Issue Paper - January 1998 - Perm Studies and the Use of Private Contractors in State Government

PERM STUDIES AND THE USE OF PRIVATE CONTRACTORS IN STATE GOVERNMENT by Philip W. Alderfer, Fiscal Analyst General Government Unit

ACKNOWLEDGEMENTS

This Senate Fiscal Agency issue paper was prepared by Philip Alderfer with data collected by SFA analysts. This data was collected from State departments and from members of the former Privatization Division. Special thanks are due to all involved for their diligent efforts. Additional thanks go to Pat Stinton-Harper who typed the report and designed the tables.

TABLE OF CONTENTS

Introduction

Background

Privatization Studies and the PERM Process

The Status of Privatization Projects

Conclusion

Appendix A -- PERM Reports Submitted by State Departments

Appendix B -- PERM Project Recommendations and Current Status

Introduction

In July 1992 Governor Engler issued Executive Order No. 1992-17, thus creating the Michigan Public-Private Partnership Commission ("Partnership Commission"). The Partnership Commission was asked to analyze ways in which the "efficient provision of State services" could be developed by "introducing competition into the public sector." This project involved State departments' recommendations concerning the privatization, elimination, retention, or modification (PERM) of State activities.

This Senate Fiscal Agency Issue Paper examines how this privatization initiative evolved in the five years after the Commission was created. It compares State departments' participation in the privatization process and explores the results of these efforts.

The use of private sector contractors is a common practice in many State departments. However, this paper focuses only on the work of the Partnership Commission. Other, ongoing privatization and private contracting programs within State departments have been left aside. A comprehensive catalog of all these activities is beyond the scope of this paper.

Three primary findings are presented. First, departmental participation in the Partnership Commission's privatization initiative varied widely, as did departments' willingness to act on their own recommendations. Second, most activities privatized under the Commission's auspices did not result in cost savings to the State of Michigan. Nonetheless, the use of private sector contractors remains an integral tool in the delivery of State services in Michigan.

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Background

The Partnership Commission was a seven-member panel responsible for making recommendations to the Governor about ways to use competitive bidding procedures to provide State services. The Partnership Commission met for five months and released its final report in December 1992. In this report the Commission made two distinct recommendations.

First, it expanded the scope of study. The Commission said: "the original focus of our mission specifically addressed the potential privatization of many State functions. Our review indicates that the charge should be broadened to encompass a comprehensive analysis of every activity or every program in State government" (emphasis added).

To assist State agencies in this weighty task the Partnership Commission identified 203 specific activities that it felt warranted further analysis.⁽¹⁾ In addition, the Commission "encouraged Department and agency directors to diligently review [all] their programs and activities", beginning with one suggested pilot project in each department.

Second, the Commission outlined a four-item scale to evaluate activities within State departments. This scale, and the reporting process developed around it, was known by its acronym -- PERM. The Partnership Commission proposed a methodology through which State departments would analyze ongoing activities and recommend whether those activities should be Privatized, Eliminated, Retained, or Modified.

The Partnership Commission defined privatization as "the transfer of a government service from the public sector to the private sector", regardless of whether the State continued to finance that activity. An activity could be eliminated if it were one that "State government simply should not do, or where the need for [it] no longer existed." Retention and modification were loosely described as activities where "the process of performing the activity is more important that the outcome of the activity" or where a "portion of a program should be altered to be more effective or efficient."

Though the Partnership Commission identified a large number of possible PERM projects, State departments were responsible for selecting activities for analysis. They were then responsible for completing PERM studies, recommending the dispensation of the activities they studied, and measuring the cost savings, if any, that would result.

Though the PERM framework was adopted by the Partnership Commission, it was not created by the Commission. It was originally developed by the Privatization Division of the Department of Management and Budget (DMB). (The Privatization Division was, itself, an evolution from the DMB's Purchasing Reform Task Force.)

Consequently, administrative responsibility for the compilation of PERM reports was given to the Privatization Division after the Partnership Commission completed its final report. The Privatization Division was assigned to assist State departments in the completion of PERM reports, evaluate PERM reports as they were submitted, and independently assess State functions not examined by State departments.

