The Morning Report
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Wednesday, July 13, 2005 | Listen to Steve Francis talk at a debate and the campaign message becomes clear quickly: He’s a CEO and an outsider who will run City Hall like a business.
He wants to apply business principles to solve City Hall’s financial morass, saying he will slash budgets and jobs in order to bring financial stability to a city steeped in investigation and multi-billion dollar deficits.
When Francis, the founder of AMN Healthcare, Inc., the nation’s largest supplier of temporary nursing services, isn’t talking about his business practices, he’s railing against the current City Council.
“The labor unions and the City Council got us in this mess. It’s time to start getting us out,” he says.
In the debates, he hasn’t strayed much from that finely honed message. He has yet to master some of the finer details of the other municipal issues facing San Diego today. And his camp of local and celebrity consultants have managed him carefully in the limited press events they’ve held.
Indeed, much of Francis’ campaign won’t be waged with free media, but rather paid. He spent $455,000 on a first round of television commercials that crowded the airwaves in mid-June and is currently running another 30-second spot focusing on two of his pledges: No new taxes and no bankruptcy.
Francis won’t say exactly how much he’s prepared to spend, but had spent $750,000 of his own cash before the first reporting period June 16. The figure could reach a couple million dollars. He says it’s the only way to come from relative obscurity to be the one to turn San Diego around.
Voice: What do you think is the most critical thing the mayor needs to accomplish?
Francis: I think the most critical thing is to change the culture at City Hall and to reorganize the place. If this wasn’t moving to a CEO-type position, I don’t think I would be able to accomplish what needs to be done. You have to set the tone at the top of honesty, ethics, transparency, good governance and proper accounting.
One of the things I want to accomplish is to reduce the size of the city government by anywhere from 8 to 10 percent. I think that we need to do that for two reasons. It’s the right thing to do and on top of that, you are going to need that money to help pay for these pension liabilities that have been accrued. And how do you do that? You do that by a variety of methods, what I would call business principles, business techniques, which you apply to the city government, just as you would if you were restructuring a business. So I plan to take a very businesslike approach.
I think it can be run like a business. I recognize that it’s not a business, that it’s government, and I’ve had experience in that as an elected official back in the ’80s in Nevada.
When I talk about management techniques or business techniques, I believe that we need to set goals for all of our various departments and for every employee. We need to provide the employees the tools to help them reach those goals. The people would generally like to do better, and you have to provide the opportunities for them to do that. When they reach them, you need to reward them. So there is a performance pay mechanism, maybe it’s in a form of a bonus for raising their productivity and doing their jobs more effectively and efficiently.
For those employees who choose not to go that route or don’t want to improve their productivity and do things smarter, then you need to give them the opportunity to get where they need to be. If they can’t get there or don’t want to get there, then it may be they’re not suitable for working in city government anymore. We have to change this government mentality, this bureaucracy mentality and it’s not going to happen over night. It’s going to take some time, but you have to start some place.
You also go in and do a management analysis or what we call in our plan a performance audit of every single solitary city department. You go in with a team of people. When the county did this, they called them “tiger teams.” You go into every department, and you look for the inefficiencies. You look for employees that you don’t need. You look at the productivity of the employees. You look at programs that are no longer needed. You’re looking for back office functions that can be consolidated under one roof rather than having it separate. You’re looking for duplication of services that are being offered, whether it’s the duplications within the city or there may be duplications with the county.
We need to work with the county on some of these things as well. I know there’s a lot of turf battles there, but I do think that we need to be working in the best interest of all San Diegans, and I think that there’s some areas there that we can work with the county on things.
We need to start with also zero-base budgeting, so that when they come into the budget meetings from various departments, they actually start with nothing and then every position and every program that they want, they have to prove to the budget committee that it’s needed, it’s necessary, it’s wanted. That’s another way that you also improve your productivity, by perhaps having them show you that if they really want something badly enough, then they’re going to have to do it a little bit more effectively and efficiently.
I would also advocate for a city charter change so that it’s very clear that we can competitively bid out services to the private sector. There’s two reasons why you do that. One, you might very well get a better price and improve service, but more importantly is that when you do competitive bidding, the city’s own departments will have to compete, and competition is good for everybody because it challenges you to do better. The problem with government is that it doesn’t compete. If you don’t compete, you have no reason to get better. You have no reason to become more efficient. You have no reason to do it at a lower cost.
I would change the culture of how things are done and make vertical cuts and horizontal cuts in management. What I mean by horizontal is expanding the number of people that report to a manager and not having so many layers of management. We can cut 8 to 10 percent out of government. This money can be used to help fund these pension deficits and/or prevent us from having to cut programs like they’re cutting now. Right now, they’re cutting programs like 6-to-6, the after school program, library hours and parks and recreation. They’re deferring maintenance on police vehicles because they need the money for community policing.
What in your background have you done that is most comparable to this?
One, I do have political experience. I was the assembly majority leader at a young age in Nevada, and that was the first time that the Republicans had taken control of the Nevada Assembly in 14 or 15 years. So that was a culture shift as well. You had to change from one party leadership to another party leadership that was entrenched within the organization, so we had to restructure things there and make things run differently. But I think more importantly, I think that my experience as a businessperson is something that people would look at and say, “Yeah. He does have that experience.”
