Is California’s government immune to reform?

Arnold Schwarzenegger barely had time to unpack the boxes in his California gubernatorial office before he began promising to destroy the bureaucratic baggage of state government. Chosen in a 2003 special election, the former movie actor used the occasion of his 2004 State of the State address to introduce a sweeping initiative to overhaul the state’s sprawling administrative structure.

“Every governor proposes moving boxes around to reorganize government,” Schwarzenegger said. “I don’t want to move the boxes around; I want to blow them up.”

As the governor acknowledged in the address, his proposed California Performance Review wasn’t quite as unusual as it may have sounded. Comprehensive reviews of California state government are fairly standard among incoming administrations and rarely amount to much. Still, the political climate that had swept Schwarzenegger into office through a recall and the dramatic unveiling of the proposal provided hope to some observers that this effort would have some muscle behind it.

Half a dozen years later, the conventional wisdom in Sacramento is that the boxes of government survived largely intact despite the ambitious push in the opening months of the Schwarzenegger administration. “They were in such a desperate hurry that they weren’t very realistic about how you bring institutional change to an organizational structure that has been built over a 40- to 50-year period,” says Fred Silva, a senior fiscal analyst at California Forward, a bipartisan government reform group.

Even some who were involved in the review aren’t shy about criticizing it now. “The premise of California Performance Review was wrong to start with,” says Bill Hauck, the president of the California Business Roundtable, who co-chaired it. “You’re not going to do an audit of state government. The governor talked about that in the campaign — and he really didn’t understand what he was talking about — but he felt like he had to make good on that promise.”

All this amounts to more than just a routine post-mortem. Republican gubernatorial candidate and former e-Bay CEO Meg Whitman, who leads Democrat Jerry Brown in some statewide polls right now, appears to be setting herself up for a similar challenge if she’s elected. Whitman has been criticized for being light on specifics on the campaign trail, but she is vocal about her desire to do another “top-to-bottom review” of state government.

“Whitman has a good proposal, as was Schwarzenegger’s, largely because hers is sort of a do-over,” says Bill Whalen, a speechwriter for former Governor Pete Wilson and research fellow at the Hoover Institution. “But here’s the question: How much can she really pull off? The answer is that much of what she proposes will, like Schwarzenegger’s, be declared dead on arrival.”

In addition to proposing her own review, Whitman has enthusiastically endorsed Schwarzenegger’s effort and may try to resuscitate some of its recommendations. “I’ve read the Performance Review cover to cover, twice,” she said of the 2,500 page document in a speech, “and I can tell you that most of the recommendations are no-brainers. Do you know what happened with that study? Not much. It was quietly shelved because Sacramento lacked the political will to do the job.”

Go big or go home

In keeping with the governor’s style both in campaigning and in show business, the California Performance Review took a larger-than-life, fast-paced, action-packed approach. “I’m a person who firmly believes that it’s better to try big and fail than not to try at all,” says Adrian Farley, who served as director of the California Performance Review and is now the state’s chief technology officer. “By trying an effort as big as the California Performance Review, it shows the breadth of opportunity for transformation in state government.”

A swat team of 275 employees and volunteers from consulting firms such as McKinsey and Accenture spent six months drafting a 2,500 page report that included 1,200 recommendations on everything from eliminating or consolidating boards, commissions and departments to changing the cutoff date for entering kindergarten. “It was a big Bible of a report,” says Whalen. “In politics, that’s a really difficult way to go. It’s dramatic, it’s sweeping, it’s epic. It’s not a low-budget indie; it’s a James Cameron production.”

All told, the administration claimed that the changes would save $32 billion over five years if implemented. But a report from the Legislative Analyst’s Office found those savings to be overstated, and proposed an alternative estimate of $10 to $15 billion. “If you’re still on the same level of services being provided, simply reorganizing is not going to make a huge contribution to solving the budget problem,” says Michael Cohen of the Analyst’s Office.

Schwarzenegger has acknowledged publicly that the effort turned up less fraud and waste than he expected. For her part, Whitman has already attached a dollar amount to the savings she hopes to achieve during her first term through such efforts: $15 billion, which tracks closely with the Legislative Analyst’s estimate for implementation of all 1,200 California Performance Review recommendations.

After Whitman has a look under the hood of state government, she’ll likely realize that finding such savings and figuring out how to cut the 40,000 state employees she has promised to eliminate will be easier said than done, says J.J. Jelincic, who served on Schwarzenegger’s performance review commission and is former president of the California State Employees Association. “Any organization has a certain amount of inefficiencies and waste; it’s just the nature of large organizations,” he says. “But the government really has been squeezed pretty tightly over the last dozen years. Personally, I think she is in for a big surprise.”

Impact

One of the Review’s recommendations was that an office be created within the Department of Finance to track implementation, commission co-chair Hauck notes. But that office was never created, and no one has systematically tracked implementation of the Review’s recommendations or its fiscal impact.

There are some indications, however, that the review had more impact than conventional wisdom suggests. According to Farley, one-third of the recommendations, those that didn’t require legislation, were implemented within six months of the Review’s release. ” One of the reasons that the state has been able to operate as it has despite having reduced the general fund by $20 billion over the last few years is because many of the operational improvements laid out in the California Performance Review have been implemented,” Farley says.

Farley points to internal management changes within agencies as well as the restructuring of the state agencies governing the prison system and technology as examples of transformations large and small. Information technology has been centralized in a way that has facilitated a number of statewide IT projects. “They could have been implemented [prior to the reorganization], but they would have been implemented 130 different ways,” Farley says. “There was not empowered leadership to drive statewide technology change.”

Michael Tritz, deputy secretary for audits and performance improvement in California’s umbrella Business, Transportation and Housing Agency, says the California Performance Review was a catalyst for significant management improvements within the agency’s 14 departments, which house 45,000 employees and have a collective budget of $18 billion. “We have some departments that really weren’t thinking of measuring for outcomes and it is now a part of their daily lives,” says Tritz. For example, Tritz says the Office of Traffic Safety is able to more quickly and effectively identify where federal grant money for traffic safety should be deployed because it now has strong metrics about where and why fatalities and injuries occur and has integrated that data into its processes.

Even when recommendations aren’t immediately implemented, the process of conducting these types of reviews can be helpful because interesting ideas bubble up and sometimes resurface later. “If they come up with good ideas, it’s not unusual that they’re resisted at the time because the crisis of the moment is over,” says Hauck. “But they often reappear because the problems stay the same.”

In the end, despite Schwarzenegger’s desire to make a big initial impression, much of the problem may have been a failure to manage expectations on the front end — by talking about blowing up boxes and hinting that ferreting out waste could solve the state’s budget woes. There was “perhaps a failure,” Farley admits, “to communicate effectively to the public about the timeline and what it takes to make sweeping changes to state government.”