The Privatization Division began this task in January 1993. In September 1997, the Privatization Division was abolished as an independent unit within the DMB. The following section examines this four-year period in greater detail. First it compares departments' participation in the PERM process. Next it examines the recommendations each department made in its reports. Finally, it contrasts State departments' conclusions with those of the Privatization Division.

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Privatization Studies and the PERM Process

Departmental participation in the PERM process varied widely. Some departments vigorously adopted the Commission's directive and dedicated significant resources to completing PERM studies, while others did not. These differences became more apparent as the Senate Fiscal Agency (SFA) evaluated the current status of privatization initiatives within State departments.

The SFA found a dearth of institutional memory in many departments about their PERM efforts. This was especially pronounced in departments and agencies that underwent administrative and functional reorganization in the intervening years. Other departments, such as Military and Veterans' Affairs and the Department of Transportation (MDOT), retained significant information on their PERM studies. This is likely the result of the degree to which these specific departments participated in the PERM process, as the data in Table 1 indicate.

Between 1993 and 1997, 15 different State departments submitted 67 PERM reports to the Privatization Division.⁽²⁾ Though participation was wide-ranging, 51% of all PERM reports (34 total) were submitted by only three departments: Military and Veterans' Affairs (14), Transportation (13), and the DNR (7).⁽³⁾

Table 1--Number of Completed PERM Studies as of January 1997
Department	Number of Studies	Percent of Total
Military and Veterans' Affairs	14	20.9
Transportation	13	19.4
DNR/DEQ	7	10.4
State Police	6	9.0
Labor⁽⁴⁾	5	7.5
State	4	6.0
Corrections	4	6.0
Agriculture	3	4.5
Public Health⁽⁵⁾	2	3.0
Treasury	2	3.0
Civil Service	2	3.0
Commerce	2	3.0
Civil Rights	1	1.5
Education	1	1.5
MESC and Jobs Commission	1	1.5
DMB	0	0
Lottery	0	0
Attorney General	0	0
Family Independence Agency⁽⁶⁾	0	0
TOTAL	67

The data in Table 1 shows that the Departments of Military and Veterans' Affairs and Transportation dominated the PERM process. Both departments assigned staff members to serve as PERM coordinators and created PERM committees to analyze activities for possible privatization. This commitment likely facilitated the completion of these PERM studies.

Other departments were less willing to make a similar commitment. For example, the Department of Management and Budget, Family Independence Agency (Social Services), Lottery, and Attorney General submitted no PERM studies over the four-year period. Three departments submitted only one PERM report, and four departments submitted only two reports during the four-year period examined here.

The SFA also found that some PERM studies analyzed projects that were already under contract with private vendors or other State departments. For example, the Treasury Department submitted two PERM reports, one on hiring data entry personnel and the other on student loan processing. The SFA's analysis found that the use of outside contractors for these projects began in the 1970s. The same was true for PERM reports submitted to the Privatization Division on State Police vehicle testing and the Motor Vehicle Accident Claims Fund.

PERM Recommendations

Not only did departmental participation in the PERM process vary, so too did the recommendations these departments made. One may recall that privatization was one of four possible outcomes identified by the Partnership Commission, with elimination, retention, and modification completing the scale.

State departments recommended the privatization of State activities in 57% of the PERM reports they submitted. In most cases this entailed contracting for the delivery of a service with companies in the private sector.⁽⁷⁾

However, 39% of the PERM reports recommended that an ongoing project or activity be retained within a department or modified in some way. In other words, departments completed PERM reports but concluded that a project or activity should be kept under State control and accomplished with State personnel. Finally, 4% of the PERM reports submitted to the Privatization Division recommended that a project or activity be entirely eliminated.

Table 2 illustrates this point in greater detail. Column 2 shows the total number of PERM reports submitted by each department. The next four columns show the recommendations regarding the activities analyzed in these PERM reports.

