The San Diego mayor has tried since 2005 to privatize many city departments through "managed competition," a process borrowed from the Bush administration. As of January 2010, advocacy efforts have headed off the outsourcing until protections are in place to safeguard public accountability, service quality and workers' health coverage.
In 2006, following a well-funded campaign led by Mayor Jerry Sanders and federal outsourcing consultant Carl DeMaio, San Diego voters approved Proposition C, allowing the privatization of city departments through a bidding process called "managed competition." The process would require selected departments to bid for their jobs against private contractors.
The Center on Policy Initiatives (CPI), a San Diego nonprofit think tank, joined allies ranging from the League of Women Voters to the firefighters' union in forming "Citizens Against Corruption: No on Prop C" to fight the ballot initiative. They argued that privatization would jeopardize public safety, eliminate workers' health coverage and lead to "pay-to-play" corruption, but failed to overcome Sanders' plea that he needed managed competition to balance a city budget threatened by pension under-funding.
After the ballot initiative passed, Mayor Sanders selected 16 city functions, with a total of 562 employees, to be the first subjected to managed competition. The main services targeted were trash collection and street maintenance. Sanders predicted contracts would be awarded by the end of 2008.
At that point, the "Do It Right" campaign was born to educate the City Council about the risks of privatization and to develop specific policies to protect workers and city residents from those risks if managed competition went forward. Delegations of community members, city workers, civic leaders and faith leaders met with City Council members and testified at Council meetings on the need to protect against hidden costs and preserve health benefits and quality services.
The pressure prompted the mayor in May 2008 to issue a statement agreeing to the same policies proposed by the campaign. In July 2008, the City Council approved the Do It Right package of reforms.
The next month, however, an administrative law judge threw out the entire managed competition ordinance on grounds that the City had not negotiated in good faith with employee unions, and sent the parties back to the bargaining table. With a new Council elected that year -- including privatization promoter DeMaio in his first elected office -- the battle for support of the reforms started over. When the court-ordered negotiations reached impasse a year later, in October 2009, the Council rejected the mayor's attempt to impose managed competition without the healthcare protections.
The mayor is expected to bring a revised proposal to the Council in January 2010. Apparently tired of waiting, DeMaio announced in November 2009 that he will back a ballot initiative to require outsourcing of certain departments and to invalidate the city's Living Wage Ordinance.
Federal reform halts managed competition
Meanwhile, the federal experiment with managed competition, also called "competitive sourcing," is over. Two months after taking office, President Obama signed a law ending public-private competitions and requiring federal agencies to review whether functions previously outsourced should be brought back in-house. The White House said the new policies would promote fiscal responsibility and "not lining the pockets of contractors."
Grant Thornton Consultants
In June 2008, it came to light that Mayor Sanders had authorized an illegal $658,000 contract with Grant Thornton LLP to plan the managed competition system. The city council shut down the open-ended contract, capping payments to Grant Thornton at $250,000 for the next year. The Virginia-based firm is a major federal privatization contractor, and was involved in the privatization of Walter Reed Army Medical Center.
In a memo and testimony to the council, CPI Research and Policy Director Murtaza Baxamusa denounced the consulting contract because it had begun without required council approval, and was an expense hidden from voters in descriptions of Proposition C's money-saving potential.
Sanders quietly began to pay the firm in March 2007, three months after hiring a former Grant Thornton employee, Anna Danegger, to direct the managed competition effort. Danegger left her $120,000 job with the city in August 2009 and went back to work for Grant Thornton. Within two months, she was representing Grant Thornton in another privatization bid before the Texas Department of Transportation Commission.
Without reform, the managed competition process could allow contractors to underbid city departments by cutting workers' health coverage and other benefits, which harms the entire community by creating poverty jobs and increasing the number of uninsured workers. The mayor's intentions were clear in this line in the local newspaper a few days after his ballot initiative passed:
"Sanders said he won't require private contractors to offer comparable wages and benefits as city workers because that defeats the purpose of saving money."
Service quality can suffer if contracted work is not sufficiently defined and monitored, and if there is high turnover of a low-paid and inadequately trained workforce. A local newspaper columnist described the complexity of adequately defining the work to be outsourced in even the one-person job of dead animal removal, and the futility of expecting contractors to provide a public servant's dedication to quality. In a short video produced by CPI, "I'm Your Trash Man," a city trash worker explained how his commitment and experience make a difference -- from knowing how to maneuver tricky streets to helping the elderly with their trash cans.
Along with poor quality, hidden costs of outsourced municipal services often include the expense of having city workers redo or repair sloppy work done by contractors either through cutting corners or hiring inexperienced staff. In a brief report in July 2008, CPI documented a number of failures by city contractors.
The administrative expense of hiring Grant Thornton consultants as well as additional city staff was another hidden cost, and also raised conflicts of interest and revolving door concerns as the top administrator for the program came from the consulting firm and returned to work there after less than two years with the city.
The proposals approved by the Council included removing healthcare costs from the bid comparisons, thereby eliminating contractors' ability to gain a bidding advantage by denying health benefits; establishing public review of work descriptions before the bidding; and, if jobs were outsourced, giving hiring preference to the city workers who already knew the jobs.
Primary participants in the Do It Right campaign were CPI, the San Diego-Imperial Counties Labor Council, AFSCME Local 127, the San Diego Municipal Employees Association and the Interfaith Committee for Worker Justice.
The campaign included development of detailed policy, as well as delegations of faith and community leaders to assure council members that constituents opposed gambling with their public services.
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