Cross-Jurisdiction Collaboration (XJC) “New Models for the New Normal”

1. Cross-Jurisdiction Collaboration (XJC)“New Models for the New Normal” National Association of State Comptrollers Annual ConferenceMarch 23, 2011

2. Discussion Outline • Overview of Cross Jurisdiction Collaboration (XJC) • Lessons learned from Accenture’s research on XJC • Case study – Joint Venture: Silicon Valley Network

3. Cross-jurisdiction collaboration is a way for State and Local governments to innovatively address the challenges of the “New Normal”. Past approaches are insufficient to address challenges of the “New Normal” New realities create long-term challenges to public sector models and accelerate the need for change New models are needed • Once-in-a-generation fiscal crisis • New and emerging needs • Falling revenue • Significant demographic shift • Budget shortfalls • Unfunded mandates • Rising citizen demands • Reduce headcount • Many departments already working with “skeleton crews” • Lower wages • Civil service and collective bargaining often restrict workforce options • Cut services • Service levels already at minimally acceptable levels • Increase revenue • Little support for increased taxes • Cross-jurisdiction collaboration (XJC) is a potential way to help address the “new normal” – making government operations across jurisdictions significantly less expensive and more effective

4. XJC makes government operations across jurisdictions significantly less expensive and more effective. Cross-Jurisdiction Collaboration (XJC) = Two or more government entities with a mission to work across traditional jurisdictional boundaries to provide current and/or future services for their citizens in order to reduce total cost, improve efficiencies and/or enhance services 1 2 } 3 1 2 3 Government entities Current and / or future services Reduce total cost and/or improve efficiencies • State • County • City • Township • Town • Borough • School district • Special districts • Public Universities • Administration • Entitlements and Social Services • Public Works • Public Safety • Public Health • Parks, Recreation, and Public Property • Education • Economic improvement • Operational excellence • Reduction in cost-to-serve • Improved services levels • Provision of new services • Address citizen needs • Achieve savings from 10-40%

5. Why should State governments care about XJC initiatives? State and local government finances are linked together—new and innovative approaches are needed to make government at all levels more efficient and effective. In 2007, U.S. State Governments dispersed ~$460 Billion as intergovernmental transfers out of a total U.S. State expenditures of ~ $1,635 Billion, or ~ 28% In 2007 U.S. Local Governments received ~ $504 Billion from intergovernmental transfers out of a total U.S. Local Government general revenues of ~ $1,344 Billion or ~ 37% Of the U.S. Local Government Revenues that do not come from State sources (Property Taxes, Sales Taxes, Corporate and Individual Income, and fees) more than half is in property and sales tax which have both been hit dramatically by the current fiscal crisis Source: 2007 US Census Report

6. States are looking to solve budget deficits thru reductions in local government funding. The proposed (Ohio) state budget, which would slash local government funding, would hit cities hard because most have pared employees, cut services and increased fees during the recent recession, officials said. The local government fund would be reduced from $665 million to $526 million for the fiscal year beginning in July, then to $339 million the following year, according to the budget presented Tuesday by Gov. John Kasich. Source: The Plain Dealer, March 16, 2011 • Ohio governor proposes to cut funding for cities and counties • Minnesota legislature proposes to cut Local Government Aid A new plan from the Minnesota House would decimate state funding for cities and counties, leaving the state's local governments to largely fend for themselves. The proposal, crafted by GOP members of the House Property Tax and Local Sales Tax Division, would cut nearly $300 million from local government aid by immediately slashing half of metro suburbs' state help and a quarter of big cities' aid from the state. The plan would eliminate all state aid to metro suburbs by 2013, and by 2015 city funding would be gone. Source: Star Tribune, March 12, 2011