Table 2 -- State Department PERM Study Recommendations
Department	No. of Studies	Recommendation
		Privatize	Eliminate	Retain	Modify
Military and Veterans' Affairs	14	14
Transportation⁽⁸⁾	13	4		7	2
DNR/DEQ	7	4		2	1
State Police	6	3	2	1
Labor	5	1		3	1
State	4	3		1
Corrections	4	3			1
Agriculture	3	1		1	1
Public Health⁽⁹⁾	2		1	1
Treasury	2	1		1
Civil Service	2			1	1
Commerce	2	2
Civil Rights	1	1
Education	1	1
MESC and Jobs Commission	1			1
TOTAL	67	38	3	19	7

Column 3 shows that departments recommended the privatization of an ongoing project or activity in 57% of the PERM reports submitted to the Privatization Division (38 of 67). The data also show, however, that these results are influenced by the recommendations of the Department of Military and Veterans' Affairs. This agency submitted the most PERM studies (14) but was the only department exclusively to recommend that all of those activities be privatized. It, alone, accounts for 37% of the total number of privatization recommendations (14 of 38).

Other departments were less likely to recommend privatization. For example, the Department of Transportation completed the second highest number of PERM reports (13) but recommended that the activities be retained in seven of these cases. The Labor Department submitted five PERM reports, but recommended privatization in only one of those cases.

As noted above, State departments were given wide latitude to choose study activities. Given the possibility that a privatization recommendation might result in a loss of State revenue, employees, or both, department directors might have been hesitant to identify potential privatization candidates. This could have influenced the types of projects chosen for analysis and, consequently, the distribution of recommendations made in their PERM reports.

One test of this hypothesis is to compare departments' recommendations with those of the Privatization Division. If a department's recommendations are biased, one would expect to see a difference between State agencies recommendations and those of the Privatization Division. If departments' recommendations are not biased one would expect the distribution of these recommendations to be similar. Table 3 compares the distribution of State departments' recommendations with those of the Privatization Distribution.

Table 3 -- Comparison of PERM Study Recommendations
	Department Recommendations	Percent	Privatization Division Recommendation	Percent
Privatize	38	56.7%	39	62.9%
Eliminate	3	4.5%	2	3.2%
Retain	19	28.4%	12	19.4%
Modify	7	10.4%	9	14.5%
TOTAL⁽¹⁰⁾	67		62

Column 2 shows the distribution of recommendations made by State departments and agencies in their PERM reports. Column 4 lists the Privatization Division's recommendations from its review of the departments' reports.

At first glance, the distribution of departments' recommendations appears different from that of the Privatization Division. State departments recommended privatization in 56.7% of the cases, while the Privatization Division recommended privatization in 62.9% of the cases. This is a difference of 6.2% and would seem to support the argument that State departments were more hesitant to endorse privatization than was the Privatization Division.

However, the difference between departments' recommendations and those of the Privatization Division are not statistically significant.⁽¹¹⁾ In other words, though there is anecdotal evidence that the Privatization Division was more likely to recommend the privatization of activities, that argument is not supported by the evidence.

The same is also true for the other types of recommendations. For example, State departments recommended that PERM activities be retained in 19 of the 67 reports they submitted (28%). The Privatization Division recommended retention in 12 of the 62 PERM reports it reviewed (19.4%). This is a difference of 9%. However, there is no statistically significant difference between the distribution of these recommendations. (Appendix B lists PERM project recommendations by State department.)

But what has happened to the PERM projects since the reports were submitted to the Privatization Division? Have these projects been privatized? The following section examines this question.

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The Status of Privatization Projects

There has been little systematic follow-up on PERM projects since reports were submitted to the Privatization Division. As a result it is difficult to identify whether projects have actually been privatized, eliminated, retained, or modified. In response to the SFA's request, however, State departments did identify 24 different PERM projects that had been privatized by October 1997. This figure is 63% of the 38 activities they recommended be privatized. Table 4 shows how these projects were distributed among State departments.

