Wednesday, June 15, 2011

Time to privatize out government work - by Judge Jim Gray

When former Gov. Arnold Schwarzenegger first took office he promised to address the out-of-control worker's compensation system, and he did.

Unfortunately, after making progress on about 15% of the difficulties — the ones that were the easiest and least controversial — he basically declared victory, and sailed off to do other good deeds.

Recently I read that Gov. Jerry Brown said he would reduce the size and expense of state government by eliminating 37 state panels, advisory boards and agencies. Some of these are part-time, and pay their members $100 per meeting.

But others are supposed to be full-time and pay their members up to $128,000 per year, even though many of them, on average, meet only once per month. The savings to eliminate just these 37 agencies is estimated to be more than $10 million per year!

Well, how many state agencies do we have? I looked on the Internet and found that there are more than 500! You can see the list at

How many of these agencies are duplicative or even totally unnecessary? Surely many more than 37 can be consolidated or eliminated! Our state has a budget deficit, and all of the people on these agencies get salaries at taxpayers' expense, many get medical coverage and pensions as well, and all of the agencies have overhead expenses.

But even as importantly, it would be far more effective and much less expensive in many cases for many of these agencies to contract out the work they do to private companies.

Why? Because in the business world, much more than in government, incentives matter!

For example, a good friend of mine, Richard Esgate, has a company based in San Diego called Esgil Corporation. Here is his story.

Richard is an engineer, and during the 1970s he worked for San Diego County, supervising its Building Inspection Department. At that time, Richard had serious challenges staffing for all engineering plan checks due to large fluctuations based upon the time of year, government policies and the state of the economy.

The obvious answer was to have a private-sector firm available for overflow during the busy periods and staff absences, so requests for service proposals were sent out. But all of the private firms that submitted proposals were determined by County Counsel to have conflicts of interest, because they would be checking their own plans, potential clients or competitors.

Fortunately, where there is a need, an entrepreneur will fill it. So Richard left the county and set up a firm that works exclusively for governments, which means he does no private design work at all, and thus he avoids all conflicts.

That was 31 years ago, and now Esgil Corp. has 25 employees, including 12 licensed engineers, and does all of the permit work for seven cities and much of the overflow work for many other cities, counties, state and federal agencies, Indian tribes in California and 18 other states. And, literally, everybody is happy.

Why is everyone happy? Because the governments no longer have to hire, pay and supervise so many workers. In fact, all the seven governments have to do is collect the fees, keep about 25% for themselves, and forward the remaining fees to Esgil Corp.

Esgil's employees are deputized to staff the counters at the city building departments and they do all the rest of the work as well, including keeping current on all applicable building codes and regulations, receiving, analyzing, giving recommendations for changes, and approving the plans for construction, and performing all of the on-site building inspections.

For their part, the private contractors are happy because they are dealing with knowledgeable engineers who have an incentive to have the plans submitted as correctly as possible. Why? Because not only do delay, revisions and change orders cost the contractors lots of money, they also require more work from Esgil.

This unity of interest has resulted in Esgil setting up and encouraging preliminary meetings with contractors to plan for large developments like shopping centers and high-rise buildings so that everyone can face the important and complicated requirements that must be met. And this saves time and expense for everyone.

As a practical matter, government agencies simply do not have these same incentives. This is shown by the fact that the average time from the submission of plans to Esgil for complicated building projects until final approval is usually about 90 days, including about two plan re-checks, while the average for government agencies is about a year, with five to six plan re-checks.

Throughout these 31 years, Esgil has only been sued twice, and neither suit was successful. And, although Esgil does not itself handle any money, its reviews of the fee charges assessed by the governments to the developers have found that government employees have mistakenly billed the developers less than they should about 25% of the time.

So that is what is happening with the governmental building departments that contract with Esgil.

Imagine the benefits that would accrue if other state agencies, like Caltrans, for example, were to contract out their work to similar private companies! This issue cries out to be probed, because we shouldn't just manage our budget deficits, we must reverse them!

If you want to help bring California back to fiscal stability, make it a point to contact your legislator on this issue. This time let's not allow anyone to declare victory after just addressing the easy issues and then moving on. The bureaucracy at times seems all powerful and ready to crush us, so how about privatizing the bureaucracy!

JAMES P. GRAY is a retired judge of the Orange County Superior Court, the author of "Wearing the Robe: the Art and Responsibility of Judging in Today's Courts" (Square One Publishers, 2010), Why Our Drug Laws Have Failed and What We Can Do About It, A Voter's Handbook, Effective Solutions To America's Problems and can be reached at or Judge Jim Gray is also currently offering his 25 years of experience on the bench to ADR Services in Orange County for Arbitration and Mediation services.

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