Friday, June 20, 2008 | San Diego Mayor Jerry Sanders’ administration violated city law last year by authorizing, without City Council approval, a $658,000 contract to the consultants who are designing his city government privatization effort, according to the City Attorney’s Office.
City documents show that the administration accepted a one-year contract with Chicago-based Grant Thornton, LLP in April 2007, with an estimated value of $658,515. The most the mayor can authorize without council approval is $250,000, according to the municipal code.
The administration says it has so far paid Grant Thornton a total of $249,137 between fiscal years 2007 and 2008, and therefore has had no obligation to ask council for any authorization.
However, Sanders is scheduled to go before council Monday to request $400,000 from the city’s reserves for 2008 that will go to Grant Thornton.
That brings the total request for fiscal year 2008 to $650,000. In his fiscal 2009 budget proposal, the mayor allocated an additional $900,000 for Grant Thornton. Council passed a budget last week that allocates $500,000 for the firm. But the mayor vetoed the budget Monday, leaving the exact amount allocated for Grant Thornton up in the air.
The city’s acceptance of the Grant Thornton contract in 2007, coupled with the request for $400,000, has raised suspicions that the administration is attempting to get retroactive council approval for money it has either already promised to Grant Thornton or already paid to the consultants.
“It’s not hard to conclude that that is probably what is going on,” said Chief Deputy City Attorney Michael Calabrese, who notified the administration in an April memo that City Attorney Michael Aguirre would not approve the consulting contract.
Sanders spokesman Fred Sainz said the administration could not “disagree more strenuously,” with the city attorney’s opinion on the contract, adding that only recently has the administration been able to come up with a set amount that it will have to pay Grant Thornton.
“We believe the way in which the city has engaged with Grant Thornton has been completely legal, appropriate and straight forward,” Sainz said.
The administration’s actions have been lawful, Sainz argues, because it has thus far paid the consultants less than $250,000, and is now making a formal request to council for additional money that it had not anticipated needing.
Managed competition is the cornerstone of Sanders’ fiscal agenda. In order to get out from under its large debt obligations, the city must be able to privatize some of its services, the mayor says. It’s a highly controversial issue, especially among city workers and unions. Grant Thornton is among the nation’s leading consultants for government privatization efforts.
Sainz said this week that if the council does not approve the $400,000 for Grant Thornton, the city’s managed competition program will be “brought to a standstill.”
Councilwoman Donna Frye and Independent Budget Analyst Andrea Tevlin have also weighed in on the issue. Both say they have concerns with how the administration has handled the contract.
In April 2007, Lance Wade, the city’s purchasing director, wrote a letter to Grant Thornton, stating that the city has accepted the firm’s November 2006 contract proposal — a one-year agreement running from March 12, 2007 through March 11, 2008. The city’s request for proposals for the consulting work estimated that the annual cost of the contract — based on Grant Thornton’s rates — would be $658,515.
Sainz said it is a “complete coincidence” that the estimated value of the contract and the money already spent coupled with the mayor’s request from budget reserves are nearly identical. The administration, he said, had no idea how much it would end up paying Grant Thornton when it contracted with the firm early last year.
“The underlying assumption to the city attorney’s argument is that we should have known how much we were going to spend (on Grant Thornton),” Sainz said. “The truth is we did not know at the time how much money we would be spending on anyone.”
Calabrese acknowledged that annual payments to consultants are almost always an estimate because the firms are paid by the hour. However, he said, the administration’s estimates still have to be less than the $250,000 threshold to avoid going before council.
“You have to guess,” Calabrese said, citing both the municipal code and the city charter. “Well, the guesswork was $650,000, which means you have to go to council.”
Regarding consultants, the city charter states that the mayor may hire consultants, but: “If the cost of hiring said expert or consultant exceeds a sum to be established by ordinance of the City Council, no such expert or consultant shall be hired without approval of the Council.”
Frye, who described the so-called coincidence regarding the numbers as “very convenient,” said the administration has put the council in a bad position.
“We were not notified, not consulted — we were pretty much ignored,” Frye said. “Now that the bills have come due, we are being asked to perform a contract that the city attorney says is not legal.”
Correction: The original version of this story incorrectly stated that Grant Thornton was based in Virginia. We regret the error.