7. State governments can promote XJC in various ways. In 2010, Texas Governor Rick Perry announced an incentive program that provides grants to schools that collaborate in pooling resources to reduce administrative costs. It allows school districts the ability to achieve economies of scale and eliminate redundancies without forfeiting local control or creating additional bureaucracy. Participating school districts receive a state grant equal to 10 percent of savings from the first year. Source: Accenture White Paper–Cross-Jurisdiction Collaboration • Texas supported XJC through offering incentive programs • Michigan developed a standardized service for local governments to use Michigan completed a multiyear, cross-jurisdiction collaboration project focused on providing a standardized, interoperable communication system for disaster response and day-to-day support of activities for public safety and governmental entities. More than 1,200 agencies realized comprehensive benefits, from operational efficiencies to improved best practices, policies and procedures. The state reduced the funding needed to maintain operation of the new system by 33 percent between 2001 and 2009, and taxpayers saved an estimated $87 million. Source: National Association of State Chief Information Officers 2010

8. State governments may need to pass enabling legislation to support XJC at the local government level. • States can create legal mechanisms to allow for unrelated public entities to collaborate • California Joint Power Authorities (JPA) - In the mid-1970s, the California Legislature amended the Government Code to add the ability for two or more public entities to join together to provide more effective or efficient government services or to solve a service delivery problem. • States can create regional institutions to encourage XJC • Texas Association of Regional Councils (TARC) - A voluntary association of local governments formed under state law. These associations deal with the problems and planning needs that cross the boundaries of individual local governments or that require regional attention (e.g. promoting regional economic development, providing cooperative purchasing options for governments, etc.). • States can incentivize XJC • North Carolina has established the Consolidation and Efficiency Incentive Fund. This $25 million Fund will be used to incentivize local governments and state-funded nonprofit organizations to reorganize and consolidate services where they have shared responsibilities. • Proposed Minnesota legislation would provide a grant to school districts that save money through shared services. • Other • States can redefine the way that services are funded and provided to reduce costs. For example, human service programs can be delivered by regional organizations rather than by a large number of county governments. • States may need help from outside companies to realize XJC benefits. For example, Minnesota is considering legislation to require hiring a consultant to implement shared services across school districts and charter schools and the consultant receives fees based on a % of the savings.

9. Our Research • Cross-Jurisdiction Collaboration (XJC): • New Models for State, Regional and Local Governments

10. Accenture conducted research on XJC examples to understand the factors that promote viable regional collaboration. • Over 90 cross-jurisdictional case studies researched • Over 40 public agency leaders interviewed • Over 15 Accenture subject matter advisors interviewed • Prior Accenture projects used in analysis (non-exhaustive) • New York City Dept. of Education • State of Florida • State of Ohio • Commonwealth of Pennsylvania • State of Texas • U.S. Dept. of Health and Human Services

11. These are the key questions asked when designing collaboration models. What are desired outcomes and what is feasible? What services / functions should be targeted? Who are the likely partners? What is the appropriate scope? What is the best implementation method?

12. What are desired outcomes and what is feasible? Desired outcomes shape which model to choose and how it is customized Political, legal, and economic context informs feasibility • Political will • Rules and regulations • Economic situation Improve effectiveness What is the desired outcome? Improve efficiencies Enable new capabilities

13. What services / functions should be targeted? Proportion of revenues by functional areas and expenses across services typically offered by Local Governments in the Unites States (2007 data) Revenues Expenses 100% 34% 37% 33% 16% 15% 11% 9% 11% 8% 5% 7% 4% 5% 2% 3% 1% Parks, rec. and natural resources Public health Misc. other revenues Taxes Entitlement/insurance trust revenue Public works Transport., housing, and community dev. Inter- gov’t revenue TOTAL Admin Public works Public safety Public health Transport., housing, and community development Entitlement and social services Education Parks, recreation, and public property Sources: Source: 2007 Census of Government Finance. http://www.census.gov/govs/estimate/historical_data_2007.html http://www.census.gov/govs/apes/

14. Who are the likely partners? Collaboration between existing public entities and/or… …public and private entities Peer-to-Peer Hierarchical State/local* and public State/local* and private St. Paul / Minneapolis Metropolitan Council Regional planning agency Southeast Consortium common unemployment system 39 counties in CA sign JPA for a new welfare system MN Child Support delivered by state and counties San Francisco city car share * Note: In this slide, “Local” is a proxy for a local government entity such as a city, town, township, borough, special district or school district

