Out of Control Policy Blog

Pension Reform and Managed Competition in San Diego (& Houston?)

Otis White comments on San Diego mayor Jerry Sanders' plan for the city, which includes pension reform and managed competition:

First, about the pension fund: Sanders wants to stomp on the benefits brake by limiting the pensions of new hires and making it much, much harder to award additional benefits to existing workers. He hasn't announced yet what kind of pension system he'd like for new employees – that will be the subject of union negotiations this year – but it must be "affordable," he says. To restrain city hall from handing out new benefits in the future, he's pushing for a charter amendment requiring a referendum before any increases could take effect.

Now, about the management changes: Sanders wants to bring "managed competition" to San Diego. What's that? It's the management system Stephen Goldsmith pioneered when he was mayor of Indianapolis in the 1990s. (Goldsmith wrote about his experiences in a book titled "The Twenty-First Century City: Resurrecting Urban America." You can find an outline of his ideas, from a 2001 New York Times op-ed piece, by clicking here.

As mayor, Goldsmith championed two ideas, privatization and competition. Privatization alone didn't work, Goldsmith wrote, because private monopolies weren't that much more efficient than public ones. So simply turning the water department over to a private company wouldn't accomplish much. But if you could carve up the city into zones and let a number of providers (including city workers themselves) compete to haul garbage, tow abandoned cars, fix potholes and so on, wonderful and surprising things happened, Goldsmith found. Services improved, work processes were streamlined, productivity soared and costs declined dramatically.

Amazingly, city workers often turned out to be the high-quality, low-cost providers, once they were allowed to compete. "The problem," Goldsmith wrote in his book, "is that [municipal employees] have been trapped in a system that punishes initiative, ignores efficiency and rewards big spenders." A system ... well, like San Diego city government.

The full article is here (scroll to the bottom of the page). For more on these topics, check out Reason's study on pensions, as well as our How-to-Guide on managed competition.

And Houston blogger (and friend) Tory Gattis thinks managed competition would be great for Houston:

The internationally-read Economist magazine recently noted that unions are getting traction in Houston. They also seem to be making inroads in city government. While I sympathize with people's desires to increase their compensation and benefits, doing it through monopoly power seems like a bad idea (I've never understood why it's bad for a company (i.e. "capital") to abuse monopoly power to increase profits but good for labor to do the same thing). It distorts what should be a simple supply-and-demand market of jobs and labor: the organization offers a job at a market pay rate, and you can choose to take it or look elsewhere.

. . . .

...[Managed competition] seems like a great way to accomplish two objectives at once: better and cheaper city services in a structure that is far less fertile for unionization. I know Mayor White is a Democrat - which tends to be a pro-union party - but he has to realize this system would be far healthier for Houston in the long-run. How about giving it a try?

I fully agree with Tory here, and I think that it would dovetail nicely with Mayor White's goal of continuing to improve the efficiency and responsiveness of city government.

(hat tip: Tory Gattis/Houston Strategies)

Leonard Gilroy is Director of Government Reform


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