Public Unions

California Union Bill Looks to Ban Outsourcing Public Services

The bill would drive up struggling counties' costs of providing such services.

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Municipal governments exist to provide essential services, such as law enforcement, firefighting, parks and recreation, street repairs and programs for the poor and homeless. But as pension, health-care and other compensation costs soar for workers and retirees alike, local governments are struggling to fulfill these basic functions.

There's even a term to describe that situation. "Service insolvency" is when localities have enough money to pay their bills, but not enough left over to provide adequate public service. These governments are not insolvent per se, but there's little they can afford beyond paying the salaries and benefits of their workers.

As a city manager quoted in a newspaper article once quipped, California cities have become pension providers that offer a few public services on the side. It's a sad state of affairs when local governments exist to do little more than pay the people who work for them.

Not surprisingly, the union-dominated California state legislature has been of little help to local officials dealing with such fiscal troubles. The state pension systems have run up unfunded liabilities, or debts, ranging from $374 billion to $1 trillion (depending on the financial assumptions one makes). But legislators have ignored meaningful pension reform. This has forced local governments to cut back services or raise taxes to meet their ever-increasing payments to California's pension funds.

It's one thing to ignore the plight of hard-pressed cities and counties, but now legislators are trying to make the problem a lot worse. Assembly Bill 1250 would essentially stop county governments from outsourcing personal services (financial, economic, accounting, engineering, legal, etc.), which is a prime way counties make ends meet these days.

The legislation originally also applied to cities, but recently was scaled back. It now applies to all 58 counties except for San Francisco (which is exempt because it also is a city) and the authors plan to exempt Santa Clara County also because of its hospital contract.

The bill is sponsored by the Service Employees International Union and authored by Assemblyman Reginald Byron Jones-Sawyer, a Los Angeles Democrat who previously was an SEIU vice president. It's a shameless effort to force county governments to beef up the size of their full-time, unionized workforce. Ultimately, the bill views county governments as employment agencies rather than service providers.

It's what one would expect from a public-sector union that exists to protect jobs (even duplicative ones) and the public employees who fill them. But this bill passed the full Assembly in June and cleared a Senate committee this month. Legislators are supposed to balance the demands of special interests with the broader needs of all Californians.

The legislation "would make it costlier and in many cases nearly impossible for counties to contract out for vital services," opined a July 24 editorial in the East Bay Times. As a result, counties would "have to stop providing the services or, as union leaders hope, hire permanent county workers, replete with their costly retirement benefits."

The bill's supporters gussy up this atrocity by claiming it would save money and improve services in the long term. "While cheaper services and employee layoffs may appear to save dollars in the short term, the savings are often illusory with hidden costs that are not accounted for and diminished services or contractor failures that require cities and counties to ultimately re-hire and/or re-train staff to provide the outsourced service," Jones-Sawyer explained in the bill analysis.

Of course, not every instance of outsourcing is successful, but the idea that this is about helping taxpayers is laughable. Elected county boards of supervisors are best able to decide how to handle their own resources. They often find that contracting-out improves the provision of services because contractors—unlike permanent employees—can be held to higher standards and even fired. Private contracts can be terminated.

These contracts save money because they are put out to bid for the lowest price. Moreover, contract employees aren't paid lifetime pensions that drive up long-term municipal debt. If the legislation really were about savings, then why does the bill rig the way savings are analyzed?

The bill "would bar counties from contracting for services when they could be more cheaply provided in-house," the East Bay Times explains, but "the cost-savings comparisons are designed to skew the results against using private and non-profit firms." For instance, "the comparison would exclude a county's overhead costs, but include the overhead of the outside firm."

An analysis for the counties by the Oakland law firm Jarvis Fay Doporto & Gibson concluded, the latest version of the bill "will substantially increase the cost for delivery of county services and substantially decrease delivery of county services—including critical public health and safety services." Counties will be forced to pare back services "to offset increased pension and benefit costs." Small and rural communities in particular will face service reductions.