15. State and Local governments around the country are already implementing XJC initiatives to improve the quality and efficiency of their services. State(s) Involved Collaboration Type Description (State to Local) (State to State) On March 17th, the Pittsburgh City Council voted unanimously to approve an intergovernmental agreement with Allegheny County that allows the city to piggyback on an upgraded version of the county's existing financial management system. "This is a management tool that will help us better manage every department in this city," Controller Michael Lamb said. Council President Darlene Harris, cited a "critical" need for the new system. Minnesota has established MNET (Minnesota’s Network for Enterprise Telecommunications) to help the state government deliver telecommunication services in a timely and more cost efficient manner. MNET, a public-private partnership, delivers an integrated network for education, local governments and state agencies. MNET provides these markets with data, voice and video service. The Southeast Consortium (which includes Tennessee, North Carolina, South Carolina, and Georgia) is developing a common unemployment insurance benefit system that can be used by the member states. The U.S. Department of Labor awarded funds to the Southeast Consortium based on proximity and similarity of their unemployment programs and laws to aid in the development of the new system. The system will allow for faster implementation, more efficient use of staff, real-time processing and access to information, and self services functions so claimants can update their information. The Southeast Consortium is scheduled to complete the project on September 28, 2011. (Local to Local)

16. What is the appropriate scope? Illustrative Government Value Chain Cupertino: All police services are contracted out to the Santa Clara County Sheriff’s dept. 1 4 Policy Morris County: Five Morris County towns merged their municipal courts into a regional court based in Dover in 2008 2 Program Youngstown, OH: Nine cities partnered with city / county governments, housing nonprofits and banks to develop low-cost housing and revitalize vacant land 3 3 Production 1 2 Philadelphia: Five counties coordinate plans, goals and assets to achieve maximum regional benefit in green building construction and new energy technology commercialization 4 Provision Entitlements and social services Education Public safety Administration Public works Transportation, housing, and community development Public health Parks, recreation, and public property Services and functional areas

17. What is the best implementation method? 1 2 3 4 Coordinating Merging Contracting New Entity Consolidation and/ or sharing of specific function(s) between entities Combining specific function(s) and/or political entities into a single entity Transferring mgmt. and execution of function(s) to an external service provider Transferring mgmt. and execution of function(s) to a separate entity created specifically for this purpose Youngstown, OH: Nine cities partnered with city/county governments, housing nonprofits and banks to develop low-cost housing and revitalize vacant land City of Preston / Webster County, GA merger Mine Hill Township contracts its police services from Wharton Borough Police department City and County of Sacramento JPA outsourcing with a family services nonprofit Sources: Accenture research, Secondary public/ private sector research

18. Most government leaders have been hearing the news and feeling the pain but the problem lies in where to start with all the stakeholders, services, efforts and options on the table. Where to start? Accenture developed a methodology to develop options that maximize practicality, minimize risk, are politically acceptable and saves the most money Opportunity Filter • State • Special districts Equal size partners Min service impact Big spend areas Low job impact Scalable Proven • School district • Public Safety • Operational excellence • Entitlements and Social Services • Citizens • Township • Address citizen needs • Administration • Public Works • Economic improvement • Education • Reduction in cost-to-serve • City • Parks, Recreation, and Public Property • Provision of new services • Improved services levels • Unions • Borough • Employees • Political Leadership • Community Leaders • County Best XJC Opportunity • Town • Political Action Groups

19. Qualitative and quantitative research have validated that “back office” functions provide the best opportunity for low-risk cost savings. Opportunity Filter “Back-office” functions “Which activities would your organisation consider sharing across government departments and agencies” - ACN Survey of Gov’t Senior Executives Equal size partners Min service impact Big spend areas Low job impact Scalable Proven Best XJC Opportunity N=40 * Fleet Maintenance, Building Permits, Education and transportation were also identified as desired, longer-term collaboration opportunities Sources: Driving High Performance in Government: Maximizing the Value of Public-Sector Shared Services

20. The annual savings from an XJC model in the back office area could reach 30% …with that only being the beginning. Roadmap to greater cross-jurisdiction collaboration Early wins create momentum and funding to expand collaboration scope Create XJC across all services and functions 35% 30% 36+ months Continued cost savings, service level enhancement, and reach more regional concerns Expand to less constituent facing services (IT, HR, Finance, etc.) and breakdown jurisdictional barriers 25% Annual Savings 20% 12-36 months Target savings off back office spend, raise service levels to match highest watermark Capture “quick wins,” generate transformation funds, establish governance 15% 10% 3-12 months Target savings off procured materials 5% 12 Months 36 Months Time

