PRESS RELEASE: CCSNJ Releases Report on Reducing State Government Spending
Wednesday, June 28, 2006

FOR IMMEDIATE RELEASE: June 28, 2006

Contact: Kathleen A. Davis

856-424-7776 (Office); 609-870-5587 (cell)

CCSNJ RELEASES REPORT ON REDUCING STATE GOVERNMENT SPENDING

Voorhees, NJ – The Chamber of Commerce Southern New Jersey (CCSNJ) released its report today detailing how State government can reduce spending by adopting cost cutting measures implemented by business.

The Chamber’s Board Council on Responsible Government Spending report, “Meeting the Challenge: Saving Taxpayer Dollars by Adopting Best Business Practices – Phase II” outlines 34 recommendations in three areas of State government operations: State employee benefits, State government energy utilization, and distribution logistics and enhanced cooperative purchasing.

“Our 25-member Board Council has offered specific cost reduction ideas that can be implemented by State government,” said Debra P. DiLorenzo, President/CEO, Chamber of Commerce Southern New Jersey. “With the exception of the proposals regarding State employee benefits, all can be included in the state government’s FY 2007 budget.”

The three subcommittees of the Board Council on Responsible Government Spending have been meeting since January 2006 to identify and isolate those private sector practices that can be adopted by State government to reduce expenses and save taxpayer dollars.

“These ideas were developed from the application of private sector cost control practices. They are ideas that work, and they can work in the public sector, too,” DiLorenzo continued.

“Year after year, our Chamber analyzes the State budget and presents testimony to the Senate and Assembly Budget Committees. In 2002, when Governor McGreevey and the State Legislature significantly increased the Corporation Business Tax, we testified that State Government should do more to reduce spending, rather than increasing taxes. We repeated that theme in our testimony every year since then,” she said.

The CCSNJ formed the Board Council on Responsible Government Spending in 2004 and made a five year commitment to continue identifying best business practices that can be used by State government. The Council issued its first report in May 2005, which contained 43 recommendations in five areas of State government operations: public employee benefits, fleet management, IT compatibility, property management and space utilization, and procurement. The recommendations contained in last year’s report represent potential savings of at least $300 million.

“We offer these recommendations to our State’s policymakers in the spirit of cooperation, and with a sense of responsibility to offer specific, workable solutions to reducing the cost of State government to the benefit of all taxpayers,” DiLorenzo concluded.

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The Chamber of Commerce Southern New Jersey is the largest business organization in Southern New Jersey. It is the first and only Chamber of Commerce in the country to have earned ISO 9001:2000 certification. The mission of the Chamber is: to provide members with opportunities to meet and do business; resources to enhance members’ position in the marketplace; and a collective voice on public policy impacting operations and profitability.

EXECUTIVE SUMMARY

State Employee Benefits

The Chamber undertook a survey of targeted Chamber member companies to provide a comparison of benefits provided by these eleven large private employers versus the benefits provided to State employees covered in the collective bargaining agreement between the State and the CWA, which represents close to 48% of all state employees.

Salaries: All but two of the eight job titles had State government salaries that were virtually equal to or greater than the average salary in the private sector.

The private sector will provide two merit salary increases in 2005 and 2006, which, when compounded, represents a 7.3% increase over 2004 salary levels.

State employees will receive five salary increases in 2005 and 2006: three cost of living increases amounting to 6.38% (compounded) increase over 2004 salary levels; and two step increases, which average 4.2%.

The compounded value of these five increases is 15.5% over 2004 salary levels.

Paid Time Off: Includes sick time, vacation time, holidays, and personal days for a six year employee.

Private employers provide 30 – 31 days per year (approximately six weeks).

State employees are eligible for 47 days per year (nine and one-half weeks).

Health Benefits: All employers surveyed provide health insurance benefits to their employees, with virtually all plans requiring an employee contribution ranging from 9% to 46% for an HMO plan, versus State employees, who contribute 5% to the premium for their HMO plan.

Only three companies provide a Point of Service plan, with employees contributing of 10%, 11% and 26%. There is no state employee contribution to the State POS plan (NJ PLUS).

The more expensive traditional indemnity is only offered by two private employers, with one requiring no employee contribution, and the other a 24% employee contribution.

The State now requires a 25% employee contribution.

Retirement Benefits: Fewer private sector companies are offering defined benefit retirement plans; only four in the survey offered a defined benefit plan, one is phasing out the plan, and the other is freezing the plan and accruing no additional benefits.

The state employee defined benefit retirement plan provides retirees with 25 years of service to retire at 45% of the final average of their three highest salary years. Employees who are 55 years old may retire with no reduction in benefits.

Post retirement medical benefits are offered by only two companies in our survey, and both require retirees to share the premium costs.

State employees make no contribution to their medical benefits if they are enrolled in an HMO or NJ PLUS plan. They are also eligible for prescription drug benefits with copays consistent with those available to active employees.

Key Recommendations

· The State should conduct a thorough review of “total compensation costs” for State employees.

