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DOT paid big for report on how to control spending

As House lawmakers prepare to vote on a cash bailout for the state Department of Transportation, a new report on the agency's budgeting processes is raising eyebrows for its price tag, not its findings.

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By
Laura Leslie
, Capitol Bureau chief
RALEIGH, N.C. — As House lawmakers prepare to vote on a cash bailout for the state Department of Transportation, a new report on the agency's budgeting processes is raising eyebrows – for its price tag, not its findings.
According to the contract posted on the DOT’s website, the Office of State Budget and Management contracted with McKinsey and Co., a Washington, D.C.-based consulting firm, to review budgeting operations at the DOT.

The request came after cashflow problems idled some 900 road projects over the past few months. The agency is required by law to maintain a balance of no less than 7.5 percent of its budget, and it was less than $200 million away from that out of a total budget of more than $5 billion.

The cost of the review was $970,000 for seven weeks of work. The final public report is just eight pages long, also posted on the agency’s website, but McKinsey also provided supplemental materials to DOT officials, such as a 48-page diagnostic analysis and a 24-page presentation for a September "roadshow."

The contract was “sole-source,” meaning the audit was awarded to McKinsey without a competitive bid process for the job.

Asked why McKinsey was chosen, Ford Porter, a spokesman for Gov. Roy Cooper, told WRAL News, “McKinsey & Company has national expertise in transportation policy and previous experience helping the state with damage and budget assessments following Hurricane Florence.”

One of the senior partners at McKinsey, Martin Elling, is a notable Democratic donor who has contributed in the past to the North Carolina Democratic Party as well as to Cooper's campaign.

Cooper spokeswoman Sadie Weiner said Elling's donations had nothing to do with the awarding of the contract.

"McKinsey is an enormous firm with tens of thousands of employees. A donation from an employee who seems to be based in another country and didn’t have anything to do with this project is totally irrelevant," Weiner said in an email.

State Budget Director Charles Perusse said "size, complexity, and timing" were factors in giving McKinsey a sole-source contract.

"It was important to have the benefit of a reputable outside national expert who could take a hard look at DOT budgeting and cash management practices in a short time frame so the department could begin to implement any needed changes as quickly as possible," Perusse said in an email.

The report’s findings are largely in line with what the agency has been saying for months: The cash shortfall was caused by skyrocketing costs for natural disaster, rising construction costs, declining revenues from the state’s gas tax and the agency’s inability under state law to maintain cash reserves for emergencies.

The review recommends better communication and spending coordination among the agency’s divisions. It also says DOT budget planners need to be more sensitive to cashflow needs throughout the agency and improve benchmarking and oversight of engineering and planning contracts.

The review notes that “peer states” like Virginia do not have a statutory cap on DOT cash reserves and recommends more budget flexibility for the agency, as well as some type of access to emergency capital.

On Wednesday, a House budget committee is scheduled to hear a DOT emergency bailout bill that could total as much as $612 million. Its sponsor, Rep. John Torbett, R-Gaston, the chief House budget writer for transportation, has said for weeks the state needs to get the suspended projects underway again.

Half of the money would come from the state "rainy day" reserve fund to pay some of DOT's bills for repairing hurricane damage, Torbett said, noting that the agency hasn't been able to access that fund. The rest of the money would come from the state general fund to reimburse DOT for money spent to settle lawsuits over a state law that has since been repealed, he said.

Some Senate Republicans have expressed skepticism about a bailout, saying the agency has been irresponsible in its spending.

"It seemed like, when you pay nearly a million dollars for a report, you’d get a little more than eight pages," said Sen. Andy Wells, R-Catawba, referring to the public report.

"A report that really didn’t give us details on what needed to be done inside DOT. It’s not like we’ve got a game plan," Wells said. "For nearly a million dollars, I’d like to see a document that says, 'OK, you do step A, B and C, and we can address this issue going forward, and it won’t happen again.' That’s what I’d like."

"DOT did not request that study, but of course, as always, they were mandated to pay for it," Torbett said. "I’ve had reports done for my past companies. I understand sometimes you get what you pay for, and sometimes you don’t."

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