Table 4 -- Status of Privatization Recommendations, by Department
Department	Privatization Recommendations	Activities Privatized	Percent
Military and Veterans' Affairs	14	11	79%
Transportation	4	4	100%
DNR/DEQ	4	3	75%
State Police	3	1	33%
Labor	1	0	0%
State	3	0	0%
Corrections⁽¹²⁾	3	1	33%
Agriculture	1	0	0%
Treasury	1	0	0%
Civil Service⁽¹³⁾	2	2	100%
Commerce	2	1	50%
Civil Rights⁽¹⁴⁾	1	1	100%
Education	1	0	0%
MESC and Jobs Commission⁽¹⁵⁾	1	1	100%
TOTAL	38	24	0.632

Once again these results are dominated by the Department of Military and Veterans' Affairs. Column 3 shows that 11 of the 14 projects this Department identified have been privatized. This, alone, accounts for 46% of the 24 PERM activities that have been privatized. This figure is likely to increase when final approval of the Department's three remaining private contracts is granted. This approval is expected shortly.

Four departments, Transportation, Civil Service, Civil Rights, and the MESC/Jobs Commission privatized each of the activities they recommended be privatized in their PERM reports. However, the MDOT was the only department from this group to recommend that more than two activities be privatized.

More importantly, these four departments' experience has not been the norm. For example, the Commerce Department has privatized only one of two activities, and the Departments of State Police and Corrections have privatized 1 project in 3. Finally, five departments, Labor, State, Agriculture, Treasury, and Education, have not contracted any of the activities they recommended be privatized in their PERM reports.

Cost Savings on PERM Projects

Few departments have systematically monitored the activities they studied in PERM reports. Consequently, it is difficult to estimate any long-term State cost savings or efficiency improvements that resulted from the PERM process.

For example, the Department of Transportation reports that the four PERM activities it privatized saved an estimated $3,010,604. However, it is difficult to estimate the full cost of these activities before they were privatized. This is the case with the privatization of highway maintenance, for example. As a result, the SFA cannot gauge whether this figure represents a cost savings to the State. A subsequent Senate Fiscal Agency Issue Paper on highway maintenance privatization explores this question in greater detail.

Other activities, such as the sale of unused facilities at State armories or the Michigan Accident Fund, resulted in a one-time source of revenue for the State.⁽¹⁶⁾ Many other PERM projects, however, have actually resulted in cost increases since they were privatized. The DNR's automated campground reservation network, as well as the hunting and fishing license system, continues to incur developmental costs. Privatization of the Liquor Control Commission has resulted in the loss of an estimated $3.8 million in annual State revenues.⁽¹⁷⁾ (These were all part of the Partnership Commission's short list of pilot projects.)

Why did the PERM process not generate more identifiable cost savings? Moreover, why did departmental participation in the PERM process vary so widely? The following section puts forward some possible explanations for departments' varying participation in the PERM process.

Privatization and Department Management

First, the paucity of PERM reports by many State departments should not be interpreted as disinterest in private contracting. One reason is that many were already actively soliciting services from private contractors prior to the establishment of the Partnership Commission. The Commission noted as much in its report when it identified 384 different "broad categories of services of State government already provided under contract [by] the private sector."

On average, the Partnership Commission identified 19 different types of private contracts within each State department. However, the departments that submitted the fewest PERM reports were identified as the most active purchasers of goods and services from the private sector. For example, the Departments of Public and Mental Health (now merged) completed only two PERM studies, but the Partnership Commission recognized over 64 different types of private contracts already in use at the initiation of the PERM process. The Family Independence Agency (formerly the Department of Social Services) had 29 different types of private sector contracts and the Department of Education had 25.

State departments often hired private contractors in response to the decreasing size of the State work force. For example, between 1982 and 1997 the number of full-time employees within the Department of Transportation fell by 37%, from 5,200 to 3,300. Private contractors became an increasingly important tool for MDOT managers who were required to complete ongoing, long-term transportation projects within a shrinking department.

Departmental leadership is another possible explanation for the variance in PERM participation. The lack of time and material resources dedicated for PERM studies is an example of some department leaders' reluctance to participate in what was an essentially voluntary program.

State agencies provide services demanded by State citizens within the constraints of a fixed, annual appropriation. Most unspent appropriations lapse to the State's coffers at the end of the fiscal year. As a result, department managers have few incentives to save money. Nor do they have private companies' freedom to seek additional capital in the private sector. They do, however, have real incentives to cut costs, if those cost savings result in increased program flexibility. To the extent that private contractors facilitated the provision of these services, some department managers seem to have adopted privatization as a way to redirect State funds to ongoing projects and activities.

