Dunwoody, Three Months Old, Already at a Crossroads

Those of you who have been following the “Sandy Springs Effect”—the new wave of largely privatized city startup governments created in metro Atlanta since Sandy Springs’ 2005 incorporation—surely took note of this past summer of the incorporation of Dunwoody, Sandy Spring’s new neighbor to the east. [For those that haven’t, see the overview in the article, “Georgia Contract Cities Movement Continues to Advance,” from Reason’s Annual Privatization Report 2008.] One should not underestimate the challenging task the newly minted Dunwoody leaders face in forging a contract covering the establishment and operation of almost every single aspect of city government services, so hiccups are to be expected along the way. But the developing events over the last few weeks seem like far more than just a hiccup. The Atlanta Journal-Constitution gave an early hint in mid-September:

To CH2M Hill, or not to CH2M Hill? That is the question. The Colorado-based company submitted the only bid to handle a wide array of city services ââ?¬â?? from planning & zoning to code enforcement ââ?¬â?? should the City Council decide it wants to contract them out. The exact amount of the bid is under negotiation, but skeptics have said the city can’t possibly be getting the best price if there’s no competition. They want the City Council to consider breaking up services into smaller pieces and putting them out for bid separately. Others, including Porter, say the amount has been going down during negotiations with a citizens’ group and should be more than reasonable.

Now, Citizens for Dunwoody (the citizen group behind the incorporation) have been negotiating for months with CH2M Hill—who runs the other new Georgia cities—on the structure of a contract. The citizens group kept the ball moving to meet a December 1st startup date even though a mayor and city council weren’t in place until September (and thus, could not formally approve a management contract until then). Another part of the backstory here is a report earlier in September showing that some anticipated tax revenues were not going to materialize soon enough (see discussion here), so they’d have to go back to the drawing board on what services they roll out when, what projects they defer to meet the new tax receipt timeline, etc. And from the media accounts I’ve seen, CH2M Hill was willing to renegotiate and tweak the contract to fit the evolving budget. Let’s remember that the city founders are putting together a city and budget from scratch, so it’s understandable that there could be some major moving targets in their spreadsheets. But they seemed confident that they could restructure the budget and the contract package to address the projected shortfall relative to their earlier plans. But the skeptics alluded to in the AJC piece intervened, and things have gone south since. As the new city council was nearing a decision on the CH2M Hill contract, a state senator from the area brought forth a last-minute proposal from a local firm with no experience whatsoever in running a city government claiming to have a better, cheaper “hybrid” approach. CH2M Hill then withdrew their bid:

The management firm that has been negotiating for months to privatize city services in Dunwoody abruptly withdrew its proposal Monday, just hours before the city council was slated to discuss it and another bid. CH2M Hill told leaders in the new northern DeKalb County city that they no longer wanted to be considered at about 4 p.m. Mayor Ken Wright said the city is still trying to negotiate with the private management firm based in Colorado. “They have withdrawn, but we are requesting that they rescind that decision,” Wright said. [. . .] Oliver Porter had helped the nonprofit group Citizens For Dunwoody with its efforts to push for cityhood, including months of talks with CH2M Hill. He said the firm’s move was not a negotiating tactic, just a desire to stop talks. “They withdrew because they don’t feel they can get the kind of support they need to partner with the city,” Porter said. Just last week, a second management firm, Boyken International, based in Atlanta, submitted a hybrid proposal to counter the privatization plan offered by CH2M Hill. CEO Donald Boyken gave a 40-minute presentation Monday night, arguing his plan would provide city leaders more control over their services and cash, as well as save the city money. In a previous session, officials said the CH2M Hill deal would put the city $2 million in the red over a three-year period. CH2M Hill has never made public its price to manage Dunwoody, claiming it was proprietary information. The Boyken proposal, which calls for the city to hire department heads who then contract with private firms for services, would reportedly save the city nearly $7 million in that same time period. Boyken also has not made public a price tag to run the new city. “I think ours is a better approach for a young city, because you are in control and there are no deferred payments,” Boyken said.”

