Along with increasing Montana’s tax on gasoline and diesel, HB 473 calls for an interim audit of the Montana Department of Transportation to assess where efficiencies can be gained. Specifically, the legislation directs state auditors to look at opportunities to privatize functions within the agency.
The MCA will be tracking and attempting to influence both how the audit is conducted and how the findings are ultimately implemented by the legislature. We have long advocated that state and local governments outsource as many construction and maintenance functions as possible to the private sector, which is more effective and more accountable than government-run operations.
In the case of MDT, we are asking auditors to take a full inventory of equipment the agency owns, how much use it gets, and assess whether private sector firms are available, or would be available, to perform the same functions. Chip sealing, painting, and even snowplowing are prime examples of activities contractors may be more proficient at performing than MDT. Contrary to local lore, more than one highway contractor in Montana has said they would gladly respond to a RFP to plow snow on Montana highways and roadways.
The rationale state and local officials often use for milling/paving/chip sealing roads is the fact they “must” own a fleet of snowplow trucks to maintain roads in the winter, so it only makes sense they keep those trucks and crews busy during the summer months. They ignore the rows of trucks lined up in contractors’ yards and the scores of unemployed drivers on contractors’ payrolls. Indeed, many of MDT’s seasonal snowplow drivers are employees laid off for the winter by construction companies.
We are also asking auditors to consider the full and actual costs—including opportunity costs—of MDT performing construction/maintenance activities. It is astounding how often we hear comments from state or local government employees like, “we already own the equipment, so it isn’t costing anything to do this project…” Contractors build depreciation costs of trucks and equipment into bids on projects because maintenance and replacement costs are significant. Contractors also factor administrative overhead costs into bids, while government entities seldom do. Plus, contractors pay health insurance for employees and put money into retirement accounts or pension funds—they factor those costs into bids as well. When public entities calculate the “cost” of performing work themselves, they don’t consider the pension obligations and health insurance for employees.
Opportunity costs are also associated with government performing work versus the private sector. Contractors pay taxes on all business equipment, but the government does not pay tax to itself. By law, contractors use clear (taxed) fuel in all equipment, while government does not. How much more money would go into the Highway Special Revenue account to match federal funds if contractors did most of the work state/local governments perform?
Another aspect of the MDT audit is to look at accountability. When contractors perform work for MDT, they are held to rigid specifications and face liquidated damages, or in some cases, “remove and replace” requirements if they fail to meet the specs. If a state crew fails to meet specifications (not that anybody even checks), where is the recourse for taxpayers? The “remove and replace” option would simply be absorbed by taxpayers a second time. The MCA is asking auditors to consider the “costs” associated with this lack of oversight and accountability when the agency performs work that could otherwise be outsourced.
In addition to mandating the audit, the legislature approved a reduction of about 65 FTEs from MDT’s budget, which will cause the agency to closely scrutinize its operations. Recognizing some functions are more critical than others, we expect them to acknowledge there are functions that can easily and seamlessly be outsourced to companies that already contract with them for similar, if not identical, types of work.
The MCA suggests auditors look at the Canadian province of Alberta for guidance on cost comparisons and efficiencies of privatizing highway maintenance and construction. Alberta awards multi-year contracts to private companies to perform all maintenance on highways, subject to provincial standards and oversight. Granted, not every function in every area of Montana may lend itself to privatization, but we should at least take a hard look at it.
The fuel tax discussion opened the door to a much broader review of how Montana builds and maintains our highway system, and the legislature is to be commended for taking this comprehensive approach. The MCA played a key role in promoting the fuel tax increase and we stand ready to assist in efforts to assure the funds are spent as cost effectively as possible.