Report: State could save $300 million over six years

State government could save $300 million over the next six years, primarily through procurement and information technology improvements, according to a progress report prepared as part of Gov. Sarah Sanders’ Arkansas Forward initiative.

The report offers more than 300 initiatives across all 15 state agency departments that could create the $300 million in cost savings and cost avoidance across five areas: procurement, information technology, the state’s fleet of vehicles, real estate and personnel.

“Our team took a sweeping, comprehensive look at government efficiency in Arkansas, and I am excited by the report I received on that work today,” said Sanders in a press release Monday (Dec. 16). “Across all state agencies, this team discovered potential ways to save taxpayer money and improve services. Many of Arkansas Forward initiatives are already underway, and I look forward to this project continuing and reducing the burden of government on our taxpayers.”

Broadly speaking, the report says the state should:

– Integrate information technology systems;
– Centralize state procurement processes and renegotiate statewide contracts for better pricing;
– Sell the state’s older vehicles to lower maintenance costs and reduce fleet size and centralize vehicles to create efficiency;
– Reduce state government’s physical footprint and create a database of existing real estate; and
– Implement the governor’s pay plan proposal and centralize training and professional development.

The report comes after the state earlier this year awarded a contract of up to $5.5 million to the McKinsey & Co. consulting firm to help find operational efficiencies. The firm had said it could find at least $500 million annually.

Courtney Traylor, chief of staff for the state Department of Transformation and Shared Services and project director for the Arkansas Forward initiative, said in a written statement to the Arkansas Democrat-Gazette that McKinsey & Co. had been paid $4.027 million. Traylor said the department expects the consultant to finish its work by the end of the year.

The report says the state could save between $140 million and $230 million in procurement costs out of the $1.7 billion annually it spends in purchase orders and purchasing card spending. It says the state does not benefit enough from its spend base’s scale.

It recommends 40 initiatives based on “getting the ‘right stuff,’ at the ‘right (total) price,’ through the ‘right processes.’” The “right stuff” involves consistent product categories, aligning specifications, and proactively managing demand to rightsize state purchasing. The “right (total) price” involves consolidating contracts and getting better terms through its request for proposal negotiations. The “right processes” involves deploying a user-friendly and supplier-friendly end-to-end e-procurement system and also enhancing the procurement staff’s capabilities.

The progress report says the state could capture between $65 million and $130 million in cost savings through improved information technology administration out of a total annual spend of $680-$700 million. It says that chief information officers say the state’s biggest IT challenges are found in program management and governance, legacy systems’ technical debt, procuring vendors, and resiliency and cybersecurity. State government spends $150-$170 million more on applications than its peer states, with 80% of that spending done with vendors. Meanwhile, the state spends $6 million on cybersecurity compared to peer states that spend more than $60 million.

The report says the state could save $40-$45 million by retiring and consolidating applications and another $5-$10 million by de-prioritizing less critical and duplicative projects. It could save up to $45 million through large IT program governance and app modernization. It could save $20-$25 million by negotiating better prices from IT vendors through consolidated statewide procurement.

As for the state’s vehicle fleet, the report says between $3 million to $5 million could be achieved annually through efficiencies. State government could enjoy a one-time revenue opportunity of $1 million to $1.5 million, reduce its fleet size by at least 860 vehicles, and lower its average vehicle age from nine years to four.

It could do this by buying the lowest priced vehicle within each class, optimizing the holding period, creating inter-department vehicle pools and establishing polices for use, aligning trips so they are more cost-effective, negotiating a statewide maintenance contract, building bulk refueling stations at locations where enough fuel is consumed, and by deploying fleet telematics to determine the value of those actions.

The report says 15 cabinet departments operate a total fleet of 3,980 passenger vehicles costing $21 million annually. All of this is managed by the Department of Finance and Administration by one full-time and two part-time administrators. A limited number of vehicles are available on statewide contract and can take nine months to be delivered. More than 600 vehicles logged less than 100 miles in 2023, with limited inter-department vehicle pooling available. Maintenance and refueling is done as needed, often without comparing costs.

As for the real estate portion, the report projects savings of $15 to $25 million by increasing occupancy in Little Rock offices or reducing the available space, consolidating space elsewhere, selling or repurposing underutilized state land, and centralizing some facilities and operations management processes.

It says the state has a documented portfolio of 11.8 million square feet, of which 5.5 million is office space. Of that, 3.3 million square feet are in Little Rock. But the employee experience in many buildings is “suboptimal,” Little Rock has double the footprint it needs for the amount of full-time employees it has, departments aren’t required or encouraged to share information about space availability or land use, and flexible work policies are inconsistent and unclear across state government.

The report also includes a section on the governor’s pay plan, declaring “a new approach centered upon the right people in the right roles with the right skills and incentives can foster a performance culture among the state government workforce.”

That approach is focused on performance-based compensation linked to market dynamics that would be reinforced by bonuses; streamlined roles, career paths and skills development; and simplified and improved semi-annual performance evaluations.

The governor last month announced a state employee pay plan overhaul that increased compensation for 14,539 state employees, which was roughly two-thirds of the cabinet agencies’ workforce. It also consolidated roughly 2,200 job titles into a little more than 800 that would match their equivalent in the private sector. If approved by legislators, it would go into effect in July 2025.