SACRAMENTO – A government-reform team appointed by Gov. Arnold Schwarzenegger is quietly developing proposals that could save the state billions by forcing government agencies to run more like private businesses.

Schwarzenegger's California Performance Review - a team of 265 state employees on loan from various departments - is considering consolidating purchasing and computer systems and requiring many state programs to compete with businesses.

Officials estimate that the proposals, expected to be unveiled in June, could save at least $1 billion annually. But critics warned that such estimates could be overblown and that introducing business methods could undermine government's role as a regulator responsible to all citizens, not just customers.

Among the proposals:

Create a Department of Technology Services to coordinate much of the state's computer use. Certain rules also would be relaxed to allow agencies to buy computers more quickly and efficiently.

Create a database to coordinate state equipment purchases, potentially shaving 10 percent off the state's nearly $7 billion purchasing budget.

Force government departments to compete with other departments, private companies and nonprofits groups. Under one proposal, the savings accrued from competition would be divided, with 50 percent returned to the department, 25 percent awarded as bonuses and 25 percent used to fund a further round of competitions in other departments.

The proposals will be discussed today by Performance Review Executive Director Chon Gutierrez at a government-reform conference in Sacramento.

Details, however, are sparse because rank-and-file staff members were forced to sign nondisclosure statements. The silence has prompted anxiety and rumors around the Capitol as state employees speculate about their futures. Performance Review staff members field daily phone calls and are often stopped by state workers, lobbyists and political consultants eager for crumbs of information.

The Performance Review initially focused on a massive reorganization of state agencies. But that plan, kept largely secret, took department heads by surprise and was delayed until at least January to give officials time to get "comfortable with it," Communications Director Rob Stutzman said.

In the meantime, staffers are focusing on the operational reforms, which will be rolled out after June.

While less dramatic than the reorganization plan, the June reforms could prove more influential. They bear the stamp of the Performance Review's intellectual architects - two senior fellows of a Libertarian-leaning think tank who have been urging Schwarzenegger to make government run more like a private business for months.

George Passantino and Carl DeMaio of the Los Angeles-based Reason Foundation began advising Schwarzenegger the day after he announced his candidacy, when they were called into a meeting at a Santa Monica hotel with former Gov. Pete Wilson and campaign aide Paul Miner, now Schwarzenegger's deputy cabinet secretary in charge of the Performance Review.

Passantino and DeMaio had recently written a mock state budget that proposed big savings by abolishing agencies such as the Coastal Conservancy and contracting out state park rangers and the issuance of driver's licenses. They urged Schwarzenegger to do a 60-day audit of state government and convene a reform commission.

DeMaio, who got his start in government working for former congressman Newt Gingrich and now runs a government-reform nonprofit in San Diego, was enlisted as an adviser. When the Performance Review was established earlier this year, Passantino was named co-director and temporarily moved to Sacramento, where he now works full time.

Miner ordered 200 copies of the mock budget the two had produced and distributed them to Schwarzenegger appointees. He taped a copy of the budget's proposed reorganization plan next to the Performance Review's proposal on his office wall, DeMaio said.

Critics disputed DeMaio's contention that opening government to competition and business methods is necessary to achieve long-term savings.

"In some areas, (competition in government) is successful. In other areas, it's a disaster," said John Ellwood, a public policy professor at the University of California, Berkeley.

"I know why people are doing it. They think government is a monopoly, and when you have a monopoly, it costs you something." But, he said, one reason government is not as efficient as the private sector is that government must balance customer service with a duty to protect public health and welfare and double-check contracts to avoid conflicts of interest.

Sen. Debra Bowen, D-Marina del Rey, pointed to brewing controversy over contracting at Los Angeles' airport and port as examples of the danger of mixing government and private business. In 2001, a $95 million software contract with Oracle Corp. was scrapped after accusations that elected officials agreed to purchase unneeded software in exchange for campaign donations.

"It's natural to have uncertainty" about contracting in the wake of the Oracle scandal, said Clark Kelso, a co-director of the Performance Review who has been talking to private firms such as Hewlett-Packard and Accenture about reforming state computer systems.

But by easing some contracting regulations that delay computer purchases, "you can do information technology projects in a way that's more efficient and less risky," he said. "There are very large savings you can achieve through this."