· Make structural reforms to health care benefits, requiring State employees and retirees to contribute to these benefits.

· Make structural reforms to State pension benefits, including requiring employees hired after July 1, 2007 to enroll in a defined contribution plan, eliminating the defined benefits plan for all new hires.

· End pension boosting and tacking; and limit sick day payouts.

State Government Energy Utilization

Key Recommendations

• State government should analyze the cost savings of increasing the number of facilities participating in the NJ Consolidated Energy Savings Program to ensure that it has an enrollment strategy to maximize cost savings from the program.

• State government should pay its energy invoices more promptly, which would result in lower prices. The State could realize lower prices if it paid within net 45 days of being invoiced and used a quarterly true up mechanism to adjust bills with suppliers.

• State government should obtain the assistance of a consultant to analyze the risk of its present strategy of purchasing 100% of the load for a specified period of time. The current strategy of locking in a specific price for a specific time period enables the State certainty regarding price but could also be costly. Risk analysis would determine how much of a premium the State government has been paying for this certainty. If the analysis finds that the price certainty premium is costly, alternative purchasing strategies abound to minimize the risk of missing buying opportunities when market prices dip. The State should review any financial mechanism that might permit the hedging of energy costs.

• State government should implement a comprehensive energy conservation plan for its owned and leased facilities. The fact that the interiors of many of the State government’s Trenton office buildings are illuminated at night is a glowing symbol of the need for much greater conservation. The State should look at short and long term solutions. Short term fixes should include turning off lights and personal computers and the end of the work day and the prohibition of space heaters. Long term fixes should be considered, which can dramatically increase the efficiency of a facility by identifying areas and equipment that would benefit from retrofitting and replacement.

• State government should establish an overall vehicle fleet management plan to apply best practices and ultimately reduce the size of its fleet. Energy efficiency should be a prime objective in future procurements. The Plan should include: 1) third party procurement of fuel on the spot market; (2) use of procurement cards which provide real time reporting for offsite fuel purchases; (3) implementation of a “balanced scorecard” to provide a clear prescription as to what the State should measure in order to balance its fleet’s financial and operational performance; (4) creation of a “standard vehicle requirements” document to establish uniform practices for the purchase, maintenance, disposal of vehicles, coordination and management of fuel purchases, defensive driver training and vehicle allocation.

• State government should suspend the allocation of every automobile to a specific government employee except in any instances in which the provision of an automobile is required by contract, regulation or statute. Subsequently, an automobile would be allocated to an employee only following the approval of a statement of justification by the head of the employee’s agency. Contained in the statement of justification would be the employee’s declaration of his/her intent to use the vehicle for commutation. The agency head must then express approval of such use and the specific reason for granting that approval.

• State government should assess a personal use fee on employees for personal commutation based on generally accepted accounting standards.

Distribution Logistics and Enhanced Cooperative Purchasing

Distribution Logistics Key Recommendations

While our subcommittee believes that outsourcing warehousing operations to a third party would be more efficient and cost effective, we understand that state government may have a need to maintain its own warehousing operations and offer 11 recommendations to increase efficiency.

Some Recommendations include:

1. Determine what materials are critical and needed immediately and stock only those items.
2. Determine what materials can be purchased through next day delivery from vendors.
3. Purchase items from a vendor new, rather than store / warehouse items
4. Review inventory on a regular basis to determine materials that have become obsolete.
5. Obsolete items should be removed from inventory, sold as scrap, trashed / recycled
6. Consolidate goods that are currently warehoused at multiple locations.
7. Eliminate warehousing and storing periodicals and forms.

However, the subcommittee recommends that the State explore outsourcing warehouse operations to a third party. Many private sector businesses recognize that they are not “experts” in warehousing and distributing items; therefore, some have employed the method of outsourcing their warehousing operations to a third party. When one member company explored the option of outsourcing warehouse operations to a third party, annual cost savings totaled 28%, a savings of $5.6 million.

Purchasing Key Recommendations

The state should review using the online auction approach more extensively when purchasing commodities. While state government may already purchase through online bidding, it may not be used often enough to experience significant cost savings. Many businesses have experienced significant savings when online bidding was applied to purchasing commodity items as well as energy. One member company expressed that when online reverse auctions were used to purchase items, it experienced average savings of 30%, and several occasions with significantly more savings.

Promoting Culture Change Key Recommendations

The state implement tools such as Lean Six Sigma to encourage and facilitate culture change. By encouraging this shift in behavior, employees will not only take added ownership over their work, but also this technique will increase efficiency and deliver cost savings. However, it is imperative that guidance, direction, and support must flow from the top down, so that employees will understand the importance of, and buy into, this paradigm shift.

Cost savings vary depending on how extensively these tools are used. One member company that uses such tools in more than 70 projects generates nearly $40 million in validated cost savings/avoidance in such areas as procurement, finance, program management, and manufacturing. Another member company sees an annual benefit of approximately $3 million to $4 million per year.