ANALYSIS: Is Managed Competition Dead in San Diego?

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ANALYSIS: Is Managed Competition Dead in San Diego?

Editors Note: Since this piece was written, former San Diego City Councilman Carl DeMaio, who is named in this piece, joined Reason Foundation’s staff to serve as Chairman of its California Reform Initiative.

The city of San Diego has hit another bump on its long, tortuous road to implementing managed competition, a program under which city agencies and private-sector businesses compete for contracts to provide city services. It remains to be seen whether the latest obstacle will lead to a total breakdown for the once-promising reform.

The fate of managed competition dimmed considerably with the election of Bob Filner as the new mayor of San Diego in November 2012. In a hotly contested and close race decided by less than 5 percent of the vote, Filner, a liberal Democrat and former congressman with strong labor union allegiances, narrowly defeated then-Councilman Carl DeMaio, a staunch fiscal conservative who had originally championed San Diego’s managed competition program and had worked to implement it to the fullest extent during his time on the City Council. Soon after taking office, Filner, who has referred to managed competition as “somewhat of a fraud in terms of cost savings,”1 initially put a halt to the managed competition program, although more recently he has backtracked on that action.

San Diego voters approved managed competition in November 2006 when they passed Proposition C, a charter amendment that directed the city to establish a managed competition program, with over 60 percent of the vote. The city’s public employees’ unions strongly opposed the effort, and several years of wrangling between the unions and the administration ensued without any real progress being made.

In July 2010, after numerous negotiations between the city and the unions, San Diego released its Managed Competition Guide, which set forth the rules and process to be followed in implementing the managed competition program. While this appeared to be a long-awaited step in the right direction, DeMaio, private businesses (and potential bidders), taxpayers groups, and government watchdog groups criticized the Guide for establishing a labyrinthine process that they argued tilted the playing field strongly in favor of government employees and would end up discouraging private-sector bidders, as well as minimizing the potential cost savings from the resulting competitions. In particular, they objected to a rule that refused to consider private-sector bids unless they offered at least 10 percent estimated cost savings over existing governmental services, and another rule that blacked out some city pension costs in comparisons of government employees’ bids with those of private-sector providers. Another provision requires private businesses that win bids to give first preference for jobs to displaced city workers. In addition, Managed Competition Guide critics took issue with the bureaucratic process itself, which consists of a plethora of boards, committees, reports, assessments, plans, multiple approvals by the mayor and city council, and multiple rounds of negotiations with the same labor unions that had successfully stonewalled managed competition reforms for years.2

Despite these hurdles, the managed competition program slowly moved forward and the first bid was finally awarded in May of 2011-four and a half years after voters approved the program. In the first competition, the city’s print shop beat out the bids of five private-sector providers to win the contract for San Diego’s printing and publishing services. Under the city workers’ proposal, 12 of the existing 23 positions would be eliminated and the deal would result in a savings of about $1 million a year for five years, representing a savings of roughly 30 percent of the agency’s $3.6 million budget.3 In all, San Diego has completed five managed competitions, including sidewalk and street maintenance, street sweeping, vehicle fleet maintenance, landfill operations, and the publishing services. All five competitions have been won by city employees. They are estimated to produce $12.2 million in annual savings once fully implemented. Only the publishing services and street sweeping competitions have been implemented so far, however.4 The others, along with five additional competitions (including trash collection and public utilities customer service) that are in the preliminary stages of the managed competition process but need action by the city council before they can progress further, are currently in limbo.