The California State Association of Counties, which opposes the bill, points out that it includes all sorts of cumbersome disclosure and auditing rules. Even though later versions of the bill "places that burden on contractors instead," it "doesn't really change the impact. Many service providers will simply choose not to do business with public agencies if they know they are going to be required to comply with a new, complex and costly process."

Counties can still technically outsource certain services, but the bill makes it so difficult and costly that it won't be worth the trouble of trying. The legislation also mandates "public disclosure of otherwise private information—an intrusive requirement that may violate constitutional privacy rights, without providing any public benefit," according to the law firm's analysis.

This surely is just the latest effort to shut down outsourcing, which is used less frequently in California than in most other states. One should expect unions later will revive the effort to expand it to cities and other governments. They'll likely also try to limit outsourcing of other types of public services beyond these listed personal services.

As usual, the costs of union feather-bedding strategies fall disproportionately on the poor. Teachers' unions are constantly trying to limit charters and other school-choice options that help people from poor neighborhoods get their kids enrolled in better schools. Unfunded pension liabilities cause service cutbacks, especially in the state's poorest cities.

And now the Legislature may force counties to cut back on funding for homeless shelters, domestic-violence centers, health-care programs and other programs that benefit low-income people, all in order to help unions protect jobs for their highly paid members. But local government doesn't exist to provide cushy jobs, but to provide cost-effective services for the public. It's about time the Legislature was reminded of that fact.

This column was first published by the California Policy Center.

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32 responses to “California Union Bill Looks to Ban Outsourcing Public Services

  1. If Californians can’t stop their state government from pursuing disastrous policies until it reaches whatever bitter endgame it is hurtling toward then let them serve as an example to other states not to do that.

    I feel bad for the people who are getting screwed but I don’t see how it can be stopped unless they stop it.

    My big concern is that they will end up getting some kind of federal bailout, perhaps a stealth one, paid for by the states that practiced restraint (generally the Republican ones), something I can easily imagine being engineered by a future Democratic majority at the national level.

    1. I would hope that it would be 49 states vs 1 for a bailout.

      State do not get to mismanage their budgets for years and then expect the other states that have not mismanaged their budgets to bail them out. I would be against any bankruptcy but federal intervention in a bankruptcy restructuring of debts. This way, there would be no bailout but feds forcing Taxifornia to spend money on getting out of debt.

      1. I don’t get how they get away with their constant “We’re one of the world’s largest economies” when, in reality, they are so flat on their ass it isn’t funny.

        1. I don’t get how they get away with their constant “We’re one of the world’s largest economies” when, in reality, they are so flat on their ass it isn’t funny.

          Then I’m gonna go out on a limb and suggest that you’re fuzzy on what the term “one of the world’s largest economies” actually means.

        2. The state government is not the state.

        3. Being big and being efficient are two entirely different things.

      2. Why not? States get to mismanage their disaster prep budgets for years and then fully get a bailout by everyone else – and people get nasty if you suggest that maybe that’s not fair.

        States get to mismanage their water resources for years and then expect people to fall in line by obeying ever more strict diktats over water use without questioning the root causes of why these diktats are necessary.

        Hell, the whole freaking nation gets to mismanage its budget for GENERATIONS and we’re just supposed to accept an increase in taxes with no corresponding cut in expenditures.

        Its amazing what you can get away with when you live by the gun.

  2. “Not surprisingly, the union-dominated California state legislature has been of little help to local officials dealing with such fiscal troubles.”
    In this case, its local governments that caused these problems by promising things they cannot follow through on. The municipalities just need to cut the benefits of these workers and cut the workers if need be.

    It would be ridiculous to have road workers on staff and pay their salaries and benefits if there was not enough money to repair or replace roads, for example.

