Competitive Contracting Helps California Taxpayers


Competitive Contracting Helps California Taxpayers

Privatization is a proven tool that should be available for Orange County and its cities

It’s been over 20 years since Orange County plunged into bankruptcy, prompting a wide range of financial and budget reforms that ultimately helped put the county on a more sustainable fiscal path.

There are different budget pressures and debt worries today and new reforms that are needed. One of them – amending the county charter to authorize greater use of competitive contracting – should be considered as an important tool that could help policymakers navigate the economic uncertainties ahead.

The state and local fiscal outlook published by the Government Accountability Office last month predicts a growing discrepancy between revenues and expenditures for governments through the year 2063.

Public health care costs and retiree benefits and pensions are expected to be the main drivers of future deficits. GAO suggests that to avoid this growing fiscal gap, state and local governments would need to immediately cut spending by 18 percent and then maintain that level of spending in the coming decades, which is very unlikely.

That forecast may surprise those who read Orange County’s latest Popular Annual Financial Report showing some very positive recent trends, like a continuing decline in county debt – long-term debt decreased by $102 million, or 16 percent, in 2013-14 – and revenues that grew faster than spending.

But Orange County still has over half a billion dollars in long-term debt. All it may take is one major unexpected cost escalation or another economic downturn – we’ve already seen two since 2000 – to throw Orange County off its current fiscal path.

Understanding the need to have every tool at its disposal to address current and future challenges, former County Supervisor John Moorlach proposed putting a measure on the ballot that would have expanded the county’s authority to contract out government work to save taxpayer money. Unfortunately, the Board of Supervisors rejected the idea last year, but it’s definitely worth resuscitating.

First, in both good times and bad, if county officials can find alternative ways of delivering county services that save taxpayers money, they should have every ability to pursue them. A 2010 report from San Diego County found that its implementation of competitive contracting saved the county over $78 million. Notably, that involved a process called “managed competition,” which allows in-house government workers to bid against private companies to provide services. The in-house employees won the bulk of those contracts while saving taxpayers money, an outcome that would have been unlikely if county workers were not facing competition from the private sector.

Second, while discussions of contracting out public services are often politicized and overheated – just look at Costa Mesa’s political battles over privatization in recent years – the reality is fairly mundane. Recent evidence of this comes from a November 2014 University of Michigan survey of local officials in the state that found 65 percent of local governments outsource one or more services, and 73 percent of officials from those jurisdictions are satisfied with the results, especially when it comes to contractor responsiveness, service quality and cost savings.

Expanding the use of competitive contracting isn’t just a good idea for Orange County, but also its cities. Despite major recent budget cuts, officials in Placentia are currently considering further cuts and outsourcing services to forestall massive projected deficits in the coming years as a result of spiraling pension and retiree health care costs. And the council majority in Costa Mesa has twice sought expanded outsourcing ability at the ballot box in recent years to give themselves more autonomy and flexibility to navigate future budget crises.

Unfortunately, defenders of the status quo, including government unions, have mounted successful opposition campaigns.

If the Great Recession taught us anything, it’s that economic conditions can change quickly. Policymakers need every tool available to navigate the complex challenge of cutting costs while preserving vital services. While privatization isn’t a cure-all, it’s certainly a proven tool that should be available for Orange County and its cities.

Leonard Gilroy is director of government reform at Reason Foundation. This article originally appeared in the Orange County Register.