Here’s more on the Boyken proposal:

[…S]tate Sen. Dan Weber (R-Dunwoody) gave the councilors a more detailed version of what he calls a hybrid-model city government. Weber said he believed his plan could save taxpayers $2.9 million from what the CH2M HILL model costs. Weber’s plan, under which a city manager would hire several department heads who would then seek bids for outsourcing their services, shows a city with 40 employees and 37 police officers and support personnel. [. . .] Weber introduced to the council Don Boyken, chairmen of Boyken International, a project management firm in Sandy Springs. Boyken is a former president of the Dunwoody Homeowners’ Association and is a member of the Sandy Springs Planning Commission. Weber and Boyken propose that the city hire his firm on an interim basis to get the city up and running. The company proposes to offer information technology and human resources services to the city while overseeing the outsourcing of other services. Boyken proposed to the council a fee of $260,000 plus expenses for the period from today until December 31.

With no intended disrespect for Boyken, it was a major rookie mistake for a new batch of elected officials to even entertain his proposal. Since there was no bid from his firm originally, then it’s obvious that this was engineered late in the game through political machinations. That’s usually not a path to a good outcome. Note to Dunwoody officials (read twice, this one’s important): if you want to be perceived as a good business partner and a good place to do business, DO NOT run a competitive procurement process and move nearly to contract signing, only to bend to pressure late in the game to entertain a politicially brokered counteroffer! This is banana republic stuff not fitting of modern America. See “NTTA/SH-121” for a textbook case on why this sort of thing is to be avoided. And to be clear, I haven’t seen either CH2M Hill’s or Boyken’s proposals, but until I do, I’m very dubious about the prospect that a plan to hire a bunch of city division directors to contract out for services could somehow cost less than a plan to have one company that already runs six similar startup cities do that very same thing enterprise-wide, just as they do next door in Sandy Springs and the other communities. Unless the two models have dramatically different specified levels of service, that is. Had the Boyken proposal come during the actual bidding process, officials would have had the ability and time to do the due-diligence, apples-to-apples type of comparative analysis. Instead, they let a player come late to the game, and the other player left the arena. Some councilmembers are starting to question the current proposal:

With one firm withdrawing its bid to help Dunwoody begin operations, the Dunwoody City Council has only one offer on the table to help start Georgia’s newest city. But enough questions remain in the Boyken International proposal that the council may call again for bids, in the hopes of getting more options. “Right now, everything is open for discussion,” Councilman Denis Shortal said. “We have to consider time constraints, but we must also do it right.” [. . .] Some council members, though, have raised concerns with parts of the Boyken plan. The biggest: It calls for hiring an interim chief financial officer who was recently fired from her longtime Statesboro city clerk job and an interim police chief who resigned amid controversy this summer in Sandy Springs. Boyken CEO Don Boyken said both Judy McCorkle ââ?¬â?? who according to the Statesboro Herald was fired in August after tension with the city manager ââ?¬â?? and Gene Wilson ââ?¬â?? who resigned before an internal investigation criticized his judgment in accepting guns as a gift ââ?¬â?? bring necessary experience to a start-up city. He did say, however, those positions could be filled by other candidates if the council couldn’t support McCorkle and Wilson. [. . .] Among other concerns in the Boyken plan: ï It calls for hiring about 50 full-time city employees to manage departments ranging from payroll to human resources. Mayor Ken Wright and Councilmen Tom Taylor and Robert Wittenstein have raised concerns about hiring so many city workers and how it will affect costs. ï Boyken has never overseen a city start-up, and no employees have government experience. The management company, based in Dunwoody, handles construction and renovation projects such as hotels and hospitals. Council members say those issues have to be addressed before any vote can be taken on the Boyken plan.

I’m not exactly sure how you address the one on a company with no experience in government startups and no government expertise—that speaks for itself and there’s no changing it. The player with experience is no longer interested in playing. And when you consider that Sandy Springs—at 90,000, over double Dunwoody’s 37,000 population—got started with 4 employees and a contract to outsource almost everything, then how can it make sense for Dunwoody to hire 50 who are then going to…yes, you got it…outsource almost everything? I’m always suspect of these “hybrid” proposals (see Corzine’s toll road monetization plan from earlier this year) that are supposedly designed to get the benefits of privatization without the privatization. They’re usually too clever by half and are unlikely to deliver. And at a more fundamental level, isn’t the whole point to start lean and mean? Sandy Springs and the other new cities have demonstrated that less is more. Government’s natural tendency to expand like Violet Beauregarde after eating Willy Wonka’s beta chewing gum, so prudent policymakers should consider that the efficiency they crave will necessarily be dependent upon the government structure they choose. Reason’s Annual Privatization Report 2008 Reason’s Privatization Research and Commentary