Department participation in the PERM process might also be explained by a department's relative size vis-a-vis others in Michigan government. For example, the Department of Military and Veterans' Affair' is a relatively small State agency. Perhaps its size made it more flexible and better able to incorporate PERM initiatives into daily management strategies. Alternatively, the large size and diversity of programming within the MDOT may have created more opportunities to study possible PERM projects than in smaller departments.

Some other possible explanations for departments' participation in the PERM process include: the degree of flexibility in annual State appropriations; the balance of Federal and State funding in annual departmental appropriations; and the different types of service provided by State agencies. Regardless, fully identifying the explanations for departments' participation in the PERM process is a lengthy and difficult task beyond the scope of this paper.

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Conclusion

This Issue Paper examined the results of the Governor's 1992 privatization initiative. It showed that department participation in the PERM process generated by the Governor's Public-Private Partnership Commission varied widely, as did the recommendations made by State departments regarding the use of private sector contractors to deliver State services.

This paper also showed that the adoption of PERM report recommendations has varied across State departments. Some quickly privatized those activities recommended for privatization, while other projects have lagged behind. Departmental follow-up on PERM initiatives prevented the SFA from drawing final conclusions about the efficacy and cost savings of these programs, although there is initial evidence that these projects resulted in a mix of State cost savings as well as State revenue losses. Nonetheless, the use of private contractors remains an important tool for State departments as they attempt to increase service quality while restraining costs and reducing the size of the State work force.

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Appendix A -- PERM Reports Submitted by State Departments
PERMS

AGRICULTURE
Fruits & Vegetables Quality Control
Soil Survey Program
Upper Peninsula State Fair
Migrant Housing

CIVIL RIGHTS
Statistical Analysis

CIVIL SERVICE
Health Screening Unit
Deferred Compensation Program

COMMERCE
Maintenance of the State Fair & Exposition Center Grounds and Buildings
Liquor Control
Property Development Division
Boundary, Comm. Subdivision controls survey and remuneration.
Corporations & Securities
Mobile Home Commission

CORRECTIONS
Field Operations Administration Fee Collection
SPSM Food Service
Mound Vocational Education
Camp Stores

EDUCATION
Pupil Count Auditors

LABOR
Automated Collection Systems
Elevator Computerization
Boiler Computerization
Construction Codes
Contract Magistrates
Court Reporters (Office of Hearings)
Court Reporters (Employment Relations)
Transcription Services for Boards and Commissions

MESC
Data Processing Operations

MICHIGAN JOBS COMMISSION
DAARMA (95) Drug Addiction & Alcohol Referral and Monitoring Agency

MILITARY AND VETERANS AFFAIRS
Security Program at Camp Grayling
Security Program at Alpena Combat Readiness Training Center
Security Program at Battle Creek Air National Guard Base
Sale of Ann Arbor, Benton Harbor, St. Joseph Armories
Sale of Coldwater & Grand Haven Armories
South Haven Land Disposal
Grand Rapids Home for Veterans Nursing
Grand Rapids Home for Veterans Physical Therapy
Security at Grand Rapids Home for Veterans
Security at USPFO
Janitorial Services at Battle Creek Air Nat'l Guard Base
Janitorial Services at Michigan Army National Guard, Lansing General Depot
Janitorial Services at the Army Aviation Support Facility at Grand Ledge (AASF Armory)
Housekeeping (Janitorial) and Laundry Services at the Grand Rapids Home for Veterans

NATURAL RESOURCES
Environmental Labs
Docks/Harbors
Internal Audit
DNR Aircraft
Hunting & Fishing License System
DNR Magazine
State Parks Automation of Campground Reservation System

PUBLIC HEALTH
Power Plant Operation
Migrant Housing Inspections

STATE
Auto Exhaust Testing
Motor Vehicle Accident Claims Fund
Commercial Driver License Skills Testing
Presort Mail Services

STATE POLICE
Municipal Fire Service Classification Board
Patrol Vehicle Evaluation
Radio System Maintenance Cost
Salvage Vehicle Inspections
Traffic Crash Data System
Uniform Crime Reporting

