Romero expects that the plan will lead to some layoffs from the state’s 267,400-member work force. He said some workers could be transferred to the private companies that assume their duties or they might organize and compete for the tasks they performed on the state payroll.

He acknowledged that the scope of the change is also contingent on the support of wary Democratic lawmakers and voters who may face a statewide initiative on the issue, possibly next year. Wilson aides say the governor will have to mount a major public relations campaign to generate support for his plan or else it will be sharply limited to what he can accomplish through executive orders.

In the process, observers say the governor will attempt to rehabilitate his public image, which was damaged by the sputtering presidential campaign he ended in defeat last month.

“If he uses the bully pulpit well--and the way you use it is the way they’re talking about--then it’s Pete Wilson taking command and running the state of California as people wanted him to,” said Republican political consultant Sal Russo. “That’s how you get back in the public’s favor.”

Since becoming governor five years ago, Wilson has presided over a state general fund budget that essentially has remained flat. In that time, the number of state employees has increased between 3% and 4%.

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California’s privatization planning--like recent efforts conducted elsewhere by city, state and federal offices--is a reflection of chronic budget shortages and a consensus in the electorate that government is inefficient and wasteful.

The concept has won broad support, stretching beyond traditional backers in Republican and business ranks to include many Democrats and even some labor unions. In the process, jurisdictions nationwide have experimented with a variety of ways to improve the delivery of government services.

So far, the results have been mixed. In a report to the Legislature in July, lawmakers were told that some municipalities nationwide have found themselves paying twice as much for services that they shifted to private enterprises in anticipation of a savings.

At the same time, the idea of privatization has also generated controversy regarding the increased potential for corruption as well as a philosophical debate about government’s core responsibilities.

State Senate Majority Leader Bill Lockyer (D-Hayward) said he is open to considering privatization proposals from the governor. But he was also skeptical about the potential for cost savings and concerned about the possibility of degrading public services.

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“It is unfortunate when politicians contribute to the belief that everything that happens in the public sector is bad and everything that happens in the private sector is good--the world is much more complicated than that,” Lockyer said.

“It is generally assumed that any private sector activity would have a profit margin built into the cost which, at least in theory, is not in the public activity,” he added. “So if cost saving is the goal, I think it’s a fair question how those cost savings might be achieved.”

Other opponents of the idea in the state Capitol have also warned of moral irresponsibility and profound public risk if government relinquishes too much control of its vital functions. With so much money being directed toward private companies that also help finance candidates for election, opponents say the concept is ripe for scandal.

According to one legislative analysis, Wilson’s plan calls for the repeal of a 61-year-old state constitutional amendment that created a Civil Service system to “end a corrupt spoils system in state government where friends were rewarded with lucrative contracts and jobs.”

Romero dismissed complaints along those lines as a “cheap-shot cliche that is used regularly by the defenders of the status quo.” He said the governor’s plan would not abolish the Civil Service system and that laws exist to protect against cronyism.

But the controversy is enough that the governor’s staff is gearing up for a major marketing campaign to promote its agenda.

A memo last month from Wilson’s deputy chief of staff, George Dunn, told every department head in state government to prepare anecdotal examples of potential dollar savings “to prepare for the governor’s State of the State address next January.”

Wilson aides are also hoping that an initiative can be placed on next year’s November ballot to eliminate prohibitions against privatization contained in the state Constitution. If it reaches the ballot, Wilson is expected to lend his fund-raising and political muscle to a major media campaign for the idea.

“He is beginning to lay the groundwork for a marketing campaign--a political campaign,” said one Wilson official.

Wilson tried this summer to have the Legislature place the privatization measure on the ballot. But the idea was rejected in July on a party-line vote in the Democrat-controlled Senate Governmental Organization Committee.

“Why is the Legislature stopping efforts to reduce costs and improve efficiency?” asked state Sen. Dick Monteith (R-Modesto), author of the privatization bill. “California remains dead last and in the Dark Ages when it comes to privatization.”

Wilson aides said the Legislature will reconsider Montieth’s bill next year, but if it fails again, the governor might sponsor a petition drive to place the matter on the ballot.

Wilson launched his comprehensive review of each state department last month, issuing a memo that asked each jurisdiction to submit a report that identified their “core functions.” Wilson’s office declined to release the reports, which were returned to the governor’s office last week.

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Wilson’s memo, authored by Dunn, also asked department chiefs for two follow-up reports that are due next March in which they will identify responsibilities that are eligible for privatization or elimination.

“Permitting more cost and quality competition among public and private sector bidders serves the governor’s goal of an efficient and business-like government,” Dunn wrote in the memo. “These tasks . . . are critical prerequisites of a rational process to reshape state government to emphasize functions in which the state has a core competence. This kind of strategic focus is critical in an era of very limited resources.”

Wilson officials say their effort is unprecedented in California state government and, if successful, will fundamentally change the state’s operation for years to come. At the same time, they are downplaying or declining to predict the outcome until their analysis is complete and a proposal is in place.

“I wouldn’t say it’s revolutionary, I would say it’s evolutionary,” said John Barna, spokesman for the state Business, Transportation and Housing Agency.

Privately, many state agencies are buzzing with expectation of a major change, particularly because they perceive a strong motivation for Wilson to score political points with a powerful and popular issue such as dismantling government.

“This is big,” one worker said. “Potentially, this is a real blockbuster. This is an exercise so the Administration can say, ‘Some people talk about cutting government; one person did it.’ ”

Lockyer said he believes Wilson’s privatization effort is motivated by ambitions of a political comeback. “I think he is still running for President,” he said. “This is him running for President in the year 2000.”

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One of the biggest factors in how much change Wilson can accomplish depends on his success in seeking a change in the state Constitution.

Now, based on an anti-corruption initiative California voters passed by a 3-1 margin in 1934, the Constitution prohibits privatization and requires that public employees perform government duties.

In 1982, the Legislature codified a series of court decisions that outlined about a dozen exceptions for private contracting of state duties, including cost savings.

Romero said the exception is still strongly biased in favor of government workers and that a private sector alternative could only be considered if it can do the job at least 30% cheaper than state employees. Even with that high barrier, Romero predicted a significant portion of government services could be eligible for private contracting.

Romero portrayed the current effort as part of an ongoing process that has been under way for several years as a result of budget shortages that have forced state departments to be innovative and, increasingly, to consider private alternatives.

Next month, officials will open a new toll road in Orange County that was built and will be operated entirely with private funds. Three similar road projects are under construction.

The current review of state services was also prompted by a task force the governor created last year to examine how new technologies can help improve government efficiency. The task force led to a California page on the Internet with information provided by each department.

The task force’s final report this year went far beyond high technology, recommending that the government conduct a bottom-to-top review of its primary purpose and its organization.

“The strategic planning process developed by the information technology task force unleashed a rethinking of how government works,” said Barna.