Schwarzenegger Discusses Outsourcing Opportunities

Published March 1, 2004

In his January 6, 2004 State of the State speech, California Gov. Arnold Schwarzenegger (R) had some great lines, like, “If I can sell movies like ‘Red Sonja’ and ‘Last Action Hero,’ I can sell California.” And, “The executive branch of this government is a mastodon frozen in time and about as responsive.”

To break the ice around California agencies and the state budget, Schwarzenegger is going to need all of those sales skills and more.

Schwarzenegger likened the state to a “family that has run up an impossible debt on its credit cards.” Now California faces the really tough step those families also must take–changing the behavior that resulted in the debt in the first place. Without a change in behavior, the debt is bound to come back.

Schwarzenegger argued the state suffers “not a tax revenue crisis, but a crisis of spending.” He made it clear he planned to take on the fiefdom-driven politics of California state government in order to consolidate duplicative and overlapping state programs. Not content to just “move the boxes around,” he intends to “blow them up.”

Among his key proposals:

  • a Performance Review Commission that will systematically audit state programs to ensure they are worthwhile investments. This will be an important step moving California toward a system that bases budget decisions on performance rather than preference and politics.
  • repeal of SB 1419, which severely restricted local schools’ ability to competitively contract for non-instructional support services. The Governor will give schools more purchasing power by allowing them to shop around for the best services. Doing so will help them confront the painful budget realities.
  • “a Constitutional amendment to allow for competition in government through outsourcing opportunities.” The Schwarzenegger administration “will be pursuing a new Constitutional amendment to … permit the State to contract with non-State entities for ministerial functions whenever doing so will reduce costs, improve efficiency, or improve services.”

If Schwarzenegger follows through on that last promise, he will be opening a much-needed discussion in California, and nationwide, about the wisdom of laws that ban competition and privatization outright rather than letting those policy tools sink or swim on their own merits. It will be an uphill battle, but well worth the effort.

Schwarzenegger also wielded very publicly what may become his policy weapon of choice–taking his agenda straight to the public in the form of ballot measures. Will the legislature follow his lead and enact significant reforms? The battle will be exciting to watch … but our guess is they will.

Adrian Moore is vice president and George Passantino is director of government affairs at the Reason Foundation in Los Angeles. Their email addresses are [email protected] and [email protected], respectively.

For more information …

Gov. Arnold Schwarzenegger’s State of the State address, delivered January 6, 2004, is available on the Internet at