TRANSPORTATION

Construction Staking
Road/Bridge Maintenance Demonstration
Transportation Map Advertising
Seasonal Tourist Clerks
Accounting Training & Assistance-UPTRAN
Computer Training & Assistance-UPTRAN
Radio Communication Training & Assistance-UPTRAN
Central Warehouse and Inventory Management
Construction Plans and Proposals (Statewide Monthly Bid Letting)
Attorney General Accident Investigations
Mackinac Bridge Toll Collections
Blue Water Bridge Toll Collections
Origin Destination Studies

TREASURY

Individual Income Tax Data Entry
Higher Education Student Loan Processing

IN-HOUSE
Audio/Video Court Reporting
Statewide Security
Armory Maintenance Program, Dept. of Military Affairs
Behavioral Science Section, Michigan State Police*Review terminated due to prior implementation.

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Appendix B -- PERM Project Recommendations and Current Status

COMPLETED PRIVATIZATION DIVISION PERMS AS OF JANUARY 23, 1997
PERMS	AGENCY RECOMMEND.	PD RECOMMEND.	STATUS	DATE
AGRICULTURE
Fruits & Vegetables Quality Control	Privatize	Privatize	Retained - no change.
Soil Survey Program	Retain	Retain	Retained - no change.
Upper Peninsula State Fair	Modify	Modify	5-year plan for self-sufficiency to no longer use GF/GP.	1996
Migrant Housing			Retained - recent transfer to MDA	1997
CIVIL RIGHTS
Statistical Analysis	Privatize	Privatize	One contract dealt to Wayne State University. Statistical analysis not an on-going function in the department.	9/93
CIVIL SERVICE
Health Screening Unit	Modify	Privatize	Privatized the lab 8/94. Transferred to the Office of State Employer in July, 1996.	8/94 7/96
Deferred Compensation Program	Retain	Retain	Privatized with State Street Global Advisors Corp.	June 1997, effective September 1997
COMMERCE
Maintenance of the State Fair & Exposition Center Grounds and Buildings	Privatize	Privatize	Retained. Has recently been transferred by Executive Order to Department of Agriculture.
Liquor Control	Privatize	Privatize/Modify	Privatized merchandising and warehousing divisions. State has contracted with 3 authorized distribution agents to replace State employees. Agents receive a per case fee to provide services.	1/97
Property Development Division Boundary, Comm. Subdivision controls survey and remuneration.			Memo
Corporations & Securities Mobile Home Commission			Memo
CORRECTIONS
Field Operations Administration Fee Collection	Privatize	Privatize	Found that function belongs to Department of Treasury. Now, they send list to Department of Treasury.	8/96
SPSM Food Service	Modify	Modify	Needed additional enabling legislation to have prisoners work for private vendors. Legislation was not enacted.	7/96
Mound Vocational Education	Privatize	Privatize	Bid to vendor Questech, Inc. Problems with security (tool control) and value ended contract.	11/96-3/97
Camp Stores	Privatize	Privatize	Found that private stores would be too expensive for prisoners.	9/15
EDUCATION
Pupil Count Auditors	Privatize	Modify	As of today, it has not been privatized. The Department is very under-staffed in this area and has no plans to privatize this area.
LABOR
Automated Collection Systems Elevator Computerization Boiler Computerization Construction Codes	Modify	Modify	Memo
Contract Magistrates	Privatize	Privatize	Still appointed, not privatized.
Court Reporters (Office of Hearings)	Retain	Privatize	Retained.
Court Reporters (Employment Relations)	Retain	Privatize	Retained.
Transcription Services for Boards and Commissions	Retain	Retain	Retained.
MESC
Data Processing Operations	Retain	Privatize	Privatize. Project MAIN contractor in Boulder, Colorado.	6/97
MICHIGAN JOBS COMMISSION
DAARMA (95) Drug Addiction & Alcohol Referral and Monitoring Agency	Privatize 10/10/95	Privatize 11/95	Contract signed. [Agency was abolished due to changes in Social Security Act-December 1996.]	2/96
MILITARY AND VETERANS AFFAIRS
Security Program at Camp Grayling	Privatize	Privatize	State Fire and Safety employees replaced by contractual employees.	11/1/95
Security Program at Alpena Combat Readiness Training Center	Privatize	Privatize	State Fire and Safety employees replaced by contractual employees.	11/1/95
Security Program at Battle Creek Air National Guard Base	Privatize	Privatize	State Fire and Safety employees replaced by contractual employees	11/1/95
Sale of Ann Arbor, Benton Harbor, St. Joseph Armories	Privatize	Privatize	Ann Arbor sale completed. Benton Harbor sale completed. St. Joseph sale completed.	4/11/97 4/18/95 2/28/96
Sale of Coldwater & Grand Haven Armories	Privatize	Privatize	Coldwater sale completed. Grand Haven sale completed.	11/19/96 9/30/96
South Haven Land Disposal	Privatize	Privatize	9.7 acres excess land sold.	1/1/95