My wife and I took a business that we started from our kitchen table, from ground up, we started with nothing, and we grew it over the next 20 years to where it’s a New York Stock Exchange business with revenues last year of $629 million and with nearly 7,000 employees. Through that period of time that we’ve been in business, we’ve had good years, and we’ve had not such good years, and we’ve had to bulk up and we’ve had to bulk down. Our business is very recession sensitive so when we had a weak economy three years ago, we actually contracted our business, and we had to reduce our head count within the organization. We also had to do these performance audits that we were talking about and do the zero-base budgeting and things that we weren’t used to doing. And we did that because it was the right thing to do. We were a public company at that time. We had shareholders and Wall Street looking at us and that forces the issue.
You often hear politicians talk about the first 100 days. What would you want to accomplish in your first 100 days?
In the first 100 days, I’m going to evaluate the management of the organization, and I’m going to keep the ones that I think are going to work toward my goal or I’m going to replace them and bring in other managers from the outside. I’d like to bring in businesspeople from the outside. I think it would be a good mixture. I think you should have a good mixture of businesspeople and a good mixture of people who have been in the government for a long time, so you have the best of both worlds so that you can apply the business principles.
So in the first 100 days, I want to restructure the management team to my liking as the CEO, the first CEO mayor in the city’s history. The second thing I want to do is to start focusing on the pension liability like a laser beam. To me, restructuring the city government and then dealing with the pension issues are the most important things I can do within the first 100 days, and that’s going to require somebody who’s going to want to take whatever political capital they have going into this job and be very tough with the City Council.
And I would work with the city attorney and the City Council to take legal action to roll back whatever portion of those pension benefits are illegal.
What’s your vision of the city at the end of your term, and how would we know if you’ve been successful?
You’ll know if I’ve been successful if the services have improved at a lesser cost, and we have less city employees, we have eliminated programs that aren’t really appreciated or valued and we have competitively bid out services to the private sector as much as reasonably possible. City departments that want to keep their jobs and keep their programs, then they have to participate, and they might win the bids.
San Diego often wants to think of itself as “America’s Finest City.” Do you think our story is out of date and if so, what’s our new story?
It depends on how you define finest. From a climate point of view, it’s the finest. I think from a people point of view, the culture here is very good, so I think it’s the finest. I’m not sure we’re the finest when it comes to fiscal management. I think we’re the opposite of the finest. I think this has been an embarrassment to the people who live here, and my goal is to get this place turned around. My legacy at the end of the day, if I’m elected mayor, will be this is the man who turned the city around from a financial disaster to a very financially promising future.
So imagine the headlines at the end of your term. What would you like them to say?
What I would like them to say is Steve Francis is a wonderful mayor, but I don’t think that will happen. I think that the headlines are going to say that I am trying very hard to change the financial picture of this city into a positive direction, and I think the headlines will be talking a lot about the opposition to the change in the culture. I hope that the headlines will say that I’m approaching this or doing this in a way that is transparent and he’s doing it in a way in which he’s actually asked people to participate in that decision making and to participate in their own future.
I’m assuming the headlines won’t say, “San Diego declares Chapter 9.”
No. Not under a Francis administration. I’m very clear on that.
Do you support the idea of selling pension obligation bonds?
I’m not adamantly opposed to pension obligation bonds as long as you’ve done everything you can to reduce that deficit. Now, how do you reduce that deficit? You reduce it by things like reducing city government by 8 to 10 percent. You do it by rolling back illegal benefits. With fewer employees, government is going to change the actuarial assumptions, which is also going to reduce that pension obligation. It may be that a portion needs to be bridged with some pension obligation bonds, but I’m not sure whether that’s necessary at this point until we get in there and start making these changes and we get new actuarial reports.
Once we are there then we’ll make a decision, and we also have to look at whether we’ve got the government down to the point where it needs to be cut down. You may have to take it down to the bone. You may have to take it down to very, very basic service levels. Although I do think there are some service levels that people really rely on like the 6-to-6 programs or libraries or parks and recreation.
Where I’m being critical with the City Council is I’m saying that, “Look. You know you haven’t reduced your own budgets by any significant amount of money as far as the elected officials are concerned.” Their own budgets for their staff has only been reduced by 2 percent, and that was this coming fiscal year, and before that it went up over 10 percent. My point is that we have to lead by example, and we need to reduce the size of city government. Once we see how much we’re able to do and whether any of those obligations were illegal, then we can make a decision about how much pension obligation bonds we need to do.
Now you mentioned that you would look at cutting things to a real bare level. But then you’re criticizing the City Council for cutting back on libraries and the 6-to-6 program. Let’s say we follow your plan, and we cut the council budget by 20 percent. That shaves off a little more than a million dollars a year. Where’s the fat on the budget if you don’t want to cut 6-to-6 and you don’t want to cut the libraries?
