In its recent 1998 session, the North Carolina legislature enacted the North Carolina Government Competition Act of 1998, which created the North Carolina Government Competition Commission within the Department of Commerce but shall exercise its powers independently of the Secretary of Commerce. The legislation is modeled similar to the Virginia Government Competition Act of 1995 which created the Commonwealth Competition Council.

The purpose of the Commission is to be the catalyst for the use of competition to improve the delivery of state government services, to make state government more effective and more efficient, and to reduce the cost of government to taxpayers.

The Commission is composed of nine members appointed as follows:

• Three members appointed by the Governor, one of whom shall be a state employee, and two of whom shall be members of the private sector. One of the private members shall have large-scale purchasing experience.

• Three members appointed by the Speaker of the House of Representatives, two of whom shall be members of the private sector, and one of whom shall be a state employee.

 
• Three members appointed by the President Pro Tempore of the Senate, two of whom shall be members of the private sector, and one of whom shall be a state employee.

A new study shows that publicly traded ESOP companies perform better financially than non-ESOP public companies. The recently released report by Hewitt Associates found that of the 382 publicly traded ESOP companies surveyed, establishing an ESOP increased the company's stock price, and that management believed the ESOP had a positive financial impact.

The average return on assets for ESOP companies was 2.7 percent higher than non-ESOP companies. More than 60 percent of the ESOP companies experienced average stock price increases over the two days immediately following the announcement of the ownership program, reflecting a positive market reaction to ESOPs. Eighty-two percent of respondents indicated the ESOP had a "positive to significantly positive" impact on business results.

Using internal communication to affect financial results is what Hewitt researchers call the "Ownership Dynamic," a concept that argues that the power of engaged ownership is derived from the number and strength of the connection between people, information, and action. According to Hewitt, these connections multiply and are strengthened by three factors:

• The strength of a shared investment or a common stake for all employees.
• Business information that is accessible and understandable.
• Broad-based influence and decision making throughout an organization.

Editorial note: Research like this confirms the potential benefits of a government ESOP privatization reported in the Council's "Employee Stock Ownership Plan (ESOP) Pre-Assessments" study of eleven state functions.

Following a national trend, the University of Miami has contracted with Follett Corporation, which operates 580 campus bookstores, to run its bookstore. Follett bought UM's inventory for $2.3 million, assumed all operating costs of the bookstore, and will provide $800,000 for bookstore renovations. Follett will also pay UM a minimum of $775,000 per year and up to 9.1 percent of gross revenues. Students have also benefited from the arrangement. UM reports that students have saved $190,000 in the first semester alone because Follett brought in thousands of used textbooks from its main Chicago-area warehouse.

A UM spokesman said that "We couldn't match the technology, the expertise and the used books. The bottom line: the university doesn't have to worry about inventory or staff, yet still collects a share of the store's revenues."

Barnes & Noble runs the bookstore at Florida International University and is planning to build a two story superstore on the campus. A superstore would bring far more revenues for the university.

College officials say that one of the biggest selling points to turning bookstores over to corporations like Follett and Barnes & Noble is that they have nationwide on-line operations which allow students to reserve books on the Internet without having to make a trip to the bookstore.

Editorial note: In the Council's 1998 Annual Report of commercial activities, of the 39 institutions of higher education, 25 bookstores are run by private firms, while 14 were still operated in-house.

The U.S. Department of Defense is soliciting proposals from the private sector to handle military pay processing operations for 1.9 million military retirees, now performed by 500 civilian employees at the Defense Finance and Accounting Service (DFAS). DFAS will submit its own proposal to compete with those submitted by private sector firms (managed competition).

Business Executives for National Security, based in Washington, D.C., has been urging the Pentagon to get out of the payroll business, citing studies showing that the Defense Department could save $350 million annually by outsourcing about half the DFAS functions.

More organizations are using factoring to improve their cash flow by selling accounts receivable to finance companies that take over the chore of collecting delinquent payments. Factors are branching into many industries. There are now over 300 factors in the United States. The cost of using a factor depends largely on how reliable the payment stream is likely to be. Factoring may be a viable alternative to the traditional method of using debt collection agencies since the outstanding accounts are paid up front in cash at a discount from the full amount owed.

Factors can be found by calling the Commercial Finance Association at (212) 594-3490 or by checking a list of factor firms at http://www.cfa.com

In a recent policy brief by the Washington Institute Foundation, four government jurisdictions were highlighted for their success in using the marketplace as a tool to reduce costs and improve productivity in their highway maintenance services. Each government employed different methods to involve the private sector in maintenance work. Virginia and Texas implemented private sector involvement in different forms after receiving legislative authority. Massachusetts and Indianapolis used "managed competition," where private companies and public employees competed against each other to provide service.

• Virginia - The brief highlights the Public-Private Transportation Act of 1995 encouraging the use of partnerships with business to build, maintain, and operate transportation infrastructure.

 
• Texas - Texas has contracted highway maintenance to the private sector since 1989. The state legislature led the effort to implement this policy by mandating that the Department of Transportation contract out at least 25 percent of maintenance work and to achieve 10 percent cost savings over the course of a year. The Department met this goal with a savings of over $10 million. After achieving initial success, the legislature decided to gradually mandate more contracting out of highway maintenance, and by 1996 over 52 percent of work was being done by private firms.

 
• Massachusetts - Massachusetts has been using managed competition for highway maintenance since 1991. The state has no trouble finding willing and capable private contractors to compete for state work. State workers have found efficiencies in their own work and have since beat out private contractors for some contracts.

 
• Indianapolis - The city began managed competition for street maintenance in 1992. Mayor Stephen Goldsmith hired KPMG Peat Marwick to implement a new costing system for city government that for the first time measured every single cost of providing a public service. The result: city workers have become more competitive, have cut costs by 25 percent, and increased their productivity by 68 percent.

The federal government continues to recognize the value of competition in providing government services. The Federal Activities Inventory Reform Act of 1998 became law as of October 1, 1998.

The main components of the law state that:

• Not later than the end of the third quarter of each fiscal year, the head of each executive agency shall submit to the Director of the Office of Management and Budget a list of activities performed by Federal Government sources for the executive agency, that in the judgment of the agency head, are not inherently governmental functions.

 
• Upon completion of the review by the Director of OMB, and in consultation with the agency head regarding the list of activities, the agency head shall publish in the Federal Register a notice that the list is available to the public.

 
• Competition required. ^__ Each time that the agency head considers contracting with a private sector source for the performance of an activity on the list, the agency head shall use a competitive process to select the source.

 
• Realistic and fair cost comparisons. ^__ For the purpose of determining whether to contract with a source in the private sector for the performance of the activity, the agency head shall ensure that all costs (including the costs of quality assurance, technical monitoring of the performance of the function, liability insurance, employee retirement and disability benefits, and all other overhead costs) are considered and that the costs considered are realistic and fair.

"PRIVATIZATION IS A TOOL THAT CAN HELP PUBLIC OFFICIALS PROVIDE ESSENTIAL SERVICES IN A COST-EFFECTIVE MANNER. INTRODUCING COMPETITION AND PRIVATIZATION TO GOVERNMENT SERVICES REQUIRES REAL COST INFORMATION. PRIVATIZATION INCREASES COMPETITION AND COMPETITION INCREASES PRODUCTIVITY."