    1. its local governments that caused these problems by promising things they cannot follow through on

      That’s part of it, but in particular the CA state government has been backfilling its budget shortfalls by confiscating funds from more local entities, who then have to try to further gouge their local citizens through parcel and sales taxes.

      I think people in CA are slowly awakening to the fact that the state government is the enemy, and this is partially driven by the fact that local entities are more and more viewing the state government as an enemy. School districts, for example, are being more open about the way the state gov has been dicking around with their budgets. It’s a slow but definite process, seriously hampered by the fact that most Californians are repulsed by the national Republican Party, and thus don’t see any options for change.

      1. I think people in CA are slowly awakening to the fact that the state government is the enemy

        That sure isn’t showing at the polls.

        seriously hampered by the fact that most Californians are repulsed by the national Republican Party

        Anybody who is more repulsed by the Republican party than by the Democratic party at this point needs to have their head examined.

  3. Yawn. California is run by crazies. Nothing new here.
    Secede already, and take Hawaii with you.

    1. And yet it keeps ticking along. Funny how all the doom and gloom never pans out. People are still paying exorbitant fees to live there, California isn’t the wasteland that a lot of people declare it to be, and it does have an economy bigger than most countries and produces a ridiculous amount of food for the rest of the country to chomp on cheaply while they bitch about how big of a shithole california is.

  4. I used to try to come up with clever yet simple ways that these kinds of cronyism could be prevented. Here the obvious solutions are to require equal treatment of everybody. Different cost analysis? Defective — throw it out. Exempt two counties? Defective — throw it out. Counties only, not cities or the state itself? Defective — throw it out.

    The problem is the same lack of integrity that creates these laws remains to interpret and judge these laws. As one of the founders said, if men were angels, the Constitution wouldn’t need all the checks and balances — but if men were angels, they wouldn’t need a government. These cronies will always find ways around integrity. The only real solution is no coercive government. The only practical solution doesn’t exist. You could amend the Constitution in any number of ways, but judges who can find ways around the Necessary and Proper clause, the Commerce clause, and even “shall not be infringed” and “Congress shall pass no law”, certainly wouldn’t be stymied for long by any new amendment.

  5. As predictable as this is, it is a dire development for the state. Many cities in California are exceptionally well managed, and this bill would essentially impose the union-preferred practice, so soon all cities will be equally screwed up. To compare the costs of an in-house and outsourced solution without taking into account the fully-burdened cost of overhead (including pensions) is irresponsible.
    I lived all throughout California for 25 years, and finally abandoned ship two years ago. Such a waste of a beautiful state. Years ago, while haranguing dinner guests about the fundamental wrongness and folly of the 2001 pension adjustment scheme, I earned the slack-jawed look of indifference and realized that the majority of hard working people have no grasp nor interest in the math of these things. The California unions know this and they will press the MORE button until the host dies.
    My wife wants desperately to move back someday. She is right that the state is lovely and uninterested in its economic peril.

    1. Just go there for vacations, but watch out for them to pass some law that if you spend more than 14 days in the state they’ll declare you a resident and help themselves to 10% of your income.

  6. “Municipal governments exist to provide essential services, such as law enforcement, firefighting, parks and recreation, street repairs and programs for the poor and homeless”

    Some of those things are not like others of those things.

    1. And now the Legislature may force counties to cut back on funding for homeless shelters, domestic-violence centers, health-care programs and other programs that benefit low-income people, all in order to help unions protect jobs for their highly paid members.

      If it wasn’t for the “all in order to help unions protect jobs” part, I’d be ok with this.

      1. If it led to a reduction in spending, yes. In this scenario, there is no reduction in spending, just a reduction in services.

    2. For Dickensian California, a state-supported supply of poor and homeless contributes to the overall ambiance of cities just as much as state-supported parks and recreation. San Francisco without its homeless would be unimaginable; they are an integral part of the city!

