Managed Competition Moving ForwardóSlowlyóin San Diego

A recent San Diego Union-Tribune article illustrates the troubles San Diego is having getting its managed competition program off the ground. It seems that the mayor’s proposal to contract out a single city position for dead animal controlââ?¬â??at an annual cost of about $165,000ââ?¬â??is drawing the ire of a city employees union and anti-privatization activists. As the U-T article notes, these interests have quickly figured out that if they can complicate the Statement of Workââ?¬â??a description of the services to be competedââ?¬â??and pummel the city council with nitpicky, often unnecessary or irrelevant questions about how a potential private contractor might provide services, they can increase the bureaucratic hurdles and the base cost of providing the service, thus reducing the likely cost savings from contracting with private-sector vendors or scaring away potential bidders altogether. Either way, city employees are more likely to continue performing services and taxpayers are left footing the bill for inflated service costs. To be sure, the city should ask some questions of potential contractors and include performance clauses and service level standards in all of its contracts, but contractors should largely be free to innovate and best determine for themselves how best to meet those goals. Too much micromanagement by the city will defeat the whole purpose of trying to bring private-sector innovation and cost-minimization incentives to the public sector. Here’s a little more background on the city’s managed competition program. In November 2006, San Diegans overwhelmingly approved Proposition C, a ballot measure to allow the city to put city services up for bid. Current city employees may bid for services as well as private-sector providers. As noted in an article (see pp. 25-26) from Reason’s Annual Privatization Report 2008,

Prior to Proposition C’s passage, the city charter strictly limited the city’s ability to contract with private-sector providers for city services. According to the Fiscal Impact analysis of Proposition C included in the voter guide, “This restriction in most cases prevent[ed] the City from entering into contracts with private companies even if doing so is shown through the bidding process to save the City money or create improved services or greater efficiencies.” In addition to allowing for more competition between public and private-sector providers, Proposition C directed the mayor to establish a seven-member Managed Competition Independent Review Board to advise the mayor whether city employees or private-sector contractors will provide certain services more efficiently and effectively. The board’s recommendations are subject to approval by the mayor and the City Council.

The managed competition program has been slow to develop, however. The administration has been criticized for bureaucratic foot dragging, and challenges from city employees labor unions have slowed its progress. According to the mayor’s anticipated time line, it will be another year stillââ?¬â??two and a half years since the passage of Prop. Cââ?¬â??before the first contract winners start providing services. To date, the mayor has proposed moving 12 city functions forward in the managed competition process. The functions considered include services such as street sweeping, street maintenance, custodial services, storm drains maintenance, and a portion of the city’s trash collection routes. The 12 functions cover 306 city positions and account for nearly $69 million of the city’s budget. (See a press release from the mayor’s office here.) While this is a start, the city should be much more aggressive in implementing its managed competition program. Reason Foundation, in conjunction with the San Diego Institute for Policy Research, conducted it own evaluation of city services ripe for competition, drawing upon numerous state and local government contracting case studies for a variety of services. This analysis conservatively estimated that the city could save between $80 million and $200 million a year by competing services in 11 areas:

  • Water/Wastewater Treatment
  • Environmental Services (including Trash Collection, Landfills, and Recycling)
  • Fleet Maintenance
  • Street Maintenance
  • Parks and Recreation
  • Golf Courses
  • Libraries
  • Permits
  • Facilities Management
  • Information Technology
  • Printing/Copying

The study, “Streamlining San Diego: Achieving Taxpayer Savings and Government Reforms Through Managed Competition,” is available online here.