Adapting to lower tax revenues: The TBC model
The current economic downturn has demonstrated that the tax model used by most government bodies (sales and property tax) cannot continue to provide services for constituents without significant cutbacks, layoffs or downsizing of government operations.
An alternative is the Transitional Benefits Corporation (TBC) model, which provides several conversion options for government bodies, all while continuing certain services at the current pace of operations. The model doesn’t rely on tax revenue per se, to operate, but instead can use different streams of funding.
The TBC method is a vehicle used to promote the transfer of designated, generally underutilized government assets – such as real estate, equipment and intellectual property – to the private sector and to enable associated government employees to be similarly redeployed while allowing them to retain and accrue their public benefits. (Diagram below illustrates the TBC structure.)
The TBC model is predicated upon the willingness of government bodies to be motivated to change and then to do it, given a sound business case, and cost-benefit analysis. TBC is not a blatant outsourcing of government but a menu process that enables government bodies to decide for themselves what they can afford, according to their goals and objectives, and how to achieve it in the most cost-beneficial manner possible, all while serving their citizens.
Organizational and legal precedents, developed successfully in the recent past, support implementation of the innovative TBC method. Federal examples include the Naval Air Warfare Center in Indianapolis, the Navy Environmental Detachment in Charleston, S.C., and the United States Investigative Services (background investigators from the Office of Personnel Management). Some pertinent local government initiatives include the City of Milwaukee’s wastewater management services and the County of San Diego’s information technology (IT) capability.
The TBC method delineates a legal and business framework for transitioning within a non-profit umbrella structure. TBC provides a structured methodology to analyze selected government operations with a view toward enhancing efficiency by reducing costs, redistributing workload and maximizing asset utilization.
Pursuant to the TBC method, an umbrella organization is created to facilitate the smooth transition of public sector assets and personnel to the private sector by attracting financing; incubating new business units and creating spin-offs; and commercializing government-owned intellectual property.
The TBC method is implemented through the contractual interplay under the TBC for the continued performance of the installation’s functions among any existing government installation transferring functions and related personnel, one or more public sector units, and one or more new business units (“NBUs”), and possibly one or more non-profit corporations organized under the auspices of state or local government, consistent with the corporations’ laws of the particular state.
Under the TBC method, the TBC enters into contracts directly with the existing government installations and NBUs to achieve the benefits described below. Note that all of these units are necessary in every case to achieve the benefits set forth below.
About the authors
TBC is designed to be a preferred alternative to outsourcing, managed competitions, privatization, or base closures and departmental shutdowns because of three unique aspects. Because of its uniqueness, the TBC is a patent-pending methodology.
TBC promotes economic development and savings. The TBC method provides for growth opportunities in the communities where the generally underutilized government assets now reside. Government facilities that are potential candidates for closure (e.g. Department of Defense or Department of Energy installation), as well as activities such as laboratories or other active operations that have viable commercial markets are ideally suited for oversight by a TBC. The TBC provides for savings to the government because while the government installation no longer must maintain the assets and the personnel, it continues to have access to them on a contractual basis, thus providing the surge capability mentioned below.
The TBC method also creates potential for economic growth by focusing on the government’s mission while utilizing the former government employees (“Transitional Benefit Employees” or “TBE”) to grow new business opportunities through expanded service offerings. Under the TBC Method, the government will realize economic savings not only in non-recurring costs but also in recurring costs. It is estimated that a typical TBC transaction can be accomplished within six months, with savings being realized shortly thereafter; by contrast, under many other processes, the transaction may take up to four years with savings not recognized until the end of the fifth year. Since the time is compressed to conduct a TBC transaction, the costs are necessarily reduced. In contrast, other processes place significant economic costs on the government.
TBC has surge capability unlike other public-private partnership initiatives. The TBC Method provides the government with the ability to “reach back” on a temporary basis through the TBC and associated contractual arrangements into the nonprofit, private sector, and/or the NBUs to use the assets and TBEs in the event of an emergency or surge in workload. In contrast, under public-private (A-76) competitions, the government may have to reduce its workforce by as much as a third to meet its Most Efficient Organization (MEO) cost reduction goals. By reducing its workforce under an MEO, the government sacrifices mission flexibility in the event of a national security emergency or spike in workload. Under the TBC method, in the event of a national security emergency or spike in workload, the NBUs not only likely will have the full staffing of existing skilled employees capable of performing the required work, these NBUs have the flexibility to rapidly expand their workforce free from the delays caused by government hiring policies and procedures.
The TBC method provides for a “soft landing” for former government employees. Under the TBC, these TBE’s are not only guaranteed a job (most likely for one year) in the private sector organization under the auspices of the TBC, but are also able to retain and continue to accrue government pension, health, and insurance benefits during such period of private employment, which are paid for by the private sector – at a reduction in cost to the government. This agreement is attractive to all of the affected parties: the TBC retains their job and benefits; the government does not need to undergo a reduction in force (RIF) and avoids termination costs and internal disruptions due to workforce restructuring, and the private sector entity gains well-trained, knowledgeable and valuable employees.
The TBC Method is very scalable. It can handle a small group of employees or assets as well as entire installations or activities. It lends itself to involving local governments and economic development-oriented nonprofit organizations as well as universities and foundations. Former government assets and workers are transitioned into productive non-government work while ensuring that legitimate government mission needs are met. Lastly, the TBC Method handles the personnel issues gracefully – providing such TBE’s with a “soft landing” while reducing the cost of personnel transition to the taxpayer.
Robert Knauer, CPCM, CPPO, is the president and founder of the Acquisition Institute Inc., a training and consulting firm involved in federal, state and local government contracting and P3 initiatives. Reach him at [email protected] or [email protected].
Steve Sorett, Esq., is partner in the law firm of McKenna, Long & Aldridge LLP (a nationwide firm) specializing in a variety of law functions. He is a specialist in P3 initiative and government contract law, and can be reached at [email protected].
