Open the Competition: Insourcing Is the New Outsourcing

By | Published in U-T San Diego | July 25, 2012 |

Four times, the city of San Diego has pitted city workers against private companies in a competition for the continued responsibility to provide an essential city service. All four times, the city workers have proved that they – as U-T San Diego put it last week – “provide taxpayers with the best bang for their buck.”

The evidence is in. Given the chance, city staff can figure out how to do their work at a lower cost than private, for-profit companies can.

It’s time for the city administration to set aside assumptions that privatization saves money and find out whether more savings are possible by allowing city staff to compete for work that is now contracted out.

A significant share of the city’s general fund budget – $176 million in the past year – goes to pay private contractors and consultants.

In fact, the next service on Mayor Jerry Sanders’ “managed competition” auction block – street and sidewalk maintenance – is already substantially outsourced. The city’s fiscal year 2012 budget shows $43.6 million spent on contracts in the transportation and stormwater department, compared to $38.4 million for employee wages and benefits. Much of that contract expense is for major street resurfacing projects.

San Diego taxpayers deserve to have all options evaluated for saving money on at least some of those projects.

And insourcing may also improve the quality of services, which can be substandard under private contractors seeking to maximize profits. Even residents of the mayor’s own neighborhood of Kensington have suffered, when a contractor two years ago left streets torn up for months and left equipment in the gutters that caused a rash of tire punctures.

While privatization consultants continue their drumbeat of promises, a repeated pattern of service failures and cost escalation has prompted many cities and states to insource services previously privatized. Mildred Warner, a Cornell University expert on privatization, says the reversal began in 1997, when contracting out public services peaked in the United States.

“The privatization experience of the late 20th century has taught us that … managing markets for public services is both challenging and costly,” Warner wrote in 2008. “That experiment has failed to deliver adequately on efficiency, equity or voice criteria.”

The top two reasons city managers bring privatized work back in-house, according to a survey by the International City/County Management Association, are unsatisfactory service quality (61 percent) and insufficient cost savings (52 percent). For example:

  • Evansville, Ind., took back control of its water and sewer system from a private operator in 2010, for an estimated savings of $14 million over five years.
  • Atlanta dissolved its water system contract 16 years early because of mismanagement and poor service under a private company.
  • A Pennsylvania study this March found the state could save $78 million by insourcing school bus services.
  • Locally, the San Diego Unified School District has saved $1 million a year since bringing bus services in-house in 2010.
  • The San Diego Community College District has saved at least $900,000 a year by insourcing its IT management.

San Diego uses a managed competition process similar to that used by the federal government, requiring contractors to save at least 10 percent over the employees’ proposal to account for the city’s costs in transitioning to private service delivery. City workers won the landfill competition without applying that differential.

But outsourcing also frequently carries many more hidden costs for taxpayers – such as environmental violations, the loss of local jobs and a lack of transparent and accessible public records.

Besides saving $2.7 million a year, keeping city workers on the job at Miramar Landfill means we all can breathe easier about the continued safe and efficient handling of more than a million tons of waste each year, hazardous materials and closed landfill sites.

As Councilman Todd Gloria tweeted following the landfill announcement Friday: “No one delivers services better than city staff.”

Since managed competition is intended to save money, it only makes sense to include city staff in a full competition for important services that are now outsourced.

Crawford is executive director of the Center on Policy Initiatives (CPI), a local nonprofit that advocates for workers.