Grand Rapids Home for Veterans Nursing	Privatize	Privatize	20 contractual nurses hired as backups to regular civil service nurses.	10/1/96
Grand Rapids Home for Veterans Physical Therapy	Privatize	Privatize	Completed.	10/1/96
Security at Grand Rapids Home for Veterans	Privatize	Privatize	State Fire and Safety employees replaced by contractual employees.	11/1/95
Security at USPFO	Privatize	Privatize	State Security employees at Property and Fiscal Office replaced by contractual employees.	4/21/96
Janitorial Services at Battle Creek Air Nat'l Guard Base	Privatize	Privatize	Awaiting approval to replace State workers with contractual.	12/1/97 (proposed)
Janitorial Services at Michigan Army National Guard, Lansing General Depot	Privatize	Privatize	Awaiting approval to replace State workers with contractual.	12/1/97 (proposed)
Janitorial Services at the Army Aviation Support Facility at Grand Ledge (AASF Armory)	Privatize	Privatize	Awaiting approval to replace State workers with contractual.	12/1/97 (proposed)
Housekeeping (Janitorial) and Laundry Services at the Grand Rapids Home for Veterans	Privatize	Privatize	State employees to be replaced by contractual employees.	11/1/97
NATURAL RESOURCES
Environmental Labs	Retain	Retain	No change. Consolidated with Department of Public Health lab in budget.	10/1/97
Docks/Harbors	Privatize	- - -	Department operates only 14 of the 71 harbors.	N/A
Internal Audit	Retain	Retain	No change.
DNR Aircraft	Modify	Modify	Modified. All forest fire planes under contract.	N/A
Hunting & Fishing License System	Privatize	Privatize	State operated with some contract personnel. Contract with EDS to design the system.	1994
DNR Magazine	Privatize	Privatize	Privatized.	1994
State Parks Automation of Campground Reservation System	Privatize	- - -	Privatized.	1994
PUBLIC HEALTH
Power Plant Operation	Retain	Retain
Migrant Housing Inspections	Modify	Modify
STATE
Auto Exhaust Testing	Privatize	New PERM	Eliminated.	As of 1/95
Motor Vehicle Accident Claims Fund	Retain	Eliminate	Gone.	As of 1973
Commercial Driver License Skills Testing	Privatize	Privatize	Privatized, State administers written test. Road test administered by private contractor.	1/94
Presort Mail Services	Privatize	Privatize	Privatized.	1/92
STATE POLICE
Municipal Fire Service Classification Board	Eliminate	Eliminate	Elimination completed.	10/1/93
Patrol Vehicle Evaluation	Privatize	Privatize	Paid for by private sources.
Radio System Maintenance Cost	Retain	Retain	Retained.
Salvage Vehicle Inspections	Retain	Modify	Retained.
Traffic Crash Data System	Privatize	Privatize	Retained with automation plan.
Uniform Crime Reporting	Privatize	Privatize	Retained.
TRANSPORTATION
Construction Staking	Privatize	Privatize	Constructions staking privatized.	June 1994
Road/Bridge Maintenance Demonstration	Privatize	Privatize	I-94 (Wayne County)
Transportation Map Advertising	Privatize	Privatize	Currently advertised: Department of Agriculture, Michigan Festivals and Events Association
Seasonal Tourist Clerks	Retain	Privatize	Program transferred to Jobs Commission.
Accounting Training & Assistance-UPTRAN	Retain	Retain	Retain because of high cost and performance reasons.
Computer Training & Assistance-UPTRAN	Retain	Retain	Would require hiring one or more consultants and could affect system compatibility. Costs would be incurred to monitor contract.
Radio Communication Training & Assistance-UPTRAN	Retain	Retain	It would be a higher cost if contracted. Private consultants typically charge $65-$85 per hour.
Central Warehouse and Inventory Management	Retain	Additional Study	Still considering the possibility of closing warehouse.
Construction Plans and Proposals (Statewide Monthly Bid Letting)	Privatize	Privatize	Work began with private contractor.	10/1/96
Attorney General Accident Investigations	Modify	Modify	PERM revised to include a policy analyst position.
Mackinac Bridge Toll Collections	Retain	Additional Study	Study to determine feasibility of one-way toll on bridge as well as unmanned collection.
Blue Water Bridge Toll Collections	Modify	Modify	Automated lane to be installed by November 30. Have reduced personnel by 2 FTEs.
Origin Destination Studies	Retain	Retain	Cost per consultant were high. None willing to take project for less than one month.
TREASURY
Individual Income Tax Data Entry	Privatize	Privatize	Retained. It's cheaper MESC; temps through MESC (Jan.-June).	Began in 1970's
Higher Education Student Loan Processing	Retain	Retain	Privatized. Ongoing. Continue to look for other functions to privatize. Currently, over 100 different functions are privatized.	1976
IN-HOUSE
Audio/Video Court Reporting		Privatize
Statewide Security		Privatize
Armory Maintenance Program, Dept. of Military Affairs		Privatize	Retained.
Behavioral Science Section, Michigan State Police		Retain	Retained.

