The Narrow Focus of the WSDOT Audit

Prepared by Jeff Hanson, Research Analyst

The preliminary report of the highways/railways performance audit has been embraced by both critics and defenders of the state's Department of Transportation (WSDOT). Critics point to the finding that Washington state's construction costs are 80 percent higher than the average for states with highway networks of less than 10,000 miles; defenders of WSDOT point to the audit's failure to identify any fundamental managerial problems.

It should be acknowledged that the audit did identify opportunities for significant savings. Further, we should take some comfort in the fact that the audit did not find gross mismanagement (recall that the ferry system is the subject of a separate audit). But we should recognize that the audit was narrowly focused. Other opportunities for savings were never considered.

Audit findings

The audit identified three major opportunities for savings: reduction of the number of WSDOT's avoidable change orders ($6 million in savings per biennium); adequate funding of the wetlands bank established by the legislature last year; and privatization of highway maintenance on a pilot program basis (another $6 million in savings). Contracting out highway maintenance has been a long-standing EFF recommendation. We expect that savings could turn out to be even higher than the audit's prediction (8-10 percent), given other states' experiences (e.g., Massachusetts realized savings of over 30 percent).

Outside the scope of the audit

EFF has long maintained that the performance audit, as developed by JLARC, would not represent a comprehensive examination of the state's transportation agency. A full study requires a thorough review of the regulations (RCWs) imposed on WSDOT, and, even more fundamental, requires the identification of the core functions of WSDOT (and departures from that core mission).

A serious review of burdensome RCWs can enable WSDOT to deliver its services more efficiently. The elimination of the state prevailing wage requirement is but one obvious example. Others include: streamlining permit approvals; eliminating prohibitions on contracting out work traditionally performed by state employees; granting WSDOT the ability to take prudent risks on low-risk projects (a lesson from the privately-financed DuPont interchange project); and eliminating the mandate that gas tax revenue be spent on paths and trails (RCW 47.30).

Identifying the core mission of WSDOT will call into question many of its current activities. For example, nearly $7.5 million is budgeted for rest area maintenance for 1997- 99. Rest areas, however, can be franchised, operated and maintained by local businesses (e.g., gas stations and restaurants), as in several other states. Not only would money be saved (in fact, new revenue would be generated through franchise fees), but highway users would benefit from expanded services. The state should also sell off unnecessary or obsolete assets (e.g., surplus property, grain train rail cars, WSDOT maintenance shops in Tumwater).

And a narrow scope, at that

JLARC instructed the auditing firm to address, at a minimum, specific questions listed in 15 general categories. Given the relatively short time frame for conducting the audit, it would have been unreasonable to expect that the probe would stray very far from the specific questions posed. Anyone who attended the meeting during which the preliminary results were reported would have to wonder if the audit explored beyond the specific questions at all. Consider the following.

The auditors were asked to determine the cost impact of requiring contractors to comply with both federal and state prevailing wage laws. Where federal funds are involved (project work totaling 58 percent of 1995-97 WSDOT construction expenses), the contractor must pay the higher of the two prevailing wage rates. After comparing federal and state rates, the audit esti- mated that the impact (where the state rate exceeded the federal) for 1995-97 was $1.5 million.

An obvious question was raised at the meeting: What about the other 42 percent of project expenditures (those where federal prevailing wage law does not apply)? Using the auditors' assumption that labor accounts for 20-35 percent of construction costs, labor costs for WSDOT's 1995-97 non-federal construction projects totaled between $79 million and $139 million. How much money could have been saved if contractors were not required to pay the state prevailing wage rate on these non-federal projects? The auditors responded by saying that they were not specifically asked to address that question, so they did not.

The innovation of the marketplace

A performance audit is a useful tool for identifying inefficiencies and opportunities for savings. Identifying truly innovative cost saving approaches, however, often requires testing the marketplace, where the bottom line really is the bottom line. An experience in Indianapolis is one such example.

In 1992 Indianapolis Mayor Stephen Goldsmith began considering putting the city's two wastewater treatment plants up for competition. The plants were considered by industry experts to be among the most efficient in the country. An efficiency audit conducted by a major accounting firm predicted a mere 5 percent savings if the plants were privately managed. Confident that the private sector could actually do better, the city went ahead and put the plants up for competitive bid. The result: savings of 44 percent and improved water quality.

It would be a mistake to conclude that the highways/railways performance audit has identified all significant opportunities for savings. Its findings are significant and its recommendations should be implemented, but its focus was narrow. The audit represents a first step, but does not provide the legislature with enough information to make critical transportation decisions. Comprehensive reform is needed, both on the expenditure side and the revenue side, in order to address the state's long-term transportation needs. More work remains to be done.

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org