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Sealing the ‘leakage’ in government spending

ALBUQUERQUE, N.M. — Editor’s note: An earlier version of this story contained incorrect information about the value of out-of-state contracts awarded by the State Investment Council for investment advice.

The state Auditor’s Office reported last week that more than 80 percent of all government spending on information technology is flowing to out-of-state companies, but that may be just the tip of the iceberg.

The Auditor’s Office, which is reviewing a total of $4.8 billion spent on 6,800 state and local contracts in fiscal years 2015 and 2016, says many local companies in a range of industries are losing out big time to non-New Mexico firms.

Seventy-nine percent of spending on educational materials, for example, went out of state in the past two years, according to a preliminary analysis of the data. For health and medical procurements, 64 percent left New Mexico. Food services totaled 56 percent, equipment 38 percent, corrections-related spending 36 percent, and maintenance procurements 32 percent.

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“In corrections, maintenance and food services, we have many local companies that offer those things, but about $400 million went out of state in those areas,” state Auditor Tim Keller told the Journal. “There’s a lot of money in play that could clearly result in more jobs here if we focus on keeping more of it in New Mexico.”

Part of the money going to non-New Mexico firms does flow back into the state economy, because many national companies have local offices here.

But New Mexico could add between 3,000 and 5,000 direct jobs each year by redirecting a portion of out-of-state spending to local firms, Keller said.

A few industries have managed to buck the procurement trend, reversing what the auditor calls “trickle-out” or “leakage” spending.

That includes New Mexico-based construction companies, which captured 95 percent of the roughly $2 billion spent by government agencies in the past two years. Architectural and engineering firms won about 88 percent of the nearly $267 million in public procurement in fiscal years 2015 and 2016.

“The shining star is construction,” Keller said. “We do a good job of keeping those tax dollars here.”

That likely reflects changes in the state procurement code a few years ago, which closed loopholes that had weakened in-state preferences in bidding on construction contracts, Keller said.

In some industries, New Mexico may not have local professionals capable of supplying the services that large national firms provide. That’s particularly true in financial advising, which forces state agencies to rely on global companies that command huge fees.

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“That’s understandable, given the huge amounts of money (being managed),” Keller said. “There are no major players in New Mexico set up for that.”

But there are industries with a lot of low-hanging fruit that New Mexico businesses could harvest through more concerted cooperation and effort by government and private entities.

Corrections-related procurements are a prime example. Almost all goods and services currently used in state and local prisons are supplied by out-of-state companies, including health care, food and maintenance. But many local firms could provide a lot of that, Keller said.

Food services are another case in point, given the broad number of local firms potentially available to manage contracts with schools, hospitals and other public institutions.

All told, after eliminating construction and financial advising services from the data, government agencies spent about $3.7 billion on good and services in all industries in fiscal years 2015 and 2016, according to the Auditor’s Office. Of that, $2.3 billion went to New Mexico suppliers and $1.4 billion to out-of-state companies.

It’s unclear how much of the money flowing outward could actually be redirected in-state. The Auditor’s Office says more government contracts could be awarded through competitive bidding, because sole-source procurement contracts and other exceptions are used for a large percent of state spending.

Public agencies often say services or products can be supplied only by national firms, such as specialized software and hardware for hospitals and educational institutions. But even in those cases, contracts could include mandates for national companies to hire more local employees, Keller said. State-based businesses and educational institutions could also collaborate more to increase skills in the local workforce in critical areas.

Local business executives and IT professionals discussed those issues in a public forum in Albuquerque last Wednesday with the State Auditor’s Office.

At the forum, Katherine Ulibarri, vice president for finance and operations at Central New Mexico Community College, said leadership is key to changing procurement trends.

“We must take responsibility for the collective impact we can have by purchasing locally,” Ulibarri said. “We have to build the ecosystem through leadership and accepting responsibility.”


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