*Review terminated due to prior implementation.

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1. Several of these departments have been eliminated or merged with others since this report was released. For example, this list includes the Departments of Social Services and Public Health. Others, such as the Department of Natural Resources (DNR), have been split into separate units. Whenever possible, references will be made to the departments as they exist today.

2. The Privatization Division independently completed an additional four PERM studies, for a total of 71.

3. Appendix A contains the entire list of PERM reports submitted by each department.

4. Now merged into the Department of Consumer and Industry Services

5. Now merged into the Department of Community Health

6. Formerly the Department of Social Services

7. The most noticeable exceptions were provided by the Department of Military and Veterans' Affairs which recommended the sale of unused armories in Ann Arbor, Benton Harbor, Coldwater, Grand Haven, and St. Joseph, in addition to excess land at the South Haven Land Disposal.

8. A fifth PERM study project has since been transferred to the Michigan Jobs Commission.

9. Now merged into the Department of Community Health.

10. These figures differ because the Privatization Division declined to review five different PERM reports submitted by various State departments. Instead, it completed four independent PERM reports. Those results are not included here.

11. This was confmall-n difference-of-means test for qualitative data.

12. The Mound Vocational Education Training Program contract ran from November 1996 through March 1997. The contract was canceled due to security problems and cost overruns.

13. Privatization of the Health Screening Unit and the Deferred Compensation Program was undertaken despite the agency's recommendation that they be modified and retained, respectively.

14. A short-term statistical and data processing contract was given to Wayne State University in September 1993.

15. Data processing operations were privatized to the Project MAIN contractor in Boulder, Colorado, though the MESC recommended that these responsibilites be retained within the agency.

16. For example, the sale of the Michigan Accident Fund resulted in a one-time $255 million windfall for the State in FY 1994-95. These proceeds were deposited into the State Budget Stabilization Fund, as reported in a February 6, 1995, memorandum to Members of the Michigan Senate.

17. This figure was reported in a January 8, 1997, Senate Fiscal Agency memorandum to Members of the Michigan Senate, and covered only a partial fiscal year. Recent figures have indicated that future losses might be higher, though a full cost accounting cannot be made until a full fiscal year has been completed.