  7. Just seeing the sponsor of the bill should make anyone laugh it out of the statehouse. May its success finally open people’s eyes to the fact that the legislators don’t work for them, they work for the pubsec unions.

  8. there are some small counties that do not have many jobs in house because they only need them on an as needed basis. If they will be required to hire people for those small jobs it will cost counties far more by having employees who will sit around or do double duty which means they are only partially effective at either job and will be less likely to be up on the latest methods that a professional would encounter when working on various jobs in their chosen field.
    there will also be increased cost in HR and various other ways that employees require, insurance etc.

    1. isn’t that what they want?

      arguing about increased costs or increased burdens on small governments, small, business, etc, are lost on these statist worshiping nuts.

      1. Yes – there has been a noticeably growing trend for CA public agencies to contract out services to private consulting firms. The private firms tend to perform the services better and with less expense.

        Once a public agency creates a direct position, such as a construction manager for a bond program at a public school district, the job becomes essentially permanent even if the construction program is not. Thus you’ll eventually have a construction manager with nothing to construct, but dissolving the position is more difficult than just continuing to pay the person to do nothing.

        Even if the person quits, you still have an open position that you need to fill – and it’s easier just to fill the position with someone new (who still has nothing to do) rather than go through the gyrations necessary to dissolve the position (and have to create a new position if you want to build something again later).

        Added on top of that, the direct employee of the government was hired because of credentials and connections, not because of competence, so there is a very observable competence deficit when comparing direct public employees to private contractors.

        The public employee unions do not like this move toward public-private partnerships, and have been fighting them like mad.

  9. Municipal governments exist to provide essential services, such as law enforcement, firefighting, parks and recreation, street repairs and programs for the poor and homeless.

    Well hell man. If this is how the article *opens* then we’ve already lost.

    You have, here, bought into the pro-state faction’s core argument.

    Because the last time I checked there’s a difference between the things municipal governments have *taken on to do without asking and driving out private competitors to accomplish* and what they *exist* for.

    Because the last time I checked, the libertarian stance on that was that the only truly legitimate thing from that list is law-enforcement and you might, with a subset of libertarians, get them to agree that firefighting and street repairs should be included.

    1. Noting that they exist for that purpose (I suppose one could argue about that, but I think it is largely true) does not necessarily imply that those services cannot be provided in other ways.

    2. Not everyone here is a libertarian zealot, some of us see some compromise in life and “things”. Life isn’t black and white. It’s about what works and what doesn’t, and there is often more than one way to mow the lawn.

  10. I have said it before and I will say it again. The entire concept of a pension is ridiculous and needs to die. Almost all of the budget problems around the country are due to promising workers more and paying them later. Well now the later is coming up. Like Social Security, these systems can’t function anymore.

    The only sane way is a 401K or something like that, where the company or government pays their retirement benefit NOW and cannot defer costs until later.

    Pensions are ridiculous because it is deferred benefit (but immediate obligation) AND deferred cost, so hey let’s make all these promises now and pay for them later! It’s also ridiculous because is traps workers into the system. Right now if my company is shitty, I leave, but hey if you are 5/10 years away from retirement and they have a pension, well maybe you just stay instead. That whole concept is destructive

    1. Right now if my company is shitty, I leave, but hey if you are 5/10 years away from retirement and they have a pension, well maybe you just stay instead. That whole concept is destructive

      The whole concept is one by which governments create themselves an army of compliant, obedient bureaucrats, and it works spectacularly well for that.

      In Germany, the mother of all welfare states, and the mother of all modern authoritarian states, government bureaucrats get guaranteed, state-sponsored pensions, while everybody else is stuck with a mandatory, highly regulated private retirement system that is guaranteed to give them a poor ROI.

  11. I sometimes wonder how long it will be before California constructs its own Berlin Wall, to stop productive people from fleeing the state. “You kulaks, hoarders, and wreckers will stay and pay your fair share! Which is defined as everything you have!”

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