Our New Solutions report challenged two myths regarding private contracts and consultants. First, we showed that state worker salaries and benefits are only a small fraction of overall state expenditures. Indeed, only 10 percent of the total state budget went to employee compensation, while fully 26 percent went to contractors. We contended that a budget can’t be balanced with staff cuts alone; that it was necessary to economize in contracting.
Second we challenged the myth that contractors do the work better or cheaper than public employees. We showed that the state often pays contractors more money to do exactly the same work. Indeed, the era of budget tightening leads agencies to reduce staff – and then hire contractors to do the same work at higher cost. Such habits need to be re-examined – especially since so much money goes to out-of-state corporations. In New Solutions, we demonstrated that 30 percent of Michigan contracts over $10 million were with out-of-state businesses.