Union Initiative Sets Sights on Privatization

By William Eggers and Adrian Moore

Imagine that you have in your pocket a bag of magic dust. If you were to sprinkle this magic dust on the roads of California, they'd never need repair again. We'd never have to fill another pothole, paint another stripe, or fix another guardrail.

What would happen if you used this magic dust? Well, taxpayers would save money. Drivers would have great roads. And we'd need a lot fewer public employees working in road repair. We might be able to shift particular workers to other public jobs, but overall the number of public workers would decrease.

If you ran the California Department of Transportation, would you use the magic dust? We hope you would, because your first and highest duty would be to taxpayers and citizens, those who pay for and receive public services - not to those who provide the service.

It seems, however, that some state employees think their jobs should take precedence over the interests of taxpayers. The union representing engineers who work for state government has spent over $2 million backing an initiative that would make it nearly impossible for state agencies to contract for engineering, architectural, and similar services. And if you are thinking "Who cares?," keep in mind that this measure would impact almost every public works project in the state, including school, highway, transit, flood control, and bridge projects.

The "Government Cost Savings and Taxpayer Protection Amendment" is called the "Competition Killer" initiative by its opponents. Two key provisions in the initiative will make it all but impossible for the private sector to compete for state engineering and architecture contracts. First, the initiative creates a rigged bidding system, where the cost of rents on buildings, utility and insurance bills, and many other overhead and capital costs will not be counted in public employee "bids," though they are included in private sector bids for contracts. In some circumstances the public employee "bids" may not even include employee salaries and benefits. Never mind that the key to a fair competition between private and public sector bidders is a full accounting of all relevant costs.

Second, the initiative directs the state controller to analyze all engineering and architecture contract proposals, and to stop any where it is judged that public employees can perform the work for less cost than the contract. Public employees will not have to go to the trouble of actually bidding for the contracts, however. Instead, one person, the state controller, will in a sense be creating the public sector "bids" for contracts, and will have tremendous power over state public works projects.

This initiative is modeled on laws from other states designed to stop the use of privatization. After Massachusetts Governor William Weld had saved the state nearly $300 million through contracting-out services in his first 18 months in office, the Massachusetts legislature, under heavy pressure from the unions, stopped the privatization program dead in its tracks. They passed the so-called "Pacheco law" which set up a similar rigged bidding system, creating a boon for public employees and depriving taxpayers of millions in projected savings. In Hawaii, legislation protecting public employees against competition from the private sector is threatening to bring many public services, like transit, garbage collection, and even search-and-rescue, to a halt.

If this initiative passes, similar disastrous results will be visited upon California taxpayers. The state will have to hire thousands of new employees to do the engineering and design work that is currently contracted out. Many vital projects, schools, roads, etc., will be slowed by months or years, waiting for the state Controller to review contract bids. That is why dozens of school districts and local government agencies are opposing the initiative.

California law is already among the most restrictive in the nation concerning contracting out state services. A service can only be contracted out: 1) if it cannot be adequately performed by public employees, or 2) if there is outright divestiture of an existing state function, or 3) the contract saves money, or 4) the function contracted for is new to the state of California. The last thing California needs is another layer of restrictions.

Contracting out is not magic. But in many cases contracting out can accomplish a needed task better, faster, and cheaper than a public monopoly. Voluminous research conducted by the Reason Foundation and others has found strong evidence that contracting out can generate savings of 20 percent, often with improved quality. It is a mistake to tie the hands of public managers by telling them they cannot use a private firm to perform public service.

When the 1994 Northridge earthquake resulted in the collapse of two bridges on the Santa Monica Freeway, the world's busiest, it was estimated that it would take anywhere up to nine months to repair the overpasses. However, by streamlining the contracting process and offering substantial performance incentives to the contractor, the bridges were fixed in only two months.

The shortened time schedule saved the greater Los Angeles economy an estimated $74 million. If the public engineer union initiative had been the law of the land when the earthquake occurred, we might still be waiting for the overpasses to be fixed.

Contracting out may not always be the best option, but that should be the decision of public managers on a case-by-case basis. Robert Mallet, the city administrator of Washington, D.C., put it this way: "Privatization must be a vital component of any government re-invention and fiscal reform strategy, and it must be a readily accessible instrument to use when appropriate. To remove it, or render it ineffectual, would be both foolhardy and irresponsible."

In Hawaii, where recently the courts have ruled that state law greatly restricts contracting out, Maui Mayor Linda Lingle asked, "How can we provide our public with the best service at the lowest possible cost? Sometimes the answer is privatizing, sometimes not. But we should be allowed to use it as one of our tools."

Last year the California Legislature passed AB 2660, which empowered local governments to pursue contracting out for infrastructure projects. It is only logical that state agencies should have similar freedom. Gov. Pete Wilson has called for legislation amending the state Constitution to permit more contracting out at the state level. This would go a long way towards giving state agencies the ability to deliver the best and most cost effective service to the taxpayers. The "competition killer" initiative would take the state in exactly the opposite direction, creating more barriers to contracting out, and more burdens for the state's taxpayers.