Mayor Filner has often spoken of his skepticism of managed competition, particularly with regard to the fleet services competition. He reportedly has, on several occasions, recounted a visit he made to city mechanics in November during which he claimed that the managed competition had resulted in a shortage of mechanics unable to keep up with a large backlog of vehicles in need of maintenance, despite the mechanics’ efforts to arrive to work early and make repairs on their own time.5 Based on this assessment, he directed the city auditor to conduct a performance audit of the fleet services contract. The problem is that, as noted above, the fleet services contract has not been implemented yet, so the managed competition and new contract could not have anything to do with current conditions. Furthermore, as Councilman Kevin Faulconer inquired, how does one perform an audit when no work has yet been performed?6

This did not bode well for the future of managed competition in San Diego. Shortly thereafter, however, Filner acknowledged that the fleet services contract had not been fully implemented and stated that he had not intended to hold up the competitions that had already been awarded, saying, “Those that have moved forward are going to move forward.”7 He reiterated that he wants the city to review contracts that have already been awarded and hold off on implementing any new managed competitions for which bids have not yet been solicited. So it appears that the sidewalk and street maintenance, landfill operations and fleet maintenance contracts will be allowed to proceed, but efforts to compete trash collection, public utilities customer service and a couple of other services that were scheduled to be considered are suspended, at least for the time being.

If contracts are held up, it could spell bad news not only for the city’s efficiency in providing services, but also for its fiscal health. San Diego is already facing a budget deficit estimated at $40 million, and Independent Budget Analyst Andrea Tevlin recently told the city council that delays in implementing managed competition could add another $3.9 million to the gap. “What we’re really concerned about is if (managed competition contracts) don’t get implemented fairly soon you’re not going to see those savings that we’re counting on for fiscal year 2014, 2015, 2016, and so on,” Tevlin said.8

Support for managed competition is not limited to the independent budget analyst or the fiscal conservatives on the city council. Council President Todd Gloria, a Democrat and initially a strong opponent of managed competition, has come to view it as an important cost-saving tool that has helped to stave off deeper cuts to government services. “I definitely came in incredibly skeptical of managed competition,” Gloria said in a U-T San Diego interview. “But the savings have been undeniable and they’ve been incredibly helpful as we’ve weathered some of our budget needs. I think that what we have to do is continue on the path that we have been on.”9

When asked about the new mayor’s opposition to managed competition and its prospects for the future, Gloria emphasized the practical benefits of the program over ideological proclivities. “When you look at the potential of what we’re facing in terms of the worst-case scenario, managed competition is one of the options that we have that is more palatable than drastic reductions to neighborhood services or tax increases,” he asserted. “Obviously I know (Mayor Filner) has opinions on managed competition, but he and I probably started out in the same place on the issue. I’ve just had more exposure with it and have been supportive of all but one of the competitions that have come forward.”10

Whether Gloria’s fiscal pragmatism or Filner’s commitment to protecting labor union interests wins out in the end remains to be seen. While progress on managed competition in San Diego has slowed to a crawl-again-the ultimate survival and efficacy of the program may end up being determined by the depths of the city’s fiscal condition and the appetite of voters to tolerate unpleasant alternatives such as tax increases or further service cuts. Voters resoundingly registered their support for managed competition at the ballot box a little over six years ago. It would seem both politically and financially risky for the newly elected mayor to override that decision now.

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1 Craig Gustafson, “Filner’s flawed take on bidding process,” U-T San Diego, February 7, 2013, (retrieved February 11, 2013).

2 City of San Diego, “Managed Competition Guide,” July 26, 2010, (retrieved February 11, 2013). See, for example, page 4 for the managed competition process flow chart and pages 27-31 for a list and description of the numerous governmental bodies and stakeholders included in the process.

3 Craig Gustafson, “City workers selected over private firms in bid for contract,” U-T San Diego, May 11, 2011, (retrieved February 11, 2013).

4 Gustafson, “Filner’s flawed take on bidding process.”

5 Ibid.
See also Lisa Halverstadt, “Mayor Won’t Block Managed Competition,” Voice of San Diego, February 8, 2013, (retrieved February 11, 2013).

6 Gustafson, “Filner’s flawed take on bidding process.”

7 Halverstadt, “Mayor Won’t Block Managed Competition.”

8 Lisa Halverstadt, “The Latest Budget Blow: Managed Competition Delays,” Voice of San Diego, January 30, 2013, (retrieved February 11, 2013).

9 Craig Gustafson, “Filner faces dispute on fiscal reform,” U-T San Diego, December 8, 2012, (retrieved February 11, 2013).

10 Ibid.