Facing a budget crunch, Wolf pays consultants -- to help find savings

HARRISBURG -- Facing a multibillion-dollar deficit in the state budget, Gov. Wolf took the unusual step late last year of quietly turning to a private consulting firm for advice.

For $1.8 million, he's hoping McKinsey & Co. can tell him how the state can save some money.

The six-week contract promises a little more. The global consulting firm is expected to deliver a report that not only identifies cost savings but new revenue sources at a time the commonwealth desperately needs them.

Outside firms are often used by legislators and governors to analyze specific proposals. Still, veteran staffers could not recall the last time a company was brought in to actually formulate fiscal policy. That task normally falls to a team of budget and fiscal analysts that reports directly to the governor.

"Getting some outside creativity is understandable -- to a point," said Drew Crompton, the top lawyer for Republicans in the GOP-controlled Senate. "But it still begs the question of why a creative analysis can't be done by the thousands of employees they already have."

The contract between McKinsey and Wolf's Office of the Budget was signed in late December on an emergency basis, meaning it was not competitively bid, state records show. Wolf spokesman J.J. Abbott said it was awarded "after revenue collections worsened and the full extent of the structural budget deficit was becoming more clear."

The company, which works with both corporate and government clients, was asked to come up with ways to reduce the budget gap by $1 billion, according to the contract. Abbott said it had identified more than that amount in savings.

Randy Albright, Wolf's budget secretary, described McKinsey as a collaborator with his staff and budget analysts in state-run departments in pinpointing efficiencies. Albright said he expected "95 percent" of McKinsey's recommendations would become part of Wolf's budget proposal.

"I am not going to be proprietary here," Albright said. "I never want to get caught up in `your staff,' or `the work that you're doing,' or whose idea it was or the genesis of something."

Asked for a copy of McKinsey's report, administration officials said it was not yet complete. They said it would be made public after the governor delivers his budget address to a joint session of the legislature Tuesday.

Steve Miskin, spokesman for House Republicans, said Wolf's decision to hire McKinsey wasn't typical. "But we do look forward to hearing from the governor next week as to what they were doing and why," he said.

So far, the Wolf administration has kept much of its budget plans under lock and key.

The governor has said he will not raise either the state sales or income tax to help close a nearly $3 billion projected shortfall in this fiscal year and the one that begins July 1.

The governor has announced his intentions to close the state prison in Allegheny County for annual savings of about $81 million. This week, he also announced that he would consolidate several state agencies but gave no detail as to how much money that would save the state.

It was not immediately clear whether those were among the recommendations made by McKinsey.

The administration has also been silent about whether it plans to push for boosting public education dollars, a cornerstone of Wolf's first two budgets.

Wolf staffers have also avoided discussing what new revenue options the governor is eyeing, although numerous legislators have said they expect Wolf to propose a tax on natural gas drillers to replace the fee currently in place.