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Thursday, Dec. 11, 2008 | With the housing market in a slump, and tax revenues falling below previous projections, public officials in Chula Vista are confronted with a difficult multi-year budget-balancing act. Implementing a proven policy tool could significantly reduce costs and improve the quality of government services.

According to city documents, Chula Vista now faces a $3.94 million deficit in projected revenues for the current fiscal year 2009, and next year the budget gap is projected at $19.97 million. Much of this has to do with declines in sales and property tax revenue, which have been dwindling along with nationwide consumer confidence and spending. But the real problem is deeper than just our darkening economic times; it is, in the city web site’s words, “an ongoing structural issue that requires permanent solutions.” Government spending has risen over the last four years, as has the headcount for public employees, which make quick fixes and painless fiscal changes scarce.

Earlier this month, the interim city manager showed council members various options to close the budget gap, including raising three different taxes, hiring freezes, and slashing 165 positions (vacant positions and layoffs combined) from the city roster — which combined with previous cuts would slash the size of the budgeted city workforce by 26 percent. With City Hall already reeling from deep cuts enacted last year, none of these options are likely to be palatable to local lawmakers or the public, which gives privatization an opportunity to be considered.

By definition, privatization is the achievement of any public policy goal through the participation of the private sector. From franchise agreements to leases, privatization has been a popular method for government officials to effectively provide goods and services for the public at low or no cost; surveys have found that more than 80 percent of U.S. cities use some form of privatization. One of the most effective and powerful privatization tools is managed competition: the policy process that allows private parties and government agencies to compete for the right to deliver public services.

For more than 30 years, the managed competition process has been adopted by local, state and federal lawmakers, streamlining operations and protecting taxpayers. When competitive bidding is used, studies show that service quality improves, costs are lowered, and innovation is encouraged in the workplace. Competitive bidding also encourages healthy government reform; by introducing competitive forces into government agencies, municipalities undergo significant internal cost-cutting and management overhauls that they likely otherwise wouldn’t. This would be a benefit for Chula Vista, which needs to find ways to reduce costs beyond the current fiscal year.

Chula Vista is no stranger to privatization. The city contracts out its municipal bus service to a private provider, and American Golf Corporation has profitably operated and maintained the Chula Vista Municipal Golf Course for more than 23 years. But the current language of the City Charter does not allow for managed competition to take place, a change that would require a vote from the public. Though the effort to pass such a significant legal change would be an uphill battle, our region has a strong precedent for citizens handing lawmakers a mandate for competitive bidding.

In November 2006, inundated with news stories about soaring government and labor costs, voters in San Diego overwhelming approved Proposition C, which amended the city charter to allow managed competition to proceed on the municipal level. Implementation has been slow, as legal advice from the former city attorney was challenged and later found to be erroneous by a state law judge. Regrettably, these delays have been costly; the San Diego Institute for Policy Research released a brief in September 2007 which found that using managed competition in 11 major public service areas can save taxpayers up to $200 million.

With solid legal advice and initiative language, this experience can be avoided in the South Bay. Citizens in Chula Vista should collect signatures for a ballot measures to give voters the opportunity to cast their opinion on approving competitive bidding, especially considering that a victory at the ballot box could save the city millions of dollars. A preliminary analysis of eight city services (the Nature Center, Recreational Facility Operations, Facility Management and Maintenance, Parks and Open Space Maintenance, Infrastructure Maintenance, Information Technology Services and Library Services) reveals that taxpayers could save more than $8.8 million each year through managed competition.

In the areas that Chula Vista could open up for competition, other municipalities have used managed competition with great success. In Indianapolis, public employees won the bid for street repair services, finding ways to achieve 28 percent savings from the cost of pothole work. For more than 10 years, Riverside County has privatized its library system, significantly reducing public costs while increasing operating hours and adding eight new library branches. Los Angeles County has contracted out for facility maintenance since 1980, achieving savings of 51 percent. The cities of Orange and Long Beach contract with private information technology service providers, and savings have generally ranged from 10 to 20 percent.

Though the political battle to approve managed competition is sure to be tough, a timely and aggressive implementation has it rewards. It took less than 20 months for Indianapolis to identify 150 competition opportunities and open more than 40 city government services to competitive bidding. The city ultimately opened up 86 services to competitive bidding, reducing government costs by nearly a quarter. Phoenix also provides a compelling case for strong competitive bidding, as it has saved more than $41 million by opening up 56 service competitions.

Lawmakers can work to ensure that the bidding process is fair and open, and that service contracts have high measures for accountability and incentives for good performance; to earn the public’s trust, these provisions should be written into the text of a ballot proposition. City employees should have access to a consultant to help prepare their bids and identify cost reductions. History suggests that future workforce reductions can be handled equitably. Faced with an economic downtown throughout the 1990s, the city of Indianapolis aggressively pursued managed competition, yet through the process no city union members lost their jobs, as workers either won their managed competition bids, were hired by private contractors, took new jobs inside the city or retired.

Lawmakers would be remiss to forget that no matter how they choose to close the budget, citizens will still expect for their parks and libraries to be open, and still demand quality public services for their hard-earned taxpayer dollars. Draconian workforce cuts, shuttering public buildings and slashing community programs are not sustainable solutions to a long-term problem, and shortchange the public from what they deserve. Moving the ball forward for managed competition today can save millions of dollars and help lawmakers avoid using a municipal meat cleaver in the years ahead.

Vince Vasquez is the senior policy analyst with the San Diego Institute for Policy Research. You can reach him at vvasquez@sandiegoinstitute.com.

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