Let the Private Sector Compete to Provide Public Services and Watch the Savings Roll In

Outsourcing and managed competition are proven common-sense, nonpartisan strategies for reducing costs and improving services

San Diego should consider a budget reform that has proved to be a successful strategy at all levels of government — namely, introducing competition to provide government services. Federal, state and local governments across the nation, led by administrations of all political persuasions, have recognized that outsourcing and managed competition can be effective ways of driving down costs and improving public service delivery.

In November 2006, San Diegans overwhelmingly voted to implement managed competition. This was supposed to allow city agencies and private sector providers alike to compete for contracts to provide various services. But more than three years later, city labor unions and the administration have yet to agree upon the process and reform efforts remain stalled. The city has suffered the last three years because of the delay.

Examples of successful outsourcing and managed competition are abundant:

  • Former Florida Gov. Jeb Bush applied competition to 130-plus services in state government, saving taxpayers more than $500 million and avoiding billions in future costs.
  • Phoenix and Charlotte contracted with private-sector firms for trash collection in some areas while maintaining collection by city workers in other areas where it was more cost-effective to do so.
  • Charlotte’s program has been in place for more than 15 years, and the city has saved tens of millions on building maintenance, road and drainage maintenance, groundskeeping and wastewater treatment operations, among others. Public employees have won more than 70 percent of the bids, primarily by driving down costs and streamlining operations in the face of competition.
  • Indianapolis reduced its vehicle maintenance costs by 21 percent, saving approximately $4.2 million over a three-year period, and significantly reduced labor grievances and workers’ compensation claims after city employees won a managed competition contract for the services.
  • Federal government workers won 83 percent of public/private competitions from 20 03 to 2007, finding new ways to lower their costs and generating $7.2 billion in savings because of competition.
  • Recent Reason Foundation research estimates that San Diego could expect to save $1.5 million to $3.7 million per year from outsourcing its fleet maintenance services and $5.1 million to $12.8 million annually on facilities maintenance.

In deciding how best to provide services, San Diego should apply a “Yellow Pages” test. Put simply, if the government is providing a service that private businesses provide (i.e., those found in the Yellow Pages), the city either should put those up for bid or should not be duplicating them in the first place.

Contracting can increase accountability by allowing the government to write minimum quality standards into contracts, including provisions to reward extraordinary performance and penalize subpar performance. If taxpayers aren’t getting the services they need and deserve, the city can always fire the contractor and get a better one.

Outsourcing and managed competition are proven common-sense, nonpartisan strategies for reducing costs and improving services. Given the depth of its fiscal crisis, if the city could save money and/or improve services by requiring government employees to compete with the private sector, why wouldn’t it?

Gilroy is director of government reform and Summers is a policy analyst at the Reason Foundation. This column was originally published in the San Diego Union-Tribune.