Those aren’t huge budget items. Those aren’t the big, big budget items. It’s more than just trimming services down. I mean you’re talking about duplication of services. Does every city department need its own accounting department or can you consolidate that office function? Do we need to be paying people to clean the parks and the bathrooms that are city employees, making a very rich pension? We can outsource those kinds of things. It’s not just cutting programs. It’s reorganizing the way things are done. Can we outsource or competitively bid out the print shop? You know, the number of city employees, the labor costs over the last 10 years have gone up over 80 percent, I think it went up 86 percent over the last nine years, but the population’s only gone up 13 percent, and the CPI has only gone up like 26 percent over this period of time. So something’s amiss. We’ve added 2,100 positions between 1996 up until today, but the population’s only gone up 13 percent. I’m talking about doing the performance audits. Let’s see what programs really matter to people and reduce the number of employees it requires to run this city.
You ask some valid questions: Can we outsource cleaning the bathrooms or the print shop? But as an outsider without any sort of experience in City Hall, how are you confident there is the room there to find these sort of, these large cuts? We’re talking 8 to 10 percent. That’s a big cut. How are you confident that can be done?
Through my own company, which is very well-managed, I brought in management analysts to come in and look at things. The problem with city government is two things. If you’ve never done that, the way people do their jobs becomes the way they do their jobs, and if there’s no competition forcing them to look at themselves differently, to be more efficient, there’s no reason to change the way it works. In the public sector, they don’t have competition, so you have to work even harder to challenge them because you don’t have that natural force of competition that’s forcing you to do that, so you have to do it through really top-notch management, and you have to challenge everything being done. You know I think it could very well be more than 8 to 10 percent once you go through that process.
You’ve talked a lot today and throughout the campaign about challenging these benefits and the reality involved. Now the challenge to the 1996 benefits could be very risky. Can you tell us what your Plan B is if that falls through?
I’ll tell you what Plan B’s going to be. Plan B is going to be we’ve got to get the money from somewhere. We can’t raise the tax base because voters aren’t going to allow you to do that. Nobody’s going to vote for tax increases. So you have to do two things. You can try to do some pension obligation bonds to help bridge that gap. That’s a possibility, but that may not make financial sense. The other thing that’s going to have to be done is to have to reduce the size of the government more to pay for it. Instead of maybe 8 to 10 percent, you might have to reduce it 15 to 20 percent.
Somebody’s got to be honest with the people about that because there isn’t any increased tax revenue coming in. Although I have in my plan committed to keeping the expenses flat, that means it’s belt tightening time. Because of the reassessing of the property values that’s going on through just the natural course of people buying homes, revenues go up 3 to 5 percent a year. So that increased revenue is going to go straight to paying off this pension obligation. At the end of the day, I think some of those pension obligations are going to be deemed illegal.
We have on one front legal challenges to benefits and then you have two unions that have signed three-year contracts and don’t have any sort of motivation to go back to the negotiating table. So with having ruled out bankruptcy, how do you force those unions to get back to the table?
There’s two ways to get the people back to the table. One, we’re going to pay for this one way or another. So you either work with us on this to get this in line because we’re not going bankrupt. You don’t want the city to go bankrupt because then you’re going to have some judge, and you’re not going to like that, so you’re either going to come back to the table and work with us or we’re going to downsize government more than you would like. The other thing is I’m going to say, “If you don’t work with me on this, we’re going to get an initiative on the ballot, which is going to them to prescribe to you what your pension benefits are going to be.” And I’m going to tell what that prescription is going to be. What I will propose is that it’s a dollar for dollar. If you put in $1.00, the city will put $1.00 in. That’s the way Social Security is. That’s the way 401K plans are. I believe that the voters will vote for that in huge numbers. If they want that to go to the vote of the people, then becomes a non-negotiable future for them. It’s also deeper cuts in the government, which means their jobs. They’re going to face both of those under my administration.
How much of your own money are you willing to spend to get through the primary and then if you make it, to the general?
I don’t know exactly what I’m dealing with yet, so it’s difficult to know and it’s hard to know how much money we’re going to raise. I’m going to evaluate depending on how much I raise and what I think I need to spend and then make a decision at the time.
You’ve said repeatedly on the campaign trail that you’re an outsider, not tied to the downtown interests or the labor unions, but then your opponents have also mentioned that you have the support of Corky McMillin and Doug Manchester, two powerful real estate developers. Explain how you can be an outsider, but then also have ties to people like this.
I don’t have ties to people like this. I didn’t know these individuals until I started campaigning. These aren’t like longtime friends of mine. I’d never met these people before. They happen to be people who liked my message and decided to support me, and I have people who aren’t in the development community. I have people from the medical profession. I have people from the education profession. I have people from all walks of life that are supporting me. Now certainly because they are high-profile developers, that certainly gets people’s attention, but I didn’t know these people beforehand, and the other factor is, as you pointed out, I’m really financing a large part of this race myself, so what that should demonstrate is my future independence from special interests because they didn’t get me in the office. At $300 a pop, whatever money I raise is going to be pale compared with what I have to put into this on my own in order to get elected. For an outsider from the business community, to get known in a short period of time, you have no choice but to put your own resources in to make sure that you get your message out.