21. Case Studies • Joint Venture: Silicon Valley Network

22. Joint Venture: Silicon Valley Network Silicon Valley’s Regional Operations Center provides a blueprint for XJC success. Situation • Silicon Valley jurisdictions had budget shortfalls, managers needed to make unpopular service cuts, and citizens reacted adversely to these cuts. Challenge • While there was a lot of energy surrounding cross-jurisdiction collaboration in Silicon Valley, there has been little consensus on where to start or how to make it work. A scalable Regional Operations Center with the authority, neutrality and funding to improve the delivery of civil services. Start with a manageable number of stakeholders Start with low-risk functions before tackling complex issues i.e. HR, IT, Finance & procurement or back office functions Use existing decision-makers and structures more effectively Control for different service expectations Ensure a smooth transition Solution Outcome New collaboration models will reduce costs while minimizing impact to citizens and employees.

23. While there is a lot of energy surrounding cross-jurisdiction collaboration, there has been little consensus on where to start or how to make it work Use existing decision-makers and structures more effectively New JPA governed by city managers / county executives, all with equal representation Illustrative view of potential pilot entities Control for different service expectations Service-level agreements can ensure aligned incentives and equitable cost sharing Start with low-risk functions before tackling complex issues Vehicle to share procurement and other “back office” functions (e.g., IT, HR) • South San Francisco • San Mateo (City) • Burlingame • Regional Operations Center • Brisbane • Daly City Start with a manageable number of stakeholders Pilot with 7 entities* then expand to other silicon valley public entities Ensure a smooth transition Blank slate for new, better processes and opportunity to hire best staff • Redwood City • San Mateo County Proposal: A scalable Regional Operations Center with the authority, neutrality and funding to improve the delivery of civil services * Initial seven entities suggested based on a variety of factors (e.g., level of interest, ability to execute, etc) but final set of participants in the pilot may change

24. As the model scales across Silicon Valley, a greater number of entities and services can be included Break-down by type of entity $1.7 12% $4.7 33% $3.4 24% $4.5 31% $14.3B 100% $1.0 7% $2.2 15% $1.3 9% $1.1 8% $1.1 8% $0.5 4% $2.2 15% $4.8 33% $14.3B 100% Total Budget of Silicon Valley governmental entities = $14.3B Cities Counties Spec Dists School Dists • Break-down by services offered Administration Public Safety Transit Comm. Dev Health Parks, Rec Public Works Education Sources: California Office of the Controller, National Center for Education Statistics; San Jose, Sunnyvale, Palo Alto, Redwood City, San Mateo, South SF and San Mateo County Budgets 2007-08

25. Eventually, more than $5B can be addressed and potentially reduced through new collaboration models while minimizing impact to citizens and employees “Front-office” “Back-office” $1.7B 12% $14.3B 100% $0.2B 1% $7.2B 50% Addressable spend = $5.2B (36%) $3.7B 26% $1.0B 66% $0.5B 33% Total Capital Outlays Elected Officials Salary & Benefits Procured Materials & Services Salary & Benefits Materials & Services Note: Back office and salary expenditures were estimated by sampling representative mid-size cities in the region Sources: California Office of the Controller, National Center for Education Statistics; San Jose, Sunnyvale, Palo Alto, Redwood City, San Mateo, South SF and San Mateo County Budgets 2007-08

26. The impact of these collaborations could result in annual benefits of $220-520M* for the Valley “Front-office” “Back-office” Procured Materials & Services Salary & Benefits Materials & Services Current spend $3.7B $1.0B $0.5B X X X Estimated savings ~2% 10-30% 10-30% + + Net benefit $70M $50 - 150M $100 - 300M $220 – 520M* * Net benefit represented is only an estimate. Further analysis is required to add precision to determine actual benefits.

27. Thank you! • Questions? • David Wilson • Accenture Managing Director • David.A.Wilson@accenture.com • 612-277-5070 • For more information visit: www.